Brexit

Will Coronavirus split the world into two regional blocs with Britain as a province of US?

BY Doug Stokes & Martin Williamson   /  16 April 2020

From the breaking down of global supply chains to the fracturing of intra-EU solidarity, the global coronavirus pandemic is as much a geopolitical crisis as it is an epidemiological one.

With the changes in globalisation we are now likely to see, British policymakers will need to think strategically about how the UK acts when there will be a deeper emphasis on the national security dimensions of international trade, whatever its post-Brexit “Global Britain” identity.

Britain’s foreign and foreign economic policy will need to respond to post-pandemic geopolitical developments driven by on-going Sino-US rivalries that will likely now deepen.

Britain’s prosperity has always depended on overseas trade. In recent years globalisation has facilitated rapid trade growth, which in turn has propelled the growth of incomes and living standards.

The globalisation process remains incomplete and there have been set-backs, sometimes major, including the Asian Financial Crisis of 1996/97, the Doha Round’s failure to deliver further trade liberalisation and the Global Financial Crisis of 2007/08.

But governments have risen to these challenges, often by injecting a greater degree of prudence in their pursuit of globalisation.    

Britain, through the Conservative government’s post-Brexit Global Britain project, will doubtless seek to return to pursuing pro-globalisation policies after the pandemic has passed. Trade’s link to prosperity is too close and important to be ignored.  But future pro-globalisation policies are likely to embody a greater degree of prudence than in the recent past.

Covid-19, which disrupted production first in China then elsewhere, reminded us that Britain’s increased dependence on world trade has also amplified our vulnerability to extended and increasingly complex supply chains.  To the extent governments here and abroad give more weight to prudential and national security concerns, they will temper their pursuit of efficiency gains through trade liberalisation.

We might expect states to introduce new measures aimed at facilitating stockpiling imported goods (as the Swiss already require), simplifying and shortening overseas supply chains and, through promoting overseas direct investment in supply chains, taking greater control of overseas businesses producing vital inputs.  It would also be prudent for Britain to protect its supply chains from geopolitical disputes: such disruptions appear increasingly likely in the coming years.

The Sino-US rivalry for global leadership will be a major source of trade disruption. Indeed, the World Trade Organisation regime that regulates trade is itself currently subject to such disruption.

The US and China have both demonstrated that they are willing to flout international trade norms and rules. President Trump responded to China’s nascent hegemonic challenge by seeking to undermine the trade that is the source of Beijing’s growing economic and military power. He has emasculated the WTO regime that China has exploited successfully, unilaterally imposing huge, trade-disrupting tariffs. In the process, he stymied the organisation’s ability to play its crucial trade dispute resolution role by blocking appointments to the WTO’s appellate court.

Trump intends to sustain this pressure until China agrees to reduce its state support for Chinese export industries and allows market forces to operate more freely in international trade.

Beijing is resisting, claiming moral leadership of the rules-based international trading order. Yet Beijing’s hands are not much cleaner than Washington’s: China used its status as the source of 97% of the world’s rare earth elements to fire a pre-Trump warning shot across the US’ bows when it restricted its rare earth exports, disrupting the world’s electronics industries to Chinese producers’ advantage. The WTO ruled this illegal.

There are two possible outcomes to the Sino-US dispute over who writes the world’s trade rules: a resolution or none.

A resolution can be achieved only if China or the US backs down. The nature of the dispute, which is essentially whether capitalism should be state-directed (China) or private sector-led (the US), is so fundamental to their respective national identities that it is hard to see either state backing down.

And compromise over a binary choice is not possible. Trump has promised “trade wars are easy to win” and he cannot capitulate; Beijing is equally adamant.

The likelihood is that a stalemate will persist and the increasingly irrelevant WTO regime will wither until it is replaced by competing US and Chinese trading blocs, each with its own distinct norms, principles, rules and decision-making procedures reflecting the prejudices held by Washington and Beijing, respectively.

It is very possible that the global economy will revert to a bipolar world that, from a trade perspective, will appear something like the Cold War stand-off between the USSR’s COMECON trading bloc and the US-led OECD trading area, with developing countries siding with one or the other as they see fit. China is already ahead of the post-pandemic global great game, with its much vaulted aid to often stricken developing nations.  

What would this mean for Britain? If the Sino-US dispute were patched up and the WTO resumed its operations, the Global Britain project could proceed broadly as envisaged in the Conservatives’ 2019 election manifesto.

If, however, the world divides into competing regional trading blocs – arguably the more likely outcome – Britain would doubtless join the US bloc for economic and national security reasons. So too would the EU, the Anglosphere and Japan.

China would certainly be more successful in winning allies in the developing world than was the case with the USSR, especially in parts of Asia, the Middle East and the former Soviet Union. But India (for historical reasons) and many other Commonwealth, Francophone and Latin American states, plus much of the Middle East, would likely side with the US camp.  

Were the world to line up in this fashion, with trade largely within the two regional trade blocs, not between them, the UK would have ample scope to source most, if not all of its supply chains from within the US bloc, thereby minimising future geopolitical disruptions.

Life would not be comfortable. Competition for secure sources of supplies would be fierce. The situation within the US trading bloc might resemble the 19th century world where states competed through formal and informal colonisation or through their “national champion” companies for access to supplies. Except, in the 21st century, competition would be through overseas direct investment rather than formal colonisation.

The ferocity of competition would, as now, be evident in bidding in international markets, and additionally where companies were bidding to acquire ownership of foreign-based producers of key inputs. Competition from deep-pocketed “national champion” companies based in North America, Europe and Japan would in many cases crowd out British bidders. Security of supply, where achievable, would come at a cost.

After all, in this world the UK would not be playing the leading role it played for much of the 19th century; its status would be more like that of 19th century Portugal competing for its supplies against the much larger economies of the US, EU, Japan and India.

British foreign policy would be heavily constrained in such a world. We would have to “bandwagon” with the US but otherwise pursue a policy based on “balance of power” principles because our security allies would simultaneously be our economic rivals.

This would lead to the UK lending support first to one state, then another, seeking advantages and favours that would maximise British national interests.

Britain would routinely have to subordinate its values to its interests; ideological consistency would be an unaffordable luxury. In a post-pandemic world, with likely deep fissures within the liberal economic order, the national interest would be policymakers’ guiding light, rather than the moral compass.

For better or worse, Global Britain would increasingly take on an identity George Orwell described all too clearly in 1984:  Airstrip One, a province of US-led Oceania.

Doug Stokes is Professor in International Security at the University of Exeter.

Dr Martin Williamson is former UK Diplomat and Professional Head of the Foreign and Commonwealth Office’s Intelligence Analysis.


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