CEO Coriolis Technologies
It may seem obscure to draw parallels between this week’s belligerence in the UK’s parliament and the US-China trade war, but they are a product of the same thing. Two years ago, it was clear that trade was being rhetorically weaponised. Politicians were using ever-more incendiary language to talk about former allies as “enemies across the table” or to talk about trade wars as being “quick and easy to win.” It was obvious at the time that if this trend continued, it would not be long before political as well as economic tensions would escalate and the risks of miscalculation in foreign policy terms would increase.
Today, this sentiment has become mainstream. It is acknowledged that “weaponisation” is a feature of the trade, economic and financial environment within which businesses and banks now operate. Only last week, the US hinted that it might prevent Chinese businesses from listing or trading on US exchanges in response to “unfair” practices in trade, intellectual property theft and threats to national security. In June this year, China and Russia made explicit their intention to develop an alternative to the Swift financial messaging system to provide an alternative for non-dollar transactions with Iran.
Whether they like it or not, banks and their trade finance functions are part of all of this. The risk of secondary sanctions means that the European alternative mechanism for trading with Iran, Instex, has failed to gather any form of momentum. Every trade transaction has to comply with ever-changing sanctions, while new digital options for payments have the potential to fall foul of any future US legislation about the use of Chinese technologies in bank systems.
This is no longer weaponisation – this is game theory. The rhetoric is escalating tensions between China and the US. American national security strategy states clearly that China is engaged in “unfair” trade practices, that the US is a victim and these have to stop. This is not just in the interests of America’s and American citizens’ well-being; it is also because ‘making America great again’ does not mean the US is isolating itself. In fact, the US believes it will take its rightful place as the global superpower with the best interests of the world at heart. Its perspective is simple: play to win.
China’s game is different; not just because its competitive culture does not see that it has to “win” as such, but also because within its political culture “peace” and “war” can co-exist. In other words, it can build its belt and road initiative, creating peaceful power, while playing a wargame of attrition with the US. It can accuse the US of “economic terrorism”, as it did earlier this year, and offer concessions in forthcoming trade talks simultaneously as a result.
What is of real interest, however, is that while we are all watching trade wars for any evidence of market collapse or pending recession, we are missing the real game that is being played. The trade war is really a proxy for a far bigger quest for control: not of the ships and boats that are traditionally associated with physical trade, but of the services and digital trade that no-one can really measure and that no-one really controls.
Within this context, the threat to prevent Chinese companies from trading on the US exchanges is a psychological threat to push the economic equivalent of the nuclear button. China’s potential response could be to accelerate its sale of US treasuries. This would create an economic meltdown that would destroy itself as well as its adversary. The more likely outcome is the war of words that we are seeing across the world.
Back to the UK, which has through all of the escalating nationalism over the past two to three years been both a catalyst and a microcosm of what is happening on the global stage. There was little psychological subtlety in the prime minister calling the Benn bill the “surrender bill.” Like President Trump and his appeal to the US voters to “make America great again” by fighting a trade war with China, Mr. Johnson is exhorting his Brexit-voting heartlands to hatred of the EU by invoking the spirit of war. In doing so, he makes the EU the enemy, and parliament the appeasers.
Trade is an easy rhetoric for a nationalistic narrative. If I am winning trade deals, then you are not. If I am exporting more and you are exporting less, then I win and you lose. Trade is a simple language that easily creates an adversary, and a victim. In the game of chess played by the US and the UK, the appeal of ever-more belligerent language is obvious. Yet this is not the end-game. China is not playing chess; it is playing the far more strategic and philosophical game of Go, where influence is everything but winning is not. Knowing your adversary is key to the psychology of strategy.
Against the backdrop of a power struggle between China, the US and even Russia for control of the digital space, the EU’s game of Happy Families seems insufficient in the long term. However, in the short-term, while Brexit is still an issue, holding together is its only option – both for its own democratic legitimacy with voters and for its longer-term survival. Mr. Johnson’s team have not, perhaps, fully acknowledged that compromise from the EU is impossible if it breaks that cohesion. Jacob Rees-Mogg’s assertion to the Tory party conference that the EU’s cohesion would not hold is testimony to that. However, for as long as the language coming out of the government continues to be aggressively uncompromising, any scope for a win-win outcome is severely diminished.
Rebecca Harding is co-author with Jack Harding of the “Weaponisation of Trade: The Great Unbalancing of Politics and Economics” (2017) and “Gaming Trade: Win-Win Strategies for the Digital Era” (2019) both published in the London Publishing Partnership Perspectives series. http://londonpublishingpartnership.co.uk/gaming-trade/