Everything is changing, including war, and its implications for the current US trade disputes

By July 27, 2018 January 16th, 2019 No Comments

In ancient history, wars had a fairly clear beginning and a clear end – they may have run through various “episodes”, but the starting and closing points were evident to all. In the 21st century, winning or losing a war has become an obsolete concept, and the beginnings and ends are increasingly blurred. The means of waging conflict have changed and so has the strategy. This revolution in military affairs in our view provides some insight also for the evident trade disputes between the United States, China and the European Union.

Why is this the trend nowadays? In modern society, which comes with nuclear arsenals and the internet, an old-fashioned war is too costly for humanity:  taken to the extreme it would lead to mutually assured destruction, and has a fast repercussion for popular political support. Indeed, countries now engage in what is called hybrid warfare. NATO describes hybrid warfare as a mixture of “conventional/unconventional, regular/irregular and overt/covert means” to exploit all the possible dimensions of warfare against the enemy[1]. This new method of warfare is driven by the increased usage of cyber-attacks and cyber-espionage, the use of proxy fighters, and all other emerging technologies capable of inflicting any level of damage while maintaining anonymity. The size of a country or its military capabilities no longer matter if a couple of hackers can break into the railway system of a country and cause trains to collide, or cancel all flights from an airport by installing malwares on critical devices.

The purpose of going to war is that the winner gets to decide several issues, including the creation of a favourable trade system and related economic benefits[2]. The result is that, one of the two parties achieves a little strategic advantage against the other, but no one comes home with a clear political and economic gain.

Trade wars can be interpreted as part of hybrid conflicts in the 21st century. The US aims to gain more economic growth, as well as possibly eventually better terms of trade with Asia and the EU compared with what it would be able to get under more orderly negotiations. Escalating the dispute to the point of triggering global recession is in no-ones’ interest, so the dispute is likely to go through rounds of tensions and temporary settlements, just like the one we have recently observed between the US and the EU a few days ago. The US and the EU have agreed to work towards a new trade relationship, which is halting (at least for now) the tariffs threatened to be levied on the car industry and plans to lower the current steel and aluminium tariffs of 25% and 10%, respectively. In exchange the EU commits to purchase more gas and soy from the US. Both sides agree to an eventual complete elimination of tariff barriers in the long run.

What we have witnessed this week is a positive development for near term GDP growth – as sentiment indices should benefit from a temporary mitigation of the trade dispute. However, this is very unlikely to be the end of the dispute, and it seems that the US has the upper hand for now.



[1] NATO: Hybrid war – does it even exist?

[2] Harari: Why it’s no longer possible for any country to win a war