Geo-economics was defined by its intellectual godfather, Edward Luttwak, as a contest defined by the grammar of commerce but the logic of war. Today, one of the most pernicious tools in this global contest is the evolving role of government in a market economy. It was one thing to fight the battle of communism v. capitalism. It is quite another to fail to recognize today’s competition is increasingly over the rules, norms and tools of state involvement in capitalism itself.
For decades, the US led global economic order largely advocated the position that the economic role of government should be limited. Ideally, governments should set the ground rules for investment and commerce via just laws and regulations and enforce them fairly both domestically and internationally. Beyond that, let the free market rule. Read more
By Takashi Mitachi, Boston Consulting Group
The prize of a new World Trade Organisation (WTO) deal eluded negotiators in Bali at the end of 2013, collapsing over Indian concerns that the planned deal would endanger domestic grain subsidies that help feed India’s poor. In the meantime, there has been a surge of trade talks taking place across the world − some pan-regional, some regional, some bilateral.
Though these agreements may stimulate growth, they are likely to accelerate the multipolarisation of the world and even competition among regional blocs far beyond trade. Larger states are using trade as a geo-economic weapon to increase their dominance of their neighbours and promote their own national champions. And governments are rejecting the shared belief in a ‘win-win’ form of globalisation, where free trade and mutual interdependence bring peace and prosperity. Read more
Two behemoths of the global economy finally reach a deal to resolve a trade dispute that has rumbled on for a decade. Good news, right? No. The settlement of Brazil’s WTO case against the US over cotton subsidies, announced last week, raises the profoundly disturbing possibility that yet another part of the multilateral governance of trade is now being undermined.
The issue dates from 2004, when Brazil won a famous victory at the WTO’s dispute settlement process against US subsidies to cotton farmers, the first big victory for an emerging market country. The arbitration panel authorised Brazil to retaliate with trade restrictions totalling $830m. Washington dragged out the case by every means possible – first appealing against the decision, then wrongly claiming it had changed its subsidies to comply with the ruling, then saying that the matter could only be dealt with in the multilateral so-called “Doha round”, and then finally and absurdly, paying Brazilian cotton farmers nearly $150m per year in protection money from 2010 onwards to avert trade sanctions. Read more
Nations have negotiated trade agreements in one form or another for centuries. And for centuries economists have undoubtedly been facing the same question: Do trade agreements really matter?
The orthodox answer is obviously that they do. When you lower the barriers to trade goods flow more freely across borders and businesses, consumers and economies as a whole benefit as a result. But HSBC and the Economist Intelligence Unit are out with a new business survey that offers some interesting practical realities. Read more
The formal World Trade Organisation gathering in Bali in early December already has some strongly positive news – a global trade deal is on the cards – a rare and big achievement.
But some issues are still a bit thorny – take cotton. In the past, African governments lambasted the US and EU for their cotton subsidies. Now it’s India and China that they should worry about. Read more
Can it really happen? Investors are wondering whether South Korea, Japan and China are serious about a proposed trilateral trade pact as their trade ministers prepare to meet in Phnom Penh on Tuesday to discuss launching negotiations. Political tensions will inevitably rear their ugly heads. Read more
South Africa has terminated a bilateral investment treaty with Belgium and Luxembourg in the first of a series of planned shreddings of post apartheid-era agreements which are coming up for renewal.
The move is to ease the path of the Black Economic Empowerment programme, but western investors and trade officials are worried at the government’s decision. Read more
Europe isn’t all doom and gloom for business. Hyundai Motor is on a roll, defying the region’s slowing economy and debt woes. The group has sharply increased sales in recent months thanks to South Korea’s free trade agreement with the European Union, which took effect last July.
Hyundai and its affiliate Kia Motors, which together form the world’s fifth-largest carmaker, outperformed the weak European market, reporting 17.2 per cent and 33.2 per cent increases respectively in January’s European sales. Combined, their European market share grew from 4.7 per cent in 2010 to 5.4 per cent in 2011. Read more