Dr. Rebecca Harding

CEO, Coriolis Technologies

 18th November 2019

 

The G20 foreign ministers will do well to brush up on game theory ahead of their meeting in Japan on 22nd November. Trade is now viewed as an integral part of national security: China and the US, and Russia, are using it as means to coerce, influence and dominate as they always have, but increasingly with a strategic focus. It has become the weapon of choice in a power struggle that is as much about soft economic power and the ‘sharp’ power over public opinion as it is about the hard power of military prowess. As such, trade is now being gamed – a belligerent political rhetoric suggests a game of chicken between the biggest trading nations; but in reality, the trade war is a proxy for a much larger conflict over who holds the power in the emerging digital era.

 

This is an important shift in foreign policy terms. Power is everything but it is no longer defined through the orthodox weapons of war alone. The traditional game that the US has played in foreign policy terms relies on a chess-based playbook: winning is everything because everything sums to zero. China does not play that game. Instead, it plays Go, where strategy and influence are everything. Winning and losing, war and peace and force and diplomacy can all co-exist. This is the yin and the yang approach to foreign policy that means that economics, trade, technology and finance define the rules and the weapons of the foreign policy game.

 

This shift matters because the G20 since its inception has been the embodiment of the multilateral foreign policy doctrine associated with the era of globalisation, which came about following the end of the Cold War. In this doctrine, countries’ cross-border cooperation is all about economic growth and free flowing information. This ensures that all nations prosper and do not compete for power militarily. The “end of the nation state” arguments reduced both military spending and boots-on-the-ground engagement in the developed world, and G20 foreign ministers could all agree to the peaceful expansion through prosperity which typified the language used by China to describe the Belt and Road Initiative.

 

Now, however, these same foreign ministers find themselves at war, even if no shots have been fired. The US-China trade war has had global ramifications, and there is no sign that there will be anything like a truce in the near future. Earlier this month at the World Trade Symposium, Dr Peter Navarro, who currently serves as assistant to President Trump and director of trade and manufacturing policy, proclaimed: “Thank God for tariffs”, as he vaunted the strategic importance of trade in securing the defence of America. Businesses are now bracing themselves against uncertainty or escalation, as well as against the prospect that of a spillover into tariffs against EU carmakers.

 

Germany, meanwhile, has narrowly avoided recession and year-on-year at least, appears to have maintained its levels of exports, especially of cars, which grew from $18.6bn to $20.2bn by the end of August 2019. Tesla’s investment in Berlin speaks to the long-term strengths of the country’s innovation system and its capacity to adapt to new technology paradigms, even as the rest of the world writes it off as the sick man of Europe. Its Industrie 4.0 industrial strategy is designed to transition the nation into the digital era and, ironically perhaps, is the blueprint for the “Made in China 2025” strategy that has so provoked the US. Both China and Germany have a trade surplus, with the European nation’s exceeding China’s in 2018.

 

This inserts an additional layer of US-German conflict into the G20 meeting. While clearly Germany is a member of the EU and therefore applies a common external tariff on goods from outside of the EU, this does not diminish the anger that the likes of Dr Navarro feel: to paraphrase from the same speech at the World Trade Symposium, Germany has been able to grow economically because of the post-War Marshall Plan and US military protection and yet does not make contributions to NATO that are commensurate with the guidelines of 2% of GDP. Germans themselves are not blind to the fact that their role within Europe and the world will be determined by the stance they take towards collective defence and security but, in the words of a former German ambassador, “2% of German GDP would buy a lot of soldiers – I think other countries, including the US, might be uncomfortable with that.”

 

Conflict within the G20 members is manifest: Japan and South Korea have been engaged in a trade war as a result of a long-standing dispute over the treatment of forced labour victims. Both countries have brokered limited trade deals with the US because both have agreed to purchase more US agricultural produce. US-Turkey relations are fraught since Turkey’s attacks in northeast Syria, with President Trump threatening to “destroy Turkey economically” if it doesn’t fall in line. Meanwhile, tensions between Mexico and the US about migration were kicked into the long grass as the US threatened escalated tariffs on Mexico. The list goes on.

 

Trade as a proxy war means that the G20 foreign ministers’ meeting will not be the discussion of the benefits of multilateralism and globalism that the hosts, Japan, so much want. Instead, the foreign ministers will be pushed to a frontline with tariffs, sanctions and non-tariff barriers (such as trading with Chinese tech companies) their weapons. Yet their strategies will be the same as in a more conventional conflict – they will vie to predict the behaviours of their adversaries. This will likely only result in a stalemate, because the risks of escalating the bilateral conflicts are just too high against the cooperative backdrop that the G20 nominally still represents.

 

Dr. Rebecca Harding is the co-author of “Gaming Trade: Win-Win Strategies for the Global Era” and “The Weaponization of Trade: The Great Unbalancing of Politics and Economics.”

 

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