Day by day, the coalition against Vladimir Putin is conducting a high-speed experiment in building and deploying a toolkit of trade and economic measures against a belligerent state. On Tuesday the EU, whose speed and unity continue radically to outperform expectations, ratcheted up its sanctions to include restrictions on dealing with Russian state-owned companies and bans on luxury goods exports there.
Although drawing conclusions about the future at this stage feels a bit like anticipating the Bretton Woods conference in the weeks after Pearl Harbor, it’s natural to think ahead to how this might permanently change the way the world economy, trade and energy are governed. Especially if the sanctions actually dislodge Putin (unlikely) or force him into a ceasefire that looks like failure (a bit more likely), an international policy framework will have been created that could be turned to more sustainable and creative ends. There are, however, a bunch of substantial obstacles to getting there.
First, the willingness of the EU to take on a broader geopolitical role based on principle is untested outside Ukraine. It’s much easier to get consensus around sanctions, arms sales, willingness to absorb energy shocks and generosity towards refugees for a white mainly Christian country aspiring to EU membership. The much harsher treatment of African, Middle Eastern and Asian refugees and migrants arriving at the EU’s borders suggests Europe’s commitment to universal values is selective.
Moreover, as the late US president George HW Bush knew from personal experience, the successful conduct of a war doesn’t guarantee re-election after it. Domestic politics will continue sharply to delimit the possibilities of co-operative US trade policies. Ukraine may well be the kind of military operation and exercise in statecraft for which Joe Biden has been preparing for decades, but he’s getting poor poll ratings for economic policy. The US public is apparently not connecting the sanctions on Russia they support with the inflation they don’t like.
Accordingly, it’s optimistic to think the US is about to go all multilateral or even alliance-based in trade and drop its obsessions with reshoring in general, manufacturing in particular and steel very specifically. You’d hope at least that the coalition-building against Ukraine might be replicated in managing supply chains with allies — “friendshoring”, to use the grating neologism. But the administration retains restrictions on imports of steel, including from the EU, and the White House and its whisperers continue to push a “green steel” club in a form that looks to many in Brussels like protectionism in a halfhearted disguise.
In the short term, the war and the rich world’s actions have highlighted the flaws in existing institutions. Whether or not you agree with withholding most-favoured nation status from Russia at the World Trade Organization (on balance, I do not), the conflict has inevitably undermined the institution’s ability to function. There’s heartening news this week of a possible compromise over a waiver on patents for Covid vaccines, but negotiations on other issues have more or less ground to a halt. No one really wants to sit around a table with the Russian ambassador and discuss rules on ecommerce.
In that context, it looked like a mistake for a group of rich countries this week to have released an almost purely political statement in the WTO condemning Russia’s invasion, with just a passing reference to Belarus’s application to join the institution. No emerging markets signed on to the intervention except a few in eastern Europe (Moldova, Albania, Montenegro — the last two of whom are Nato members). The statement will have no practical effect but will further encourage the idea that the WTO is a place to form camps and strike poses, not negotiate deals.
Of course, the pole of influence that will pull any system of governance apart is China. The more any new alliance or set-up appears aimed at isolating or punishing China (as with the US’s green steel plan), the more it will push Beijing towards sympathy with Moscow, or at least away from the US and EU. The Chinese economy is far too big and enmeshed with the world trading system to be sanctioned as Russia’s has been.
It’s not realistic to expect emerging markets en masse definitively to choose a European-American politico-economic camp over a Chinese one. The UN resolution condemning the invasion, although it passed overwhelmingly, received some significant abstentions in Africa and Asia, including India and South Africa as well as China itself. This isn’t a new cold war, or if it is then half the developing world will want to be in a new non-aligned movement.
The coalition against the invasion has done a remarkable job in this situation, though public support may wane if the war drags on for months and high energy prices savage living standards. But that doesn’t mean it has created an apparatus of global governance that can easily be set to work elsewhere.
Sign up for Trade Secrets, the FT’s newsletter on globalisation