25 GEOPOLITICAL ISSUES RELATED TO TRADE

Peerzada Raouf Ahmad

CONTENT: –

– GEOPOLITICAL ROLE OF TRADE

– GEOPOLITICS IN TRADE ROUTES

– GEOPOLITICAL DISPUTES IN TRADE

LEARNING OUTCOME

. Discuss the geopolitics involved in trade across nations

. Discuss the geopolitics in disputes in trade

. Understand the connection between state power and trade routes

KEYWORDS

OBOR, Hegemonic state, absolute individuation, market access, Geopolitics

GEOPOLITICAL ROLE OF TRADE

The cross-border trades have been a hotspot for hegemonic state apparatus. The state always tries to have a control over the export & imports of the other states. These controls are a way forward to establish an imperial power. Trade activities since the very ancient time had been a source of measuring the economic well-being of the society. But in the modern world especially after the growth of capitalism trade has been used as a pretext to have a sovereign control over other state. This practice goes in-tandem with the Ratzelian concept of expanding living entity (Ratzel 1897). In the era of neo-liberalism where every form of trade has become a source of power assertion, the third world nations were compelled to make their borders porous to the financial capital. After the WTO agreements, the trade balance has shifted from the under-developed to the developed economies. The inflow of capital is from the least developed countries to the highly developed ones (Piketty 2013 august). The idea to have hegemony over the global trade led to a new phase in capitalism which Lenin terms Imperialism (Lenin 1917).

When states are situated in the context of a world of evolving social practices, they lose their exclusivity. But one historic role of states is thereby re-emphasized. This is that of the definition and regulation of property rights. The modern territorial state system has been associated from its origins in Europe in the seventeenth and eighteenth centuries. A world of territorial states with the framework for definitions of property rights (legal rights of ownership and use), without which global capitalism would not have been possible. States are never so sovereign, in the conventional sense of singular entities endowed with power monopolies within their territories, as when they are seen as definers and enforcers of property rights.

One of the features of state-centered accounts of the spatiality of power is that they are silent as to the role that states have played in the growth of certain basic social practices of capitalism – defining and protecting private property rights – that have inexorably led beyond state boundaries in pursuit of wealth from the deployment of ‘mobile property’ (capital). The term ‘property’ implies a fixity or permanence in place that modern territorial states have given a high priority to protecting. Consequently, much of the law in most Western states is devoted to establishing rights of ownership and access. But a home territory also provides a base from which to launch attempts at acquiring property elsewhere. This requires that assets be reasonably liquid and transferable over space and across state boundaries. At a certain point, however, states endure a tension, what Ruggie calls the problem of ‘absolute individuation’, which can give rise to an ‘unbundling’ of territoriality when states effectively exchange control over economic flows emanating from their territories for increased access to flows coming from elsewhere. As a result, when increasing proportions of property are mobile beyond any one state’s boundaries, individual states provide only a partial and tenuous protection for absolute property rights.

Other geographical levels of governance and regulation become attractive, as was the case with the Bretton Woods system that regulated international finance from 1944 to 1972 and is currently the case (if signally less effectively) with the annual G-8 summits between the leaders of the Big Seven industrial countries. But uncertainty as to future political actions and macroeconomic changes (tariffs, interest rates, etc.) also gives an incentive to property-holders to further spread assets around rather than leave them pooled up in one state. This process is not new. Its origins go back to the merchant capitalism of the sixteenth century. What is new is the increased quantitative scale and the enlarged geographical scope of the mobile property now moving to and fro across the boundaries of the world’s trading and investing states. In this context, states and firms have changed their orientation from free trade to what has been called ‘market access’. The underpinnings of the world trade regime that prevailed in the aftermath of the Second World War are being replaced by those of a regime in which a premium is placed on the openness of borders. ‘Leakiness’ in cross-border flows of goods and investment and in firm multinationalism has become a torrent of capital, trade and corporate alliances.

Cowhey contrast the nature of the old regime with that of the new one by identifying the six pillars that they claim have underpinned each and the policy instruments associated with the new regime(Cowhey 1993) (Table-1).

TABLE-1 Pillars of the emerging market access world economy(Cowhey 1993)

The policy instruments reflect an abandonment of classical state sovereignty in return for guaranteed rights of access to other states’ territories. The world has moved away from the strict association of property rights and capital accumulation with state territoriality. A range of non-territorial factors now determine the competitiveness of firms in many industries: access to technology, marketing strategies, responsiveness to consumers, flexible management techniques. All these are now the assets of firms, not territories. Firms grow through deploying their internal assets as successfully as possible. States now compete with one another to attract these mobile assets (property) to their territories. Three aspects of the market-access regime are particularly notable with respect to the changing spatiality of power. One is the internationalization of a range of domestic policies to conform to global norms of performance. Thus, not only trade policy but also industrial, product liability and social welfare policies are subject to definition and oversight in terms of their impacts on market access between countries. Another is the increased trade in services, once produced and consumed largely within state boundaries. Partly this reflects the fact that many manufactured goods now contain a large share of service inputs – from R&D to marketing and advertising. But it is also because the revolution in telecommunications means that many services, from banking to design to packaging, can now be provided to global markets. This represents a significant material challenge to the domestic versus international distinction upon which the ‘realism’ of strictly territorial accounts of the spatiality of power relies. Finally, the spreading reach of transnational firms and the emergence of international corporate alliances have had profound influences on the nature of trade and investment flows, undermining the identity between territory and economy. Symptomatic of the integration of trade and investment are such frequently heard concerns as rules on international investment and unitary taxation, rules governing local content and place of origin to assess where value was added in the commodity chains of globalized production, and rules involving unfair competition and anti-trust or monopoly trading practices.

GEOPOLITICS IN TRADE ROUTE

As the imperial countries direct their control over the third world nations, the trade routes linking the third world with their resource capital becomes a major spot for the naked play of the contradictions among the imperialistic power. In the world today the major imperialist state like USA, China, Russia, UK, Japan & France compete to establish their geopolitical power over the world’s trade routes.

In the fall of 2013, just months after assuming office, Chinese President Xi Jinping unveiled the One Belt, One Road initiative during visits to Kazakhstan and Indonesia. Before Xi, Chinese strategy had been inspired by Deng Xiaoping’s warning in the 1990s. Chinese leaders, he insisted, should “hide our capacities and bide our time; be good at maintaining a low profile, and never claim leadership.”It is tempting to think of OBOR (one belt one route) as a consequence of Chinese maturation, an ambitious program of economic development that will vault the country into the 21st century. To some, it’s a direct challenge to the United States, something that requires a new strategy from Washington if it is to remain on top of the global order. The problem with this line of thinking, and in analyzing the U.S. perspective on OBOR in general, is that there’s very little in this economic initiative to be for or against. It is little more than a pipe dream. And what has materialized from the dream, at least so far, doesn’t hurt the US position.

One Belt: Eurasia

OBOR is really two plans combined to form a larger framework of new trade routes. The first strategy is to build rail and road to connect the interior of china with the middle east and southern Asia. One of the most important provinces for One Belt is Xinjiang, the restive province in which China’s Uighur Muslims reside, and its experience is a useful example of the limitations inherent within One Belt. Xinjiang has seen impressive growth in recent years – its regional gross domestic product increased 62 percent between 2010 and 2014, according to the National Bureau of Statistics. The problem is that even for Xinjiang, the gravity of the global economy still pulls its economic activity east to the sea, not west to the center of Eurasia. There are no open-source numbers available that break down Chinese exports by mode of transport, but the vast majority of China’s export destinations in 2016 were all countries to which Chinese goods arrived by sea, not by land.

Figur 1 (https://geopoliticalfutures.com/one-belt-one-road-trade-route-isnt-trade-route/ n.d.)

Insufficient regional infrastructure has tempered expectations of increasing overland exports. But the bigger problem with One Belt is geopolitical: Eurasia is in a state of crisis, and several of the countries China borders will feel the crisis particularly acutely in the coming years. Central Asia, a patchwork of states whose borders were drawn to make the countries more easily controlled from Moscow during the Soviet era, is hardly a promising market for Chinese goods. Furthermore, it is one of the most politically unstable regions in the world. One Belt is not a long march into prosperity – it’s a long march into disaster.

For the United States, there is a single overarching strategic imperative in Eurasia: to prevent the rise of a power that could potentially challenge U.S. hegemony in the world. No such power is likely to appear anytime soon, and even if One Belt were able to achieve its extremely ambitious goals, such a power would still be constrained by geography and regional rivalry. If anything, the U.S. would welcome the possibility of improved infrastructure and increased trade, providing new economic opportunities to some of these impoverished and increasingly destabilized regions. The Middle East, for example, has descended into chaos largely because of the limited economic opportunities available to young people. If the construction of a vast network of trade infrastructure brings economic opportunity to Eurasia’s most unstable regions, even if it enhances China’s international prestige, the U.S. could easily live with it.

One Road: Maritime

More important to the United States is the One Road component of the initiative – China’s vision of a new Maritime Silk Road. According to the United Nations Conference on Trade and Development, roughly 80 percent of global trade by volume and over 70 percent of global trade

by value is conducted by sea. The One Road portion of OBOR is meant to increase Chinese construction of ports in countries along maritime routes that are already used in seaborne trade. China has already seen this strategy pay some dividends, having been awarded contracts to build ports in Myanmar and Sri Lanka. China also, however, has had some setbacks; a deal Beijing had with Bangladesh fell through in 2016 when Dhaka decided that an offer from Japan to build a port better suited its needs.

FIGURE- 2(http://www.philstockworld.com/2017/07/19/heres-why-chinas-one-belt-one-road-is-doomed-to-failure/ n.d.)

Washington’s strategic imperative in the seas is similar to its imperative in Eurasia: to prevent the rise of a potential challenger, an imperative that entails dominating the seas and ensuring the flow of international trade. This is why One Road is a little more concerning than One Belt; the U.S. can accept and even benefit from Chinese influence in Eurasia, but it cannot tolerate a Chinese navy commensurate with the ambition of One Road. It signals Beijing’s intent to expand the size and capability of its navy.

Still, from a U.S. perspective, the importance of China’s projects along the Maritime Silk Road is significantly overinflated. Constructing ports will not provide China with permanent bases for Chinese destroyers or armies – the countries in question have yet to agree to host them. More important, the Chinese navy, despite its impressive advances over the past 25 years, is not capable of extended, long-term deployments in countries far away from the mainland.

As Dr. Bernard Cole, a professor at the National War College, notes in his latest book on the Chinese navy, the navy “lacks seaborne air power, and it has no fixed-wing capable ships, only nascent in-flight refueling capacity, no airborne air control, and limited joint operational capability with the [air force].” Though equipped with an aircraft carrier to parade its advances, the Chinese navy does not currently have a single carrier battle group trained and ready for action.

The priority of China’s navy is to protect Chinese territorial claims in its littoral waters. The drama that surrounded U.S. President-elect Donald Trump’s phone conversation with the president of Taiwan in 2016 emphasized just how weak China is relative to the United States: China can’t really stop the United States from “meddling” in Taiwan, let alone match its navy pound for pound. So long as this is the case, China’s interests are actually in sync with those of the U.S., at least when it comes to global maritime trade. This is because the Chinese economy depends on exports and the vast majority of those exports are shipped via sea.

There are other reasons One Road will be ineffectual. The U.S. favors the status quo in Asia and so has no desire to change the balance of power. Smaller countries are suspicious of Chinese intentions; though they would happily accept Chinese money, there’s no guarantee they will always do Beijing’s bidding. U.S. allies, such as Japan, India, Australia, South Korea and Taiwan, moreover, have formidable navies that can curb Chinese assertion.

FIGURE- 3(https://geopoliticalfutures.com/one-belt-one-road-trade-route-isnt-trade-route/ n.d.)

All this elides a bigger flaw in China’s strategy. Even if Beijing were able to scrounge up the trillions of dollars needed to build infrastructure in the world’s most inhospitable places, the fact remains that it is appreciably cheaper to transport by sea than to transport by land. It’s partly the reason why so much trade is conducted by sea, and there’s no reason to think this will change any time soon. One Road may be the more geopolitically significant aspect of OBOR, but maritime trade already forms the basis of the global economy without any help from China.

GEOPOLITICAL DISPUTES IN TRADE

The contradictions among the imperial nations are expressed in their tussles to establish the hegemony over the third world nations. This contradiction is sometime resolved by the bourgeois’ organization like UN andG20, but sometime it becomes too sharp that it calls for war, hot or cold.

Recently at the insistence of the United States, G-20 members agreed to drop the forum’s commitment to free trade. That agreement was reached at one meeting and was contained in a single document. Such agreements and documents are far from written in stone. Nevertheless, it must be regarded as a historical moment. While many G-20 nations have practiced protectionism by formal or informal means when it suited them, allowing the commitment to free trade to be excluded from the agreement represents a fundamental shift in a concept that has been central to global economics for more than a generation, and sacred since Ricardo made the case for it.

The politics of this decision was simple: The United States insisted that the commitment be left out of the document. President Donald Trump campaigned on a platform arguing that free trade is not a principle, but rather a tool for improving the economic conditions of nations. If free trade failed to do so, it should be discarded. Trump argued that many nations, such as China, had not practiced free trade, although they had benefited from it.

The U.S. indicated that it would not sign the G-20 agreement if it contained wording on free trade. While there is much discussion on U.S. decline, the country still produces about 25 percent of the world’s GDP, which is a huge amount. Therefore, any document on global economics that does not contain an American signature is irrelevant. Not that the G-20 is averse to irrelevant pronouncements, but in this case, the U.S. wanted a showdown on free trade, and the other members backed away. The G-20 recognized that the handwriting for free trade is on the wall, once the United States put it there.

In the end, each nation pursues its own interests. For the most part, free trade has appeared advantageous to all of them. But the problem is that we are in an export crisis, as we have previously discussed at Geopolitical Futures. The year 2008 threw Europe and the United States into a recession. This cut China’s exports at a time when other countries were becoming increasingly competitive. While industrial commodity markets expected China to resume its exports and purchasing of raw materials, prices remained high. When China comes to export at the priority level it can lead to collapsing of industrial economy.

Free trade theory is, in the abstract, powerful. It dictates that if all nations concentrate on selling what they are most efficient at producing, leaving the rest to others, everyone will benefit. Accordingly, if the United States is not as efficient at producing steel as it is at producing computer code, it should stop producing steel and produce more computer code.

The theory of comparative advantage that Ricardo laid out makes a great deal of sense abstractly, and the international system has since been in awe of the principle.

Depending on the circumstances, the rest of the country (a vast overgeneralization) saw free trade as a threat to their current incomes and future hopes. They voted for Trump. The U.S. then told the G-20 that free trade is off the table, and the G-20 agreed. Because regardless of who is president, the U.S. is the 800-pound gorilla. Xi could not give up the idea of free trade as it could bring pain to the economy. Machiavelli is grinning ear to ear (FRIEDMAN 2017).

SUMMARY

– In the era of neo-liberalism where every form of trade has become a source of power assertion, the third world nations were compelled to make their borders porous to the financial capital.

– In the world today the major imperialist state like USA, China, Russia, UK, Japan & France compete to establish their geopolitical power over the world’s trade routes.

– The contradictions among the imperial nations are expressed in their tussles to establish the hegemony over the third world nations. This contradiction is sometime resolved by the bourgeois’ organization like UN and G20, but sometime it becomes too sharp that it calls for war, hot or cold.

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References

Cowhey, P. F. and Aronson, J. D. 1993. Managing the World Economy.
FRIEDMAN. 2017. “https://geopoliticalfutures.com/free-trade-g-20/.”
http://www.philstockworld.com/2017/07/19/heres-why-chinas-one-belt-one-road-is-doomed-to-failure/.
https://geopoliticalfutures.com/one-belt-one-road-trade-route-isnt-trade-route/.
Lenin, Vladimir. 1917. Imperialism, the Highest Stage of Capitalism. Russian Republic: Zhizn’ i znanie.
Piketty, Thomas. 2013 august. Capital in the Twenty-First Century.
Ratzel, Friedrich. 1897. Politische Geographie.