Weaponisation of trade

Feature | 21 September 2017
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Rebecca Harding and Jack Harding make the case that trade has become a weapon wielded by state strategists, when it should be a tool for global development

Since the financial crisis in 2008, the language around trade has shifted. Before, it was seen as a benign mechanism for promoting global economic growth. Now, statements about trade are steeped in the rhetoric of war.

Instead of global opportunities and wealth creation, politicians on both sides of the Atlantic talk about 'protection', 'security', 'national interest', and 'defence'. Former trade partners are now trade 'enemies' - with 'unfair' protectionist policies against which it is natural for any politician to rail.

Through this linguistic metamorphosis, it has become apparent that trade is being used as a tool of state strategy. The UK Prime Minister, Theresa May, and the US President, Donald Trump, have both conflated trade goals with foreign policy goals. Theresa May, in her Article 50 letter to the President of the European Council triggering the UK's exit from the EU, suggested that a trade deal could be linked to UK participation in European security arrangements.

Donald Trump has explicitly linked US discussions with China to the issue of North Korea's nuclear programme. Trade is being weaponised into a tool of strategic and political influence. Although 'weaponisation' is an inflammatory term, in the context of trade it can be used literally. Weaponisation is the transformation of a benign instrument into a means of aggression and, increasingly, we have observed states wielding trade coercively.

Introducing strategic trade

Strategic trade is trade deployed, not only to benefit economic and social goals domestically (its traditional role), but also to promote national interests abroad. This is achieved through integration, coercion or the targeted supply of the means for violence in regions of the world deemed to be of strategic importance without the need to engage militarily. This is crucial in an era when ineffective interventions in the 21st century, for example in Afghanistan and Iraq, have undermined the political and public will for direct military action.

A large part of strategic trade is in arms and dual-use goods, defined by the EU as goods with both civilian and military applications1. Interestingly, as world trade suffered during the financial crash of 2008/2009, arms trade remained unaffected. In fact, our analysis shows that it was one of the only sectors to increase during the crisis. The only other sectors that also grew during this period are classified as dual-use goods. This suggests that these sectors are not just economic in nature, but instead are used with political or strategic purpose.

We have observed a transition in how trade is being used by states. Its traditional economic role seems to have been replaced by a predominantly political one that revolves around coercion and strategic influence through arms and dual-use goods trade. We argue that the power of trade lies in the delicate balance it strikes between the political and economic levels. However, the current balance is beginning to shift so far away from economics, that states are risking a permanent transformation of trade into a weapon.

Figure 1: Value of North Korea's imports of nuclear-related, aerospace and propulsion dual-use goods - 1996-2016 (US$m)

Source: Equant Analytics, 2017

China and North Korea

It stands to reason to assume that no country explicitly trades with North Korea except China and, even then, Chinese trade has to comply with global sanctions. Indeed, since the North Korean nuclear tests, the US has been very tight on ensuring that China imposes those sanctions more rigorously, particularly when it comes to any products that might be used in its nuclear programme2. Yet North Korea's nuclear programme appears well supported by its imports in two dual-use goods sectors - nuclear, aerospace and propulsion (Figure 1).

The chart shows a marked increase in imports of nuclear-related dual-use goods in 2008 ahead of its second test in 2009, and a significant and sustained increase in aerospace and propulsion equipment between 2011 and 2013, marking Kim Jong-un's ascendancy and assumption of power in 2012. The fact that this trade happens represents a bargaining tool both for North Korea and, arguably, for China since they supply 95% of the trade in these sectors.

This trade is strategic in that China holds the key to stability in the region. The withdrawal of support (threatened or actual) would hinder North Korea's ability to progress with its nuclear programme. However, Chinese grand strategy hinges on promoting multipolarity and undermining the hegemony and influence of the US. As a result, the instability and uncertainty created by North Korea will suit China and Trump's 'disappointment' will not phase them.

Figure 2: Value of Russia's trade with Syria - 1997-2016 (US$m)

Source: Equant Analytics, 2017

Russia and UK trade with Syria

In 2011, widespread pro-democracy protests took place across the Middle East in what became known as the Arab Spring. In Syria, these protests escalated after Bashar al-Assad's forces opened fire on protestors. The protestors began arming themselves in response and soon split into several rebel groups in violent opposition to Assad's regime. As the war progressed, the conflict developed a sectarian element as Sunnis clashed with Alawites and Islamic State grew in influence.

Since 2011, roughly 250,000 Syrians have lost their lives, millions have been displaced and their economy has all but collapsed as fighting intensified. Sanctions against Assad also took their toll as members of the international community ceased trading with a regime they could not support. For example, the UK's total trade with Syria severely declined between 2009 and 2016. In value terms, it dropped from nearly US$300bn in 2009, to just US$13m in 2016 - a 95.5% reduction in trade.

However, trade with Syria has not disappeared completely. In 2014, Jihad Yazigi, founder and editor of The Syria Report, said in a publication by the European Council on Foreign Relations, that the country had transitioned to a War Economy, and goods entering the country were prolonging the conflict with regime-controlled areas still enjoying "the provision of many basic state services3".

Russia openly backs Assad and his campaign to regain control and, since 2010, they have provided the majority of these goods. As Figure 2 shows, Russia's trade with Syria increased by 46% between 2014 and 2015. By comparison, the UK's exports to Syria fell by 40% over the same period. Furthermore, instead of a drop in trade as civil war broke out, we see a 72.1% increase in Russia's exports to Syria between 2010 and 2011.

Russia's strategy in the Middle East revolves around keeping Assad in power. It would be incorrect to assume that this is because they are politically aligned, however. Rather, Russia has interests in protecting its naval base in Tartus. In January 2017, Russia signed a 49-year deal granting them full control of the base which is capable of hosting up to 11 warships and is in a key strategic location in the Mediterranean.

Furthermore, by intervening in the region while the US and Nato would not, Russia sent a strong signal to Middle Eastern regimes that Russia, not Nato, is the most reliable security actor in the region. Russia's current strategy towards Syria is reflected in the goods it is exporting to Syria. Russia's changing strategy towards Syria is illustrated in Figure 3, which shows how Russia's top 10 exports to Syria differ in 2002 and 2016.

Figure 3: Value of Russia's top 10 exports to Syria - 2002 and 2016 (US$m)

Source: Equant Analytics, 2017

In 2016, US$128m of Russia's exports to Syria were in commodities Not Elsewhere Specified (NES), while a further US$111m were in arms and ammunition, and US$3.7m was in explosives. This is in contrast with a total value of just US$5m in these sectors in 2002. Furthermore, within the sectors of printed publications and electrical equipment are dual-use goods including instruction manuals, blueprints, and electronic triggers for weapons systems. Meanwhile, Russia's trade in more benign sectors such as cereals, wood and wood products, and automotives fell from a total value of US$83m in 2002 to US$45.2m in 2016 - this is further evidence of Syria's war economy.

If Russia is protecting its interests by trading directly with the Syrian government, the next question to ask is how can the UK influence proceedings within Syria, without direct military engagement or trading directly with the country?

The answer is to trade by proxy. In other words, to use neighbouring states as conduits to achieve their strategic objectives. The UK has had cordial relations with Saudi Arabia since 1915, when the Treaty of Darin was signed - the country is viewed by the UK as one of the more stable and trustworthy nations in the region. Given this relationship and the country's advantageous strategic location, the relationship with Saudi Arabia is seen as integral to British security interests in the Middle East (Figure 4).

Figure 4: Value of UK's top exports to Saudi Arabia - 2002 and 2016 (US$bn)

Source: Equant Analytics, 2017

There are three striking aspects of Figure 4:

  • Arms and ammunition trade was not in the top 10 traded sectors in 2002, but by 2016 was the fourth-largest sector. This sector includes small arms and ammunition rather than components for sophisticated weapons systems that are found in other sectors, including aircraft, satellites and electrical equipment (the second and fifth largest export sectors in 2016). The dramatic increase in Saudi Arabia's exports of weapons between 2015 and 2016 also coincides with the conflict in Yemen and Syria.

  • The sectors all have high dual-use content. Machinery and components, for example, includes computing, data storage and digital detection systems, while electrical equipment includes semi-conductors and electronic monitoring systems. In other words, many of the products included in these sectors are associated with defence and security systems.

  • The substantial increase in precious metal trade between 2002 and 2016 is largely the result of increased direct gold exports from the UK to Saudi Arabia. This sector includes precious metals used in high-end electronic equipment manufacture, but is predominantly bullion.

It appears that Russia and the UK's respective policy positions in relation to the conflict in Syria are reflected in the trade data. We can see evidence of a change in strategy from both states over our time period, highlighted not only by trends in total exports, but also by what is being traded, and with whom.

This all hints at the importance of the strategic influence that is developed through specific types of trade. The example of North Korea's trade illustrates how North Korea and China both benefit from their strategic trade relationship in dual-use goods. It gives North Korea the tools it needs to be taken seriously, and China a tool for achieving its regional goals in the South China Sea and Korean peninsula. This is a clear example of power generated through trade, particularly in China's case, as North Korea is dependent on it and, more importantly, China keeps its strategic influence over the region because of that dependency.

Equally importantly, however, trade is being used to support policy in some of the least stable regions of the world, with Syria being an excellent example of this. Russia's trade with Syria has clearly reflected its strategic interest while the UK's trade with Saudi Arabia also reflects its foreign policy objectives. In the case of Syria, the involvement of greater powers is not just because they are protecting oil resources - it is other, more strategic, interests.

It is in the interests of global business, global finance and the world's population, that longer term strategic thinking, domestically as well as internationally, is put at the forefront of politics as soon as possible by governments globally. This means that belligerent language should be avoided at all costs. We need to return to a point where trade strikes a balance between politics and economics once again.

This is an extract from "The Weaponisation of Trade: the great unbalancing of politics and economics" by Rebecca Harding and Jack Harding, to be published by London Publishing Partnership, in their Perspectives series, October 2017.

Rebecca Harding is CEO of Equant Analytics and Jack Harding is managing director of Palladium Risk

References: 
  1. The European Commission's definition of dual-use goods: http://bit.ly/2c6DRKw

  2. Financial Times, 2rd April 2017, 'China's trade with North Korea targeted by Trump':
    http://on.ft.com/2pRCrLS

  3. Yazigi, Jihad (2014) Syria's War Economy; European Council on Foreign Relations, Policy Brief: www.ecfr.eu/page/-/ECFR97_SYRIA_BRIEF_AW.pdf (accessed 01/10/2016) p.3

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