We are experiencing an end of the era of globalisation, and mid-sized economies have to collaborate on trade and security in order to survive and thrive. This theme emerged strongly at this year’s World Economic Forum (WEF) conference of world leaders in Davos, Switzerland.
For many decades there was a nominally rules-based world, based on the principles of the World Trade Organisation (WTO), with economic orthodoxy set by the World Bank and International Monetary Fund (IMF), which support free trade among nations.
While the adherence to global rules was uneven, and the largest powers were less likely to be held to account, there was a degree of restraint, and respect for shared values and unwritten rules, that enabled global trade to prosper. That era is at an end – the rules-based global order is no longer reliable.
The combination of integrated trading patterns with departure from a rules-based order means that great powers can maximise their coercive influence, and are beginning to do so in a way that resembles the approach of the empires of the past.
What is new about the global economy compared with previous eras dominated by great powers is the large number of relatively wealthy mid-sized economies who are committed to continuing to trade.
Mark Carney, Prime Minister of Canada, in a well-received speech at Davos, described how, if the middle powers react individually to demands of the great powers, they are competing with each other for favours, and are negotiating from a point of extreme weakness. But if they collaborate intelligently with each other, they can create a ‘third path’.
A country that relies on imports for much of its fuel and food, and which needs alliances for defence, will always be potentially vulnerable. But small and mid-sized economies can form multiple pragmatic coalitions to mitigate any threat from trade wars or actual conflicts. Co-operating among themselves is not a political or moral choice, so much as a strategic necessity. The biggest powers may seek to exploit their advantages with the tactics of trade wars, but they will secure diminishing returns as the middle powers seek alliances among themselves or with a rival power.
President Trump has repeatedly used a tactic of imposing import tariffs, or threatening to impose them, to exert leverage over other nations. As the US is the largest consumer market, he has been able to gain significant concessions. But as Canada, the European Union, China, the Gulf Co-operation Council, the South American countries of Mercosur, India and the Pacific nations trade more with each other and less with the US, this tactic becomes less effective, if only marginally so in the near term.
The US is the largest economy in the world and is the most powerful military force. It does not, however, come close to representing a majority of world trade or consumption. Its GDP is approximately 24% of global GDP. So when Prime Minister Carney noted in his talk that the combined GDP of Canada plus the Nordic powers is 20%, this lent substance to the theme of his talk. Canada has begun collaborating closely with northern European nations over trade and security, in part owing to the confrontational stance the US President Donald Trump has adopted with Canada over trade, and with his threat to take over Greenland, which is a territory of Denmark and close to Canada. President Trump withdrew his threat during the Davos conference.
Shortly after the conference, the EU signed a trade deal with India, which involves reducing or removing tariffs on more than 95% of goods traded in both directions. It had been under discussion for nearly two decades but negotiations were accelerated by President Trump’s policy of tariffs. Last year, a dialogue started between the Trans-Pacific Partnership and the EU. The two groupings between them represent around 32% of global GDP.
There are lessons for the Gulf nations, which fall into the category of middle powers, and which collectively have significant negotiating influence in world trade. The US has remained close to the GCC during the Trump administration – the region was the first that he visited after his election – nonetheless the lessons around collaboration with other mid-ranking powers are still relevant. Qatar itself has had to forge new trading links, for example directly with China, in order to overcome obstacles to trade in the relatively recent past.
It is rare that a single speech by a world leader has lasting influence, but Prime Minister Carney’s at Davos this year may be the exception. In addition to providing a critique, he set out a manifesto for how mid-ranking powers can collaborate effectively, and gave examples as to how this trend was already beginning.
The author is a Qatari banker, with many years of experience in the banking sector in senior positions.
