Trade & investment, explained.
Differing perceptions will always come in the way of treating all trading partners equally (Aron Yigin/Unsplash)
Competition is healthy, but not when it strengthens the hand of true strategic rivals like China.
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Worry less about tariffs, leave room for trade rivalry between alliesWorry less about tariffs, leave room for trade rivalry between allies
Donald Trump’s tariff policies have been said to be hurting alliances, even as large and diverse as NATO. Yet, there is no reason that trade and strategic issues should necessarily be conflated. Alliances are focused on perceived enemies; trade is based on competitive interests. Competitors are not enemies, though the converse may be true most of the time. Huge mistakes have been made due to perceiving a strategic enemy as a mere competitor and allies as rivals only because of competition.
China, clearly a strategic threat to democracies, had for too long been seen mainly through the lens of trade and democracies have suffered as a consequence. Democracies hurt themselves more by treating allies’ trade rivalry as an indication of a strategic threat.
We have heard the talk of the European Union turning towards China as a result of Trump tariffs. The Free Trade Agreement signed by India with the United Kingdom is being touted by some as a response to Trump’s tariffs forgetting the fact that negotiations between the two countries for this purpose had been going on for a long time. The difficult negotiations had comical interludes; when pressure built up, the negotiators had a joint yoga session in the corridor outside the room. This could happen only among democracies, while negotiations with China have always been curt and frosty.
Trade between two democracies may create economic disadvantages for some other democracies and may require policy adjustments on their part. But that competition does not transform them into strategic threats to each other. In fact, trade between allies, even if the advantage may be differential among them, ends up strengthening their strategic security against nations inimical to democracies.
Democracies can indulge in trade wars when their national economic interests clash with one another.
All international trade creates dependence relating to raw materials, technology, labour force, logistics and consumption. By focusing on advantages of trade with strategic rivals while ignoring national security issues, most of the democracies have become dependent on some totalitarian regimes. Given the choice, would democracies prefer to be dependent on these cruel dictatorships or would they rather be dependent on other democracies?
Many studies and even common observation shows that democracies are less likely to go to war against each other to settle mutual disputes as compared to the scenario where at least one of the parties to the dispute is undemocratic. This idea christened the “Democratic Peace Theory” has an interesting corollary. Even when democracies have violent conflict, “the degree to which a regime is democratic is inversely correlated with the severity of its wars”.
The conclusion is simple and straightforward; democracies can indulge in trade wars when their national economic interests clash with one another. They can impose trade restrictions or tariffs, agree on selective preferences, or use quality restrictions and prohibitions based on moral baggage; one nation may be comfortable with a particular drug use while another may classify it as a crime. They may have differences in labour welfare and environmental issues stemming from their widely different socio-economic environments and income levels. These differing perceptions will always come in the way of treating all trading partners equally. Between democracies, however, these differences are not likely to create national security threats.
The biggest advantage of trade between democracies as compared to trade with undemocratic countries comes from the fact that the distinction between civilian use and dual use is vanishing fast. Between democracies, if trade in dual use technologies and products strengthens the military of one, it directly or indirectly strengthens all democracies against rival totalitarian regimes. If trade between the United States and other NATO countries strengthens the military capability of either or both, it strengthens both. There should be no hesitation in trading dual use goods between the United States, Australia, New Zealand, United Kingdom, South Korea and Japan and even India; none of these countries are likely to have military conflict with fellow democracies nor are they likely to join hands with China to strengthen its attempts at hegemony. On the other hand, increased military strength of these democracies makes all the democracies safer against threats from the dragon.
It is time democracies, while engaging in trade with totalitarian regimes, factor in the cost of increasing threats from such regimes to the very idea of democracy. Simultaneously, it is also time that it is recognised that trade rivalries between democracies do not make them strategic rivals.
About the author
R. N. Prasher
Born in 1949 in India and living there ever since, R. N. Prasher has post-graduate degrees in physics and economics and a degree in Law. His work experience varied from teaching physics in a college to 34 years in the highest civil service of India, the Indian Administrative Service (IAS).
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