Trade as a weapon of war

FOR all its horrendous devastation, the invasion of Ukraine has inspired much thought about modern warfare.

One observation I have been keen to explore is the role trade is playing as a primary weapon of war.

In relation to Australia, it is a highly consequential topic, affecting defence and diplomacy but also sectors such as resources, agriculture and anything with an international buyer or supply chain input.

Western Australia is fortunate to have an internationally recognised expert on the topic.

Jeffrey Wilson is director of research and economics at Ai Group, a peak industry body representing businesses across many industries for more than 150 years.

Dr Wilson told Business News trade was both a weapon of war and a means to deter it.

“In Russia’s invasion of Ukraine, Western trade sanctions to cripple Russia’s economy are just as important as military aid against its armies,” he said.

Dr Wilson acknowledged there were many factors influencing the relevance and impact of trade in international conflict.

“Size matters in trade conflicts,” he said.

“Trade wars are nearly always won by the larger party; asymmetries in trading relationships provide large countries leverage over the small.

“But the complexity of trade relations also matters. In some cases, it is easy to substitute away from a trading partner during a crisis: for example, Australia’s recent move away from Russian timber to other suppliers.

“However, where global supply chains are high tech and complex, this is harder to do, and the trade weapon is therefore stronger. US semiconductor bans on China are a prime example.”

A 2018-19 report by the Department of Foreign Affairs and Trade shows China has 26.4 per cent of Australia’s trade. For comparison, the next four countries in the top four – Japan, US, South Korea and Singapore – account for a combined 26.8 per cent.

Acknowledging, then, that size and complexity matters, the question becomes whether pursuing and expanding more integrated trade with potential adversaries is beneficial or detrimental.

One could make arguments in either direction, depending on the other factors.

“The viability of decoupling very much depends on the product,” Dr Wilson said.

“For commodity products with many buyers and sellers, it is possible – if painful in the short term – to change your trade partners.

“Australia did this in response to Chinese trade sanctions in 2020. But if the product is specialised and/or monopolised, it might prove impossible.”

There is also a perspective that in some cases the Western world assists in enabling its adversaries through trade.

“This argument has been made in the context of the US advanced semiconductors ban on China. Why would the US freely supply to an adversary a technology that will define the 21st century?” Dr Wilson asked.

“But there is an alternative view, that cutting off an adversary will simply encourage them to develop homegrown capabilities, depriving you of leverage in a conflict. Time will tell if China is able to innovate around US semiconductor bans or not.”

With regards to innovation, an unwillingness to trade may have consequences.

Dr Wilson suggested trade conflicts could harm innovation. Where there was a single dominant supplier of a technology – China for solar panels, the US for advanced semiconductors, Europe for hydrogen technology – a country risked losing access if their trade with that partner was restricted.

The impact of heightened trade sanctions with a large trading partner in complex goods is not immediately apparent. To a certain extent it would be possible to forecast likely outcomes, but the depth of the supply chain connection to an adversarial trade partner may be layers deep.

Deep enough not to be apparent, but still sufficient to cause considerable disruption.

It is, therefore, critical that discussions on trade are more prominent in defence circles. Could the dialogue between experts in trade and defence be stronger?

“There is sometimes a ‘dialogue of the deaf’ between defence and trade policy,” Dr Wilson said.

“While the defence community recognises the importance of trade, and the trade community the importance of geopolitics, it is rare for the two communities to engage directly. As global geopolitics becomes more contested, and trade is increasingly used as a weapon, it is imperative we break down this silo and bring the two discussions together.”

• Kristian Constantinides is the general manager of Airflite, and chairperson of AIDN-WA; the opinions expressed are purely his own