There should be no surprise that this book has been written. Dr. Rebecca Harding has written lucidly and presciently about the developments in international trade in two previous books. With Jack Harding, she co-authored a 2018 book titled “The Weaponization of Trade” and in 2020, also with Jack Harding, “Gaming Trade”. Each was reviewed by me for the SPE (see here and here).

In those books, Harding made the argument that international trade was increasingly being used to extend the political and military power of nations, Furthermore, the thinking about how international trade should be encouraged, supported and developed differed significantly between major trading blocks. Those trading blocks could be loosely defined as the West (dominated by the USA and Europe), Russia and China. Harding warned that these differences increased the possibility that the rules and institutions governing international trade (think of the WTO and rulings on maritime borders) would be circumvented or ignored. This could also extend to challenges to systems that co-ordinate international payments (SWIFT).

Unfortunately, the warnings made by Harding have proved accurate. The economic textbook ideals of free trade and collaborative international institutions appear to have little relevance in reality. Think not only of the tariffs introduced by the US under the second Trump presidency, but also of the sanctions placed on Russia by the European Union prior to Trump 2.0 following Russia’s 2022 invasion of Ukraine, and the expansionist policies of China’s Belt and Road initiative that pre-date these events. Textbook economics may be useful in enumerating the cost of these developments but is not useful in understanding what is happening. Harding is blunt: “the global economy is cannibalizing itself because economists’ principles of comparative advantage in international trade, and free and open markets, are under threat from mercantalism on one side and autarkic state-managed capitalism on the other. These are intellectual challenges that lie outside the framework of past economic models.” (p.3)

Note that the titles of the three books have moved from discussion of trade war to economic war. The differences of opinion between the major trading blocks and the way these differences are affecting numerous elements of the economy in various countries are now broader and more worrying. There is no formal definition of economic war. Harding defines it as “conflict between nation states and between national economies and their economic systems …it is conventionally accepted to be the means to influence a nation’s ability to wage military war, and it therefore links directly to the defence and security framework.” (p.9) Later the definition is explained further as “Economic warfare is about controlling supply chains and for that, in the modern era, data, technology and finance are the new defence industrial base.” (p.108) Contrast these definitions with the more limited definition of a trade war. “A trade war, by contrast, is an economic dispute between two countries that is the consequence of behaviours by one that are perceived to be to the detriment of the other.” (p.9).

There are several implications of this extension from trade war to economic war. A trade war may lead to an economic war. For example, when tariffs and sanctions are used in a trade war between two countries, third countries may take actions to deliberately circumvent them. Typically, trade may be diverted through third countries or the trade in goods and services that are targeted are recorded under dubious product codes. This type of activity (i.e. smuggling) has always occurred. In the past, this was largely a convenient opportunity for profit by the third country. Nowadays, it is more likely to be a way to express support for one side in the trade dispute. Furthermore, such trade diversion is becoming more difficult to spot in a world where much of the data on trade and the payments systems are being digitized and ownership of the digital platforms is becoming concentrated in only a few businesses.

This difficulty in spotting what is happening in trade is also being increased by developments in digital currencies and by challenges to the US dollar dominated SWIFT system of international payment by newcomers such as the Chinese equivalent CIPS (Chinese International Payments System).

The increasing digitization of trade flow data and payment systems means that those groups that have control over or ownership of these digital systems have an information advantage. This presents an economic and a security threat. Harding expresses this as follows: “Technological systems are becoming more complex and more difficult to monitor, not least because of the use of digital systems, such as blockchain or distributed ledgers…. It is therefore extremely hard to see what is going on across a distributed ledger technology system. So if the ‘owner’ of the data within it is an adversary and the user is a banking client of one of the Western banks, then the data cannot be accessed in a national security context.” (p.88)

The threats are real. Aside from the way that the US and Europe (think Nexperia) are limiting access to certain forms of computer chips and the Chinese threatens exports of rare earth materials, ownership of critical infrastructure (e.g. electricity suppliers, shipping ports, or even steel producers) also needs to be considered. When owned by an adversary, this can have significant implications. This is because “these businesses do not - indeed cannot - operate exclusively in the national interest of the nation state”. (p.76)  The UK seems to stand out here as Chinese ownership of critical national infrastructure such as UK Power Networks (at 100%) and Northumbrian Water (at 75%) is significant (see p.76).  A more warlike aspect of weaponizing trade and supply chains was the way the Israel’s security forces manipulated the supply of pagers, with devastating effect, to their adversaries.

The final chapter of the book makes some recommendations about how to address the issues raised and to build economic security. Key among those is to increase public awareness of the potential dangers of issues such as excessive ownership of critical infrastructure and complex supply chains in a world where the rules-based order of international co-operation is breaking down. This leads to the controversial position that there should be “a more flexible approach to macroeconomic management that reduces the focus on growth and focuses it on security.” (p.134) This appears to be a call for greater spending on defence and some form of industrial policy. This is already happening in Europe and the US but these changes face well known budgetary constraints.

For all of my appreciation of this short book, I have some quibbles. Early in the text, Harding writes “It is worth noting how rare it is to be having these conversations [about the tension between nation states and global corporates] openly within the economic sphere.” (p.10) Perhaps I read the wrong (right?) stuff. Economists and commentators such as Dani Rodrik, Danny Quah, Ann Pettifor, Brank Milanovic and Doomberg have and continue to write about the limitations of globalization and the realities of geoeconomics. Harding is not alone but is more forthright than others. “This book is deliberately provocative” (p.5) she writes. She succeeds.

The book is also Euro-centric. Strengthening Article 2 of the North Atlantic treaty (which broadly covers encouraging economic collaboration) is mentioned several times. There is little or no discussion about similar issues across Asia, Africa and in the Middle East.

It should also be acknowledged that increasing awareness and changing people’s mindset with an explicit aim of increasing economic security will carry costs beyond money. It risks increasing mistrust – even bigotry – between different groups in society.  This would be exploited by those inclined towards maleficence. On a more concrete level, there is likely to be less mobility of goods, services, capital, labour and ideas. As a result, the world will be poorer not only in monetary terms but culturally and intellectually as well.