Premium

Trade wars are the new frontline in the battle between nations

Graphic of Donald Trump and China's Xi Jinping
Trump’s Twitter feed is emblematic of a new brinkmanship to realign international relations

China’s Vice President Liu He and the US Trade Representative Robert Lighthizer will meet this coming week will to avoid any further escalation of tensions.

If they fail, then the US will increase the tariffs imposed on $250bn of Chinese goods from 25pc to 30pc.

There isn’t a week that goes by now when we don’t see a headline about embargos, tariffs and trade wars. President Donald Trump’s Twitter feed is symbiotic of a new brinkmanship that aims to realign international relations.

The Trump administration is overt in its renegotiations with other countries as it seeks to redefine economic relationships that it feels are unfair or indeed, ‘un-American’.

The US in not alone. Trade is now part of the national security strategies of the major powers. This is dangerous for the multilateralism that the world has relied on since the end of the Cold War.

The geopolitical tension is most visible and divisive between the US and China. The rise of China’s dominance in global economic and financial affairs means the US is now explicit about the existential threat to the western consensus that this poses.

Yet, it is not isolated to Washington and Beijing.

When Angela Merkel talks about “Strategic Competition”, as she did at this year’s Munich Security Conference, we can rest assured that the world of co-operative, global capitalism is feeling threatened.

Trade is being used as a proxy for the global struggle for power and hegemony, not just economically and militarily, but also technologically, as the major powers, including Russia, increasingly take an “all means” approach to foreign policy.

Whether it’s American drone technology, the Chinese 5G network or Russian gas, trade is being “gamed” and it increasingly is integrated into national security strategies of those nations.

What is different now is that the foreign policy landscape has changed. Powerful states are increasingly reluctant to challenge one another through conventional military means.

The potential for Mutually Assured Destruction (MAD) limits the prospects for direct military conformation between the great powers. In an era of somewhat tenuous nuclear peace, trade has become the effective tool to protect their interests and build power.

American drone technology is part of a global game for economic ascendancy  Credit: Reuters

The focus is, as ever, on power. No longer through the lens of hard, soft or indeed sharp power. This is about controlling not only the military, cultural or ideational spheres but also data and the digital world – controlling the new techno-economic paradigm itself.

This distinction is important, because it extends the combat zone from a physical space to a digital data space.

This is happening because trade is no longer just the ships, planes and lorries that move the goods we buy around the world or the services we consume either physically or digitally.

As digital and services trade grow in importance, but also become harder to identify and measure, trade becomes the delivery mechanism through which ideas, knowledge and intellectual property transfer as well as the means by which the weapons of war cross over borders.

Trade has an integral role to play in the digital world Credit: Yui Mok/PA

The ongoing argument between China and US is therefore not simply a ‘trade dispute’. It is a dichotomy between the new and old-world order.

We are setting ourselves up for a battle where countries and blocs will be forced to choose whom their allies are: East versus West, WhatsApp or WeChat, GooglePay or Alipay. This may lead to a separation of the global data world.

The question for Europe is how to challenge this economic nationalism and brinkmanship. There are no winners in a trade war.

Bilateralism weakens global institutions like the UN and WTO that hold countries to account.

There is a real need to focus on how to make trade better – by defining the rules, promoting environmental sustainability in supply chains, developing standards and protocols around data sharing and digital trade, and recognising the difficulties that populism presents and addressing its root causes.

For Britain, the nature of trade policy has changed since the referendum. There continues to be an ignorance from both sides on how trade negotiations work and more dangerously, the world in which we are entering. 

A willingness to engage means it is possible to escape the downward spiral we are currently in. Weakness will simply lead to more division and more trade games.

Rebecca Harding is the CEO of Coriolis Technologies and author of Gaming Trade