Trade Wars: America’s new narrative on trade, security and connectivity resonates China’s ‘geopolitical’ BRI

By: | Published: November 1, 2018 2:03 AM

The US security perspective on trade is not limited to blocking imports for reducing dependence on foreign products. It extends to securing greater global access for key US industries in major markets. This objective of the FOIP resonates closely with the geopolitical goals of the BRI.

The latest trade war kicked off by the US earlier this year is turning out to be somewhat different from its predecessors. This is due to its invoking a straightforward connection between trade and national security.

Trade wars are not new. Beginning with the Smoot-Hawley Tariff legislation in 1930 that resulted in the US and several other countries engaging in tariffs and counter-tariffs, there have been several episodes of back and forth protective actions during the last century. Formalisation of multilateral trade rules, particularly the dispute resolution process at the World Trade Organisation (WTO), reduced the incidence of unilateral trade actions, limiting them to the well-defined channels of safeguards and anti-dumping actions.

The latest trade war kicked off by the US earlier this year is turning out to be somewhat different from its predecessors. This is due to its invoking a straightforward connection between trade and national security. Coming at a time when global businesses were busy figuring out the impact of geopolitically-driven economic connectivity projects on trade, the trade war has ensured that security would remain central to the evolving narrative of world trade.
The trade war began with the US raising tariffs on steel and aluminium imports on the ground of such imports affecting American ‘national security’. National security can be variously interpreted. On this occasion, these imports, following investigations under Section 232 of the US Trade Expansion Act of 1962, were found inimical to national security, given the economic damage they were inflicting on the domestic metals industry, and the concomitant dependence of metal-using industries on imports. The tariffs were meant to address concerns raised by US President Donald Trump during his election campaign by being a part of his larger plan of reducing imports for creating more jobs at home. Their implications, however, become deeper and complex upon being rationalised as instruments for preserving national security.

The American action and the subsequent retaliations by several WTO members pointed towards the inability of multilateral trade rules in reining-in trade wars set off by members on the pretext of national security. Indeed, Article XXI of the General Agreement on Tariffs and Trade (GATT) allows members to resort to appropriate trade actions in security interests. The US example can encourage other WTO members to act identically for raising protective measures within specific spheres of their trade and business engagement. This would continue till the WTO is able to specifically pronounce circumstances and conditions under which trade adversely affects national security.
Countries would, nevertheless, hunt ways of being ‘creatively’ protective, particularly in domains beyond the WTO. Several new-generation trade issues might witness such protection, notably data localisation regulations being adopted by various countries. The insistence on storage of resident data in local servers in security interests is an issue that the WTO would find difficult to rule on. Similarly, food security, public health and environmental fragility might witness stringent trade restrictions on non-traditional security interests.
The connection with security would create greater complications for trade, given the emergence of large pan-continental connectivity projects. Mega-connectivity initiatives like the Belt and Road Initiative (BRI) and Free and Open Indo-Pacific (FOIP) would reorganise production networks by the new infrastructure they create. More reorganisation would follow from the ongoing trade war. These shifts in production—sources of considerable anxiety for global businesses—would become messier from competition between connectivity projects.

The BRI’s efforts to establish a China-centric economic order has been responded to by the US through the FOIP as well as by India and Japan through the Asia-Africa Growth Corridor (AAGC). All these initiatives are likely to graduate to economic frameworks, which, while being looser than the templates of modern free-trade agreements (FTAs), would nonetheless have regulations specific to themselves, reflecting trade priorities and approaches of ‘leader’ nations.
The BRI, for example, is unlikely to push for deep regulations in labour and environment, state-owned enterprises (SOEs), data standards and investment disputes. Most Chinese FTAs refrain from detailed elaboration of these issues. On the other hand, the FOIP might encourage across its geography deeper regulatory coverage of new-generation trade subjects in alignment with the emphasis in US FTAs. Given the territorial overlap between the BRI and FOIP, the divergence in regulatory emphasis would be frustrating for businesses, as they would have to comply with different norms across same regions and geographies.

The trade-security-connectivity connection will heavily impact global trade in the foreseeable future. Trump’s trade actions on security grounds are likely to extend to tariffs on automobiles and auto-parts. Security interests have also motivated the US to specifically act on Chinese imports, with the eventual aim of forcing China to change domestic regulations for enabling greater market access on favourable terms for US businesses. The US security perspective on trade is not limited to blocking imports for reducing dependence on foreign products. It extends to securing greater global access for key US industries in major markets. This objective of the FOIP resonates closely with the geopolitical goals of the BRI. The security focus of the US in trade relations has become further evident from the incorporation of Article 32 in the United States-Mexico-Canada Agreement for blocking possible FTAs with ‘non-market economies’, most ostensibly China. Such creative protection might become popular over time as countries try blocking prospective FTA partners from entering into deals with ‘unfriendly’ countries. The world trade landscape might then begin to resemble a heavily fractured pattern, with trade split into distinct boxes fashioned by geopolitical alliances and security interests. That would be a rather different world of trade than what is visible now.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition