Serpentes Issue 5

The Geo-Economics of Global Trade - James Harrabin Geo-economics is a tool used by states to further geopolitical power. The term was coined

by Edward Luttwak, who was a consulate to the US Department of State, as well as the national security council and is best described by Vusal Gasimli in his book ’GeoEconomics’: Economics, politics and geography have influenced each other throughout the history of humanity. Geographical placement determines the existence of natural resources, territory, distance, climate and other important factors in economic development. In other words, geography is a determining factor in the environment surrounding economics.

Today, geo-economics can arguably be seen as more important than traditional geopolitical tools and military power. The most commonly used geo-economic tool are economic sanctions. Tariffs, quotas and other protectionism policies all wield geo-economic power, especially for larger economies, such as the US, China or EU, yet control over global trade routes can give smaller countries power.

In the same way Russia has military interests in the Bosporus River, as it gives access to the Mediterranean Sea, large economics have geo-economic interests in the major trade routes. The Choropleth shows that much of the globes trade is concentrated around several bottlenecks: The Suez and Panama Canal, The Persian Gulf and the Maritime Silk Road (connecting Europe, the Arabian Peninsula and China). Control over who accesses these passages depends on the how the passages are classed. Territorial waters (12 nautical miles from the coastline) allow all foreign vessels innocent passage, according the 1982 UN Convection on the law of the Sea. Internal waterways (where a states sovereign territory exists on both sides of the passage) give complete control over the passage, and thus the state can choose which vessels are allowed passage.

Today, most products are not produced where they are sold, requiring them to be transported. The cost of transportation has consistently lowered over the course of history, due to economies of scale and containerization. Cost is driven by competition and trade bottlenecks have competition. Consider a shipment going from Guangzhou, China to New York. This route is 22,000km via the Panama Canal, 21,500km via the Panama Canal or 16,500km shipping to the US West Coast and on a train across the US. The Panama Canal charges $90 per container, so for the largest Panamax ships (designed especially for the Panama Canal) this can equate to $1,170,000 when fully loaded. Meanwhile the Suez Canal charges lower tolls, meaning it can be cheaper to take this route. The train, however, can save up to a week in time, which is more important for certain products.

This shows how competition is driving countries to reduce tariffs, costs and barriers to trade, affecting the cost of products. This is to increase the amount of trade flowing through a particular passage, not only so that the country increases its revenue, but also to increase their geo-economic power, giving them greater lobby on the global stage. In an increasingly interdependent and interconnected world, preventing trade from reaching its destination, through trade blockades, could collapse economies and governments. As the North Eastern and Western passages emerge between the melting ice, eight countries are fighting to gain sovereignty. This then enables them to declare whether these waters are internal waterways or territorial waters, giving them greater geo-economic power. One could now argue control of global trade wields more power than a strong military. We all depend on global trade, yet those who ultimately control it, often lie far from the governments we elect.

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