Rebecca Harding

CEO Coriolis Technologies

Over the past two years, the notion that trade has been weaponised has become mainstream thinking. Its weaponisation is rhetorical – we have seen a marked increase in the belligerent language associated with trade. Between the middle of 2017 and the end of 2018, Donald Trump used the word “win” in tweet about trade disputes one in every four days, for example. This is dangerous for the multilateralism that the world has relied on since the end of the Cold War.

Inevitably the geopolitical tension that has emanated from the rhetorical, and increasingly literal, weaponisation of trade has spilled over into foreign relations, particularly between the US and China. It is now widely acknowledged that the trade “dispute” between the two countries is not just about trade. With the rise of China’s dominance in global economic and financial affairs, the US is now explicit about the existential threat to the western consensus that this poses. And when even Angela Merkel talks about “strategic competition”, as she did at the Munich Security Conference in 2019, we can rest assured that the world of cooperative, global capitalism is feeling threatened.

Trade has been weaponised literally as well. It 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. To be precise, trade is being ‘gamed’ as it increasingly is integrated into national security strategies –explicitly in the case of the US and covertly in the case of China and Russia.

Trade is being gamed – that is, it is being used to achieve national strategic advantage. This may be an obvious conclusion to draw, since trade has through history been a tool used to gain coercion and influence. 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.

In June 2019, the Arms Control Association estimated that, between them, the US, Russia and China possessed around 13,000 nuclear warheads. Broader arms trade has not diminished – between June 2016 and June 2018, trade in arms grew at a rate two standard deviations above its historical mean – which serves to illustrate the point that hard power relations between the superpowers are fraught. Indeed, this affects neighbouring states such as Norway, Finland, Ukraine and even Australia. However, the potential for mutually assured destruction limits the prospects for direct military confrontation between the great powers. So, in an era of somewhat tenuous nuclear peace, how do states protect their interests and build power?

At present it seems that trade, and the technology networks that enable trade finance, have become a critical component of state strategy. Trade was once traditionally a tool of soft, economic, power. But through economic coercion, such as the imposition of tariffs, sanctions and embargoes, trade can be and is now being wielded as a tool of hard power to achieve strategic goals. As we see the current trade conflict morph into a technological one, it also becomes a tool in a quest for ‘sharp’ power: influence over social or political norms and values, as well as intellectual property, through information flows and communications technologies, effectively influence digital trade and trade finance.

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 grows in importance, but also becomes harder to identify and measure, trade becomes the delivery mechanism through which ideas, knowledge and intellectual property are transferred as well as the means by which the weapons of war cross borders. In other words, it becomes a perfect proxy for a war which is about the control of this new digital paradigm – a means to achieving paradigmatic power.

Does this paradigmatic power struggle leave the EU adrift? The short answer is probably yes: although the region has significant soft, economic power, it has little strategic hard power and increasingly is being left behind in the technological contest for sharp power. Therefore, its influence over the new paradigm will be limited unless it focuses on the hard power role that it can play beyond greater contributions to the Nato budget. In a world where the US and Russia play chess, and China plays Go, the EU has been left trying to play Happy Families where it should have been playing bridge.

The game that is now being played cannot be expressed better than through the famous psychology experiment that illustrated inattentional blindness: two teams of three pass a basketball to each other and observers are asked to count the number of passes that three players wearing white shirts make. After about 30 seconds, a person in a gorilla suit walks across the back of the court, faces the camera and thumps their chest. Focused as they are on the task in hand, 46% of the observers miss the gorilla completely.

As the talks between China and the US resume this month, remember that they are making markets, analysts, banks and commentators alike focus on the visible: the threat of an all-out trade war. But remember too, that such a conflict is the economic equivalent for both countries, indeed for the whole world, of mutually assured destruction. In other words, the war of attrition will increasingly lead to stalemate but with the risk of miscalculation escalating as the underlying tensions build.