Weaponization of Trade, Finance, and Emerging Technologies

Context

The Defence Minister of India highlighted the erosion of global order and multilateralism, driven by the weaponization of trade, finance, and emerging technologies.

About Weaponization of Trade and Finance

• Weaponization of trade and finance refers to the strategic use of trade regulations and financial measures through nations to exert political or economic stress 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 technology or materials, money control and so forth.

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 stable supply chains.
• Financial Sanctions: The West’s exclusion of Russia from the SWIFT network and freezing of its imperative bank reserves post-Ukraine invasion is a conventional case of economic weaponization.
• Technology Denial Regimes: Restrictions on semiconductor exports to China and controls over AI or quantum computing hardware spotlight technology weaponization.

Consequences of Economic Weaponization

• Erosion of Multilateral Institutions: The WTO’s dispute settlement mechanism is dropping credibility amidst unilateral tariff impositions.
  • Institutions just like the IMF or World Bank face legitimacy crises as they’re perceived as Western-ruled.
• Decline of Rules-Based Global Order: Growing unilateralism is leading nations to ignore global norms and treaties in favour of national interest.
• Economic Fragmentation: The global is witnessing “geo-economic decoupling” with regional trading blocs, including RCEP or IPEF, gaining significance.
• Global Inequality: Supply chain disruptions, like the ones witnessed throughout the pandemic and Ukraine war, have similarly 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 foremost economies.
  • Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),
  • Regional Comprehensive Economic Partnership (RCEP) and so forth.
• Alternative Financial Systems: Russia’s SPFS, China’s CIPS, and recommendations for a BRICS payment system are options to the SWIFT network.
  • Development of Central Bank Digital Currencies (CBDCs) is being pursued to gain economic 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) goal to decorate its dispute decision mechanisms and deal with the challenges posed by unilateral trade moves.
• Indo-Pacific Economic Framework (IPEF): It serves as a countermeasure to financial coercion by countries that use trade as a system of effect, promoting a greater equitable and policies based trading system.

Conclusion

• The weaponization of trade and finance alerts a new generation of geopolitical contestation where economic interdependence is not an assurance for peace. 
• For India, which has constantly championed multilateralism and international cooperation, navigating this fractured international order demands strategic clarity, resilient establishments, and a robust technological foundation.

Source: The Hindu

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