Trade Weaponization: A Global Concern

• Trade Weaponization means using trade as a tool of foreign policy instead of an economic goal in and of itself.
• It is defined as using trade policies and tools strategically to persuade a trade partner to change its practices in any issue-area (including economic policy and diplomatic relations) by exploiting economic vulnerabilities and asymmetries of trade partners. 

Tools for Trade Weaponization

Selective Restrictions(import-export): E.g., USA used Countering America’s Adversaries Through Sanctions Act (CAATSA) various times to target its enemies( eg, Russia)

Exploitation of Economic Dependencies: For example, China produces 20 critical minerals, accounting for 60 % of global production and 85 % of rare earth processing. This allows China to restrict exports or manipulate prices, pressuring weaker and smaller countries on international issues.

Non-Tariff Barriers:  Preventing customs clearance, obstacles concerning environment, biosecurity, intellectual property standards.

• E.g. Due to strict labeling and certification requirements on agricultural products by the EU, Indian farmers faced difficulty in selling their products in the EU market.

Manipulation of currency: For example, China manipulates its currency to keep it undervalued so that Chinese exports remain cheaper and more competitive in global markets.

Accomplishing National Agenda: After Chinese human rights activist Liu Xiaobo received the Nobel Peace Prize in 2010, China reduced trade with Norway.          

Aftereffects of Trade Weaponization

Economic Consequences: Disruption of the supply chain, reduced trade, and limited market access slow economic growth, eventually lead to job losses, and may result in inflation that harms consumers mostly of Global South.

Geopolitical Consequences: Trade disputes can lead to broader geopolitical tensions, eventually leading to diplomatic crises.

• For example, the U.S. imposed economic sanctions on Russia over Ukraine and vice versa. This economic conflict worsened their tense relationship, leading to a Cold War-like atmosphere.

Weakening of Multilaterial Institutions: Trade weaponization threatens principles of multilateralism, where countries cooperate to establish rules-based systems, eroding trust among nations collectively.

• For example, the WTO Dispute Settlement System is dysfunctional due to the US’s refusal to appoint new judges to the Appellate Body.

Trade Weaponization used against India

Western countries tried to pressurise India by exploiting its economic and technological vulnerabilities. But India remained steadfast and turned these challenges into opportunities:

Attainment of Food Security: India signed a food aid agreement with the U.S. in 1954 under Public Law (PL) 480.

• However, the U.S. stopped it in the late 1960s because India refused to accept policy changes, like industrial privatization, demanded by the U.S.
• In this Background, C Subramaniam envisaged a “Green Revolution” which eventually made India a net exporter of food grains.

Nuclear Energy:  For example, India’s nuclear test in 1974 faced western countries’ sanctions, also lack of uranium, India has uniquely developed a 3-stage nuclear programme to exploit its reserves of thorium.

Measures to Counter Trade Weaponization

Supply Chain Resilience

• Supply Chain Resilience Initiative (SCRI) between Australia, India and Japan to promote best practice w.r.t. national supply chain policy and principles in the Indo-Pacific.
• To build cooperation and economic integration in the Indo-Pacific region, the Indo-Pacific Economic Framework for Prosperity (IPEF) was established.
• Mineral Security Partnerships (MSP) will ensure the security of supply chains for critical minerals essential for modern technologies and clean energy.

Countering dominance: Like China plus one (business strategy that prevents investing in China only); Friend Shoring (enhancing trade between economic and political allies), etc. 

Strengthening Domestic Production: Investment in local industries to produce critical goods can minimise reliance on foreign suppliers.

• For example, India’s initiatives like Make in India, Atmanirbhar Bharat, Production-Linked Incentive (PLI) Scheme, etc.

Strengthening International Cooperation: Multilateral organizations like the World Trade Organization (WTO) should be strengthened and empowered to enforce rules and resolve disputes effectively.

Conclusion 

The increasing weaponization of trade poses significant challenges to the global economy. By fostering international cooperation, diversifying supply chains, enhancing economic resilience, and promoting fair trade practices, nations can mitigate these risks and create a more stable and prosperous future.