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Weaponisation of Economic Activity: A Reality in Global Trade
Context:
External Affairs Minister S. Jaishankar, speaking at the Raisina Dialogue 2025, highlighted the growing link between business decisions and national security, stating that tariffs, sanctions, and financial restrictions are now common tools of power.
Evolution of Trade as a Strategic Tool
- The concept of weaponisation of economic activity refers to the strategic use of trade, finance, and technology as tools of geopolitical influence.
- It has become a defining feature of contemporary international relations, shaping economic policies, trade agreements, and national security strategies.
- Historically, trade was considered an economic activity driven by cost and efficiency.
- However, in recent years, trade decisions are increasingly influenced by trust, reliability, and geopolitical alignments.
- Countries now factor in national security considerations while making trade and investment decisions.
Recent Examples of the Weaponisation of Trade
- US-China Trade War: The imposition of tariffs on Chinese goods by the US and countermeasures by China.
- China-Australia Trade Dispute: Following Australia’s call for a COVID-19 investigation, China imposed trade restrictions on Australian exports.
- Russia-Ukraine Conflict: Sanctions on Russian energy exports, restricting access to global financial systems.
- US Sanctions on Iran: Economic sanctions aimed at limiting Iran’s nuclear ambitions.
- China-NBA Controversy: Economic pressure exerted on the NBA following support for Hong Kong protests.
- Norway-China Trade Freeze (2010-2018): After the Nobel Peace Prize was awarded to Liu Xiaobo, China reduced trade with Norway.
Tools Used in the Weaponisation of Trade
- Tariffs and Trade Barriers
- Imposed to restrict imports, often under the pretext of national security.
- Example: US tariffs on steel and aluminium imports under Section 232 of the Trade Expansion Act.
- Economic Sanctions
- Targeted measures against countries, individuals, or entities.
- Example: Western sanctions on Russia, limiting its access to international financial markets.
- Export Controls and Technology Restrictions
- Restrictions on the sale of critical technologies.
- Example: US restrictions on semiconductor exports to China.
- Financial and Banking Restrictions
- Blocking access to international financial systems.
- Example: Russia’s exclusion from the SWIFT payment system.
- Energy Supply Manipulation
- Controlling energy exports to exert pressure.
- Example: Russia’s reduction of gas supplies to Europe post-Ukraine war.
- Boycotts and Consumer Pressure
- Informal state-backed consumer boycotts.
- Example: China’s boycott of South Korean products over the THAAD missile defence system deployment.
Impact on Global Trade and Economy
- Erosion of Free Trade Principles
- The rise of economic coercion undermines the rules-based international trade system.
- Example: The WTO dispute settlement mechanism losing effectiveness due to unilateral actions.
- Disruptions in Global Supply Chains
- Trade weaponisation leads to uncertainty in supply chains, forcing countries to adopt self-reliance strategies.
- Example: India’s push for Atmanirbhar Bharat (self-reliance) in critical sectors.
- Financial Market Volatility
- Sanctions and economic restrictions cause instability in global financial markets.
- Example: Fluctuations in global oil prices following sanctions on Russian crude oil.
- Rise of Alternative Trade Alliances
- Countries seek regional trade agreements to bypass economic restrictions.
- Example: India’s engagement with UAE, Russia, and Southeast Asian countries for trade diversification.
India’s Position on Trade Weaponisation
- Balancing Economic and Strategic Interests
- India is negotiating trade agreements with the US, UK, and EU, focusing on trust-based partnerships.
- Example: India-US negotiations to reduce trade surplus concerns.
- Strengthening Economic Resilience
- India aims to diversify its trade partners and reduce dependence on specific markets.
- Example: Expansion of India’s exports to Africa and Latin America.
- Strategic Use of Tariffs and Trade Policies
- India employs tariffs selectively to protect critical sectors.
- Example: Tariffs on Chinese imports to support domestic manufacturing.
- Building Trusted Trade Partnerships
- Emphasis on economic diplomacy to create resilient trade relations.
- Example: QUAD countries enhancing technology and supply chain cooperation.
