Brief Context
Context The Defence Minister of India highlighted the erosion of global order and multilateralism, driven by the weaponization of trade, finance, and emerging technologies. What is Weaponization of Trade and Finance? Weaponization of trade and finance refers to the strategic use of trade policies and economic measures by countries to exert political or economic pressure on others.
Source Content
Syllabus: GS2-International Relations / GS3-Economy
Context
- The Defence Minister of India highlighted the erosion of global order and multilateralism, driven by the weaponization of trade, finance, and emerging technologies.
What is Weaponization of Trade and Finance?
- Weaponization of trade and finance refers to the strategic use of trade policies and economic measures by countries to exert political or economic pressure on others.
- This practice departs from the traditional role of trade and finance as instruments of cooperation and globalization.
- Tools of trade weaponization: Tariffs and Sanctions, Restrictions on exports of critical technologies or materials, Currency Manipulation etc.
Recent incidents of trade and finance weaponization
- Tariff War 2.0: The ongoing US-China trade friction has seen high tariffs and investment restrictions being imposed to gain strategic advantage and secure supply chains.
- Financial Sanctions: The West’s exclusion of Russia from the SWIFT network and freezing of its central bank reserves post-Ukraine invasion is a classic case of financial weaponization.
- Technology Denial Regimes: Restrictions on semiconductor exports to China and controls over AI or quantum computing hardware highlight technology weaponization.
Consequences of Economic Weaponization
- Erosion of Multilateral Institutions: The WTO’s dispute settlement mechanism is losing credibility amidst unilateral tariff impositions.
- Institutions like the IMF or World Bank face legitimacy crises as they’re perceived as Western-dominated.
- Decline of Rules-Based Global Order: Growing unilateralism is leading countries to ignore international norms and treaties in favour of national interest.
- Economic Fragmentation: The world is witnessing “geo-economic decoupling” with regional trading blocs, such as RCEP or IPEF, gaining importance.
- Global Inequality: Supply chain disruptions, like those witnessed during the pandemic and Ukraine war, have further deepened global inequalities.
Steps taken against trade weaponization
- Regional Trade Agreements: Countries are forming regional trade agreements (RTAs) to enhance cooperation and reduce reliance on major economies.
- Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),
- Regional Comprehensive Economic Partnership (RCEP) etc.
- Alternative Financial Systems: Russia’s SPFS, China’s CIPS, and proposals for a BRICS payment system are alternatives to the SWIFT network.
- Development of Central Bank Digital Currencies (CBDCs) is being pursued to gain monetary independence.
- Mineral Security Partnership (MSP) to diversify and stabilize global supply chains of Critical Minerals.
- Reform of the WTO: Ongoing discussions to reform the World Trade Organization (WTO) aim to enhance its dispute resolution mechanisms and address the challenges posed by unilateral trade actions.
- Indo-Pacific Economic Framework (IPEF): It serves as a countermeasure to economic coercion by countries that use trade as a tool of influence, promoting a more equitable and rules-based trading system.
Concluding remarks
- The weaponization of trade and finance signals a new era of geopolitical contestation where economic interdependence is no longer a guarantee for peace.
- For India, which has always championed multilateralism and global cooperation, navigating this fractured world order requires strategic clarity, resilient institutions, and a robust technological foundation.
Source: TH