Is free trade being left on the backburner due to global powerhouse countries’ politics?

Is free trade being left on the backburner due to global powerhouse countries’ politics?

Trade data spanning several years has shown that the countries that formerly advocated for and vehemently implemented free trade principles and strategies, are now decoupling. Deviation from the free trade system as we know it is causing a number of detrimental consequences for emerging economies. Thus, as powerhouse countries such as the United States and China place increasing emphasis on domestic political and economic demands as well as emerging global security concerns, developing countries whose trade policy decisions largely depend on the flow of supply chains from the global powerhouse countries are left with the unenviable decision of choosing whether to side with the decoupling nations.

Although it is almost common cause that open and inclusive multilateral trade is crucial for countries that wish to safeguard themselves from the burdens of global supply chain shocks, the countries that have for decades led in terms of global trade are adopting progressively more protective policies, and pressurizing developing economies that are dependent on them, to align themselves with either one of them. From the US and China’s perspective, there are several factors affecting free trade and causing geostrategic rivalry, including the race to become the global technological leader, disruptions in trade and supply chains, tension-fueled trade sanctions, climate action initiatives and anti-trade sentiments.

While the US and China have for many years grappled to become the global leader in technology, studies have found that Western countries have some catching up to do. On 2 March 2023, the Australian Strategic Policy Institute (ASPI) published a first-of-its-kind Critical Technology Tracker which found that “China has built the foundations to position itself as the world’s leading science and technology superpower” by becoming the leader in most of the important and emerging fields of technology. The ASPI found that China leads in 37 of the 44 technologies the ASPI tracked, including the space, robotics, environmental, energy, advanced materials and key quantum technology defense, biotechnology, and artificial intelligence fields. The US came in a distant second, leading in areas such as vaccines, quantum computing and high-performance computing.

China and the US have clearly indicated that they consider free trade to be a disadvantage in the race to be the global technological lead and have implemented various policies indicating their protectionist and nationalistic approaches to growing their respective technology sectors. In 2015, China announced that it had launched “Made in China 2025”, a state-led industrial policy spanning years, aiming to rapidly develop its technology industry. The policy aimed to grow China’s domestic core content materials production to 40% in 2020 and 70% in 2025 using state-owned enterprises, government subsidies and intellectual property acquisitions. The US subsequently also adopted a policy described as “American techno-nationalism” which entailed implementing sanctions, strict import and export controls, blacklists, investment controls, travel restrictions and rules pertaining to technology transactions. Notably, in October 2022, the US implemented further restrictions specifically pertaining to China’s acquisition of advanced semi-conductors, which severely hindered China’s ability to develop artificial intelligence.

Due to African and other emerging countries’ reliance on technology supplies from the US and China, the dominance of either and/or both the US and China is likely to lead to substantial access barriers and disruptions in crucial technology supply chains to developing countries. In addition, the technological decoupling of the US and China comes with strong tacit obligations by emerging countries to cut ties with either one of the technological powerhouses.

In addition, the Covid-19 pandemic brought to light the importance of security of supply and the negative consequences brought about by hostile suppliers, particularly for smaller economies. While the WTO has convincingly argued that open markets are vital to ensure security of supply, the approach taken by developed economies (such as the Sustainable Critical Minerals Alliance) indicates that developed countries are not so convinced by the WTO’s arguments, after all. Naturally, closing off markets to countries highly sensitive to supply shocks will have a number of negative effects on emerging economies.

We have previously written on the harmful effects of certain climate action related policies, subsidies and trade restrictions that are increasingly being adopted worldwide. For example, as of 2026, the European Union will start to implement its Carbon Border Adjustment Mechanism with a view to reaching the carbon emissions goals it has set for 2050. This policy alone is likely to deleteriously affect approximately 4% of South Africa’s total exports to the EU. The US has launched a number of policies that are likely to have detrimental effects on South African and other developing countries’ trade. For example, the recently promulgated Inflation Reduction Act set aside USD 400 billion in the form of subsidies for renewable energy and electric cars that are manufactured using a certain minimum amount of parts from North America and has already started to redirect trade to US companies. Both the US and EU policy shifts have caused and will continue to cause major hurdles to accessing trade and supply chains for emerging economies.

Another global event that brought about substantial economic and trade sanctions is the Ukraine war, which led to great outrage by Western countries. Several developing countries that are heavily reliant on Russia for essential supplies did not, however, impose similar sanctions on Russia. The ensuing tensions between countries that did, and countries that did not impose sanctions against Russia, has meant that powerful countries are in an even more influential position when it comes to squeezing developing countries’ trade. Thus, should the US and China decide to go ahead with a balance-of-power strategy in full throttle, developing economies will be hard pressed not to form an allegiance with one of them. Whether alignment with either China or the US will prove beneficial or detrimental to developing countries, remains to be seen. That a number of dangerous economic and security consequences could materialize because of developing countries choosing sides and two rivals trading blocs inevitably being created, however, is likely.

While it is a loaded and difficult decision, by adopting a stance of nonalignment, countries could traverse complex economic and trade tensions in a manner beneficial to their populations and may even encourage global powerhouse countries such as China and the US to remain cognizant of other countries’ concerns, in the interest of longer-term mutual relations.

Nicola Taljaard

About Nicola Taljaard

Associate Designate at Primerio - LLB and LLM International Trade Law (cum laude) graduate from Stellenbosch University, focusing on areas of International Commercial Sales Law, Sustainable Development and Social Justice, International Law of Tax and Legal Aspects of World and Regional Trade. Nicola is currently employed as a candidate attorney at Primerio International, a pan-African law firm specialising in competition, trade and corporate law.

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