WEAPONIZATION OF TRADE & FINANCE: INTERNATIONAL RELATION
NEWS: Decline of global institutions and order due to weaponisation of trade and finance, says Defence Minister
WHAT’S IN THE NEWS?
The global trend of weaponizing trade, finance, and technology for geopolitical leverage is weakening multilateral institutions and economic interdependence. India must respond with strategic resilience, deeper regional cooperation, and investment in critical infrastructure and financial autonomy.
Context
• The Defence Minister of India recently raised concerns about the decline of global multilateralism and the emerging trend of weaponizing trade, finance, and technology to assert strategic dominance.
• This shift reflects a broader erosion of the post-World War II liberal international order, where economic interdependence and global institutions once ensured stability.
What is Weaponization of Trade and Finance?
• Refers to the strategic use of trade and financial tools by states to exert geopolitical pressure on rival nations, rather than fostering economic cooperation.
• A deviation from traditional globalization, where trade and finance were viewed as neutral connectors between economies.
• These tools are now used to coerce, punish, or isolate nations for pursuing independent political or security agendas.
Major Tools Used in Trade and Financial Weaponization
• Tariffs and Sanctions: Imposition of punitive import taxes or trade bans to undermine target economies.
• Export Controls: Restricting the export of critical raw materials, rare earths, or advanced technologies like semiconductors and AI.
• Financial Exclusions: Banning access to global payment systems like SWIFT, freezing foreign reserves, or denying credit from multilateral banks.
• Currency Manipulation: Devaluing or controlling currency to gain competitive trade advantages.
• Investment Screening: Blocking foreign investment in sensitive sectors, especially in technology, telecom, and defense.
Recent Incidents of Trade and Finance Weaponization
• US-China Tariff War (Tariff War 2.0): The imposition of massive tariffs by the US and retaliatory duties by China over national security and supply chain control.
• Sanctions on Russia: After the Ukraine invasion, Western nations excluded Russia from the SWIFT network and froze $300 billion of its central bank reserves.
• Technology Denial Regimes: The US-led alliance imposed bans on the export of advanced semiconductors, chipmaking tools, and AI technologies to China, stalling its tech progress.
• Export Controls on Critical Minerals: Countries like China have imposed export bans on materials like gallium and germanium, crucial for electronics and defense industries.
Consequences of Economic Weaponization
• Erosion of Multilateral Institutions:
• Institutions like the WTO, IMF, and World Bank are increasingly viewed as Western-dominated and biased.
• The WTO dispute resolution mechanism has lost relevance due to frequent violations of trade norms without meaningful consequences.
• Decline of Rules-Based Global Order:
• Countries are prioritizing national interest over international rules, resulting in a rise in unilateralism and protectionism.
• This undermines the foundation of global economic governance built on cooperation and legal frameworks.
• Economic Fragmentation and Decoupling:
• The world is seeing a shift toward geo-economic blocs, with regional trading groups like RCEP, CPTPP, and IPEF rising in importance.
• “Decoupling” between major economies like the US and China is reshaping supply chains and investment flows.
• Widening Global Inequality:
• Supply chain disruptions caused by wars, sanctions, or trade restrictions disproportionately impact developing countries.
• Inflation, shortage of food and fuel, and delayed access to critical goods worsen global inequality.
Steps Taken to Counter Trade and Finance Weaponization
• Regional Trade Agreements (RTAs):
• Nations are forming mutually beneficial RTAs to reduce dependence on powerful economies.
• Examples include:
RCEP: Largest trading bloc covering Asia-Pacific.
CPTPP: Progressive agreement focused on equitable trade rules.
• Alternative Financial Networks:
• Russia’s SPFS (System for Transfer of Financial Messages) and China’s CIPS (Cross-Border Interbank Payment System) serve as alternatives to SWIFT.
• BRICS nations are exploring a joint payment system to bypass Western-dominated financial architecture.
• Central Bank Digital Currencies (CBDCs):
• Countries are investing in sovereign digital currencies to gain monetary autonomy and reduce dependence on the US dollar or Euro in global trade.
• Mineral Security Partnership (MSP):
• A strategic alliance to ensure secure access to critical minerals like lithium, cobalt, and rare earths.
• Aims to counter China’s dominance in global mineral supply chains and promote responsible sourcing.
• Reform of the WTO:
• Discussions are underway to strengthen WTO’s dispute resolution mechanisms and update trade rules to address modern issues like digital trade, sustainability, and geopolitical coercion.
• Indo-Pacific Economic Framework (IPEF):
• Launched by the US and partners to counterbalance economic coercion and promote transparent, resilient, and rules-based trade in the Indo-Pacific region.
• India’s participation in IPEF reflects its desire to engage with multilateral alternatives while safeguarding strategic autonomy.
Concluding Remarks
• The weaponization of trade and finance marks a shift from economic cooperation to economic coercion, redefining the nature of international relations in the 21st century.
• For India, which has consistently advocated for multilateralism and inclusive global governance, this trend poses strategic challenges.
• India’s response must focus on:
• Building domestic economic resilience and self-reliance (Atmanirbhar Bharat)
• Strengthening regional and global partnerships
• Investing in critical technologies, infrastructure, and financial independence
• In a fractured global order, maintaining a balance between economic engagement and strategic sovereignty will be key to India's long-term security and development.
Source: https://www.thehindu.com/news/national/in-era-of-grey-zone-cyber-attacks-tools-to-achieve-politico-military-aims-rajnath-singh/article69434398.ece