Trade can be weaponised as a coercive tool of policy, either to force another government to change course or to change its internal calculus when making choices.
That last part is useful to bear in mind: government decisions are the result of an equation with many variables. When we dismiss the leaders of unfriendly regimes as erratic or insane, we’re often simply misunderstanding the variables their decision-making equation contains, or the weights they are attaching to them. A paranoid leader may consider even the rumour of an emerging threat to be a prime concern, a foolish leader may discount credible warnings or chase fantasies, and a greedy or corrupt leader may prioritise personal enrichment above all other questions of governance – yet the equation is still there, and can thus be externally nudged.
How effective trade is at doing this nudging depends on the tools available to the nudger, the equation used by the nudged, and just how big a nudge is being sought. Despite deploying some formidable trade weaponry, the US embargo of Cuba failed to achieve its stated objective of regime change. That’s not entirely surprising. It’s really hard to sanction a country into changing leaders. It’s even harder to sanction leaders into stepping down. Ultimately, there’s just very little you can do to the ‘international commerce’ variable to make it outweigh the natural desire of a government to stay in power, and the natural aversion of a populace to take on the immense risks, hardships, and uncertainties involved in its removal.
Yet even with more modest policy influence objectives, the potential of trade instruments is still variable. First and foremost, in order for one’s sanctions to be scary they have to be meaningful. You need to be a significant export destination for the other country’s goods, or a source of imports they can’t readily substitute from elsewhere, or perhaps a big investor in their various industries. The United States, with its massive consumer base, strength in key sectors, large well of investment capital and the investigative power to pursue sanctions violators, can issue threats that must be taken seriously by almost any country in the world. Even more so when, unlike in the case of Cuba, it is operating as part of a coalition including the EU, another giant that ticks many of those boxes. Conversely, a smaller power like Australia or Canada, acting unilaterally, would only be able to threaten a significantly smaller number of countries.
This actually brings us to another prerequisite for sanctions – willingness to accept the consequences for the sanctioner, not just the sanctioned. Almost by definition, effective sanctions come between a buyer in one country who wants something, and a seller in another who wants to sell. Getting in the middle of that hurts both parties. For much of the 2010s and early 2020s, Australia and China have been very good examples of how this can be limiting.
The Australian economy is significantly reliant on selling a small group of products, primarily ores and coal, to China. At the same time, the Chinese construction sector, a key driver of its economic growth, is reliant on these imports from Australia. In the late 2010s and early 2020s, the two found themselves increasingly at odds on the international stage. Relations went from cool to arctic. Despite the signing of the China-Australia Free Trade Agreement in 2015, China began rummaging in the trade policy toolbox to find ways to cause Australia pain. Yet it didn’t reach for the obvious sledgehammer of restricting Australian iron ore, and instead settled for the still painful but far less devastating bamboo switch of messing with Aussie wine and barley. There’s no great mystery as to why. China needed to buy Australian iron ore as much as Australia needed to sell it. The equation on the Chinese side just didn’t add up, and so the scariest sanctions stayed in the box.
Another obvious example of this phenomenon could be seen in European energy politics in the early 21st Century. The EU, including its economic powerhouse Germany, bet significantly on a reliable supply of Russian oil and gas – believing that the prosperity the billions of euros would bring into Russia would improve its relations in the West and prevent it from doing anything that might upset the status quo. A classic trade-for-peace gambit. Ironically, everything we now know suggests Russian President Vladimir Putin was looking at the same set of circumstances and making a similar calculation – that a Europe dependent on Russia for its energy security would not intervene to prevent his military adventurism in non-EU countries like Georgia, Moldova and Ukraine.
It turned out both had significantly overestimated the strength of their hand. Putin, believing European energy dependence gave him impunity, grew more and more hostile abroad on the back of an economy underpinned by European purchases of its hydrocarbons. Eventually, his aggression culminated in a full-scale invasion of Ukraine and the attempted seizure by force of its capital, Kyiv. Initially, it seemed like Putin’s gambit had paid off as the EU found itself in the humiliating position of slapping sanctions on everything Russian except oil and gas, which is a bit like boycotting all sports from Brazil except football. Far from convincing Putin that trade with the West was preferable to regional thuggery, Europe’s apparently unquenchable and addictive thirst for Russian hydrocarbons made him believe he could act with impunity.
This too proved to be a miscalculation. Despite the centrality of Russian oil and gas to many of its members, the EU provided considerable support to Ukraine in money, weaponry and supplies. It also levelled increasingly damaging sanctions on Moscow and sought to lessen its dependence on Russian oil and gas in preparation for the day when the pipelines stop flowing. The full story is more complicated than I’m making it sound and well beyond my field of expertise, but I think most would agree with me that neither Europe’s bet on oil and gas imports pacifying Russia, nor Putin’s bet on his exports buying him Europe’s neutrality, quite panned out. In fact, the early stages of Russia’s “Special Military Operation” in Ukraine saw the somewhat absurd spectacle of Russia and Europe at each other’s throats while transacting billions in trade daily because neither could yet afford to turn off the flow of hydrocarbons.
It may feel from the above paragraphs that I am dismissive of the “trade for peace” concept – but the truth is I’m not. I’m just wary of the branding and the propensity of many, including political leaders, to wrap themselves in dove feathers while cooing about trade rhetoric. As a species, we do not have a good record on global peace, and we should be able to recognise where trade can help to mitigate these tendencies without exaggerating them or believing our own hype.
That trade provides policy options short of armed force or clandestine operations for governments that find themselves in a confrontation is welcome. The sanctions levied against Iran to try to stymie its nuclear program are bad for the Iranian economy and a source of genuine hardship for its people, but any attempt to enact the same outcome through armed force would be much worse. It is simply too much to hope for that in the absence of trade as a weapon, governments would simply do nothing.
Trade creates patterns and processes for resolving disputes amicably, or at least procedurally and legally. Human beings are prone to muscle-memory behaviours, and trade often breeds good habits like reaching for negotiation, mediation and arbitration when faced with a perceived injustice. Though structures like this carry their own challenges around access, fairness and universality, they are generally preferable to a bludgeoning by brute force.
It’s also good that trade provides opportunities for mutually beneficial exchanges across borders, for improved understanding between cultures and for friendships to be made in the margins of commerce. One of the first ports of call for any government looking to motivate its people into supporting the sacrifices a war abroad entails is the othering and dehumanisation of the intended targets. Trade makes this harder (though as we’ve learned, nowhere near impossible) and that’s important.
Finally, it’s unquestionably good that the complexity and interdependence of modern supply chains add a significant negative to the scales of any policymaker weighing up whether to start a war. The trade implications may not prevent them from pulling the trigger, but they do raise the stakes and that’s not nothing. “It could leave our factories without the imported widgets they need” may not be the most comforting rationale for avoiding war, but given our record as a species, it’s worth having
Excerpted with permission from Why Politicians Lie About Trade, Dmitry Grozoubinski, The Bombay Circle Press.
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