Trade among Geopolitical Rivals: Michele Ruta

3 Views

  • Thanks! Share it with your friends!

    You disliked this video. Thanks for the feedback!

mindgov
Published

Globalization delivered decades of integration between major powers, especially the US and China. Rising geopolitical tensions now drive countries to decouple or diversify supply chains in strategic sectors. The narrative often frames this as inevitable fragmentation that will hurt everyone. However, geopolitics and trade have always intertwined. Historical examples include ancient Rome's export controls, Napoleon's Continental System, and Cold War dynamics. What changed: today's rivals (US and China) are deeply economically integrated, unlike the low-trade US-Soviet relationship. The post-1947 multilateral system (GATT/WTO rules of non-discrimination and reciprocity) was built for a US-hegemonic era focused on tariff reduction, not managing disengagement between integrated superpowers.

Governments now view power as relative. Trade policy can serve dual goals: boosting domestic welfare and weakening rivals in key areas (e.g., semiconductors, critical minerals). Export controls, tariffs, or limits on technology transfer can make sense if the relative gain against a rival outweighs domestic costs. This shifts incentives from pure efficiency to strategic positioning. Multilateral rules designed for mutual liberalization struggle here, as bilateral deals to manage decoupling are often discriminatory by nature.

Consumers and economies pay through higher prices, fewer choices, reduced innovation, and slower growth. Broad disengagement or uncontrolled trade wars raise costs for everyone, including in non-strategic sectors. Workers in exposed industries face disruption, while the poorest nations suffer spillover effects from fragmented global markets and reduced trade opportunities.

Rivalry does not eliminate the case for cooperation. Even strategic competitors care about absolute welfare gains from trade in many sectors. Full decoupling is costly and rare; diversification (expanding relationships to build resilience) remains practical. Existing rules offer flexibilities like free trade areas, but they are built for deeper integration, not orderly disengagement. A new "geopolitical exemption" could help manage bilateral adjustments with minimal harm to third countries, but implementation risks abuse or further erosion of norms.

A decent approach recognizes that trade remains mutually beneficial in most areas even among rivals. Countries should diversify exposures for resilience rather than reject trade outright. The multilateral system needs targeted adaptation (e.g., controlled exemptions for geopolitical adjustments) to prevent costly fragmentation while preserving core rules. Small first step: focus bilateral negotiations on high-stakes sectors while keeping broader cooperation open in less sensitive areas.

Sources

Category
International Monetary Fund
Tags
IMF, international monetary fund, economics, trade cooperation, geopolitical rivalry, US-China, WTO adaptation, supply chain diversification, economic fragmentation
Be the first to comment