Politics and Trade: friend or foe?

That politics and trade are closely intertwined, is painfully obvious from the Ukraine crisis and the ensuing tensions between Russia and the West. Where in Ukraine actual weapons are used to fight the conflict, Europe, the United States and Russia put up a fight in economic terms. Economic warfare is relatively costless. That is to say, there are usually few casualties. However, the pain is borne by the companies that do business with a country considered hostile. Politics, however, can also have a positive effect on trade. At a political level, agreements can be made, and trade missions in the company of political (or royal) representation can open doors that would otherwise remain closed.

The immediate reason to impose sanctions and the extent of the penalties vary, depending on the situation. Russia closes borders to a long line of food products, affecting companies all over. Europe chooses financial sanctions affecting mainly institutions such as banks. Although European sanctions may seem weak, the consequences can be significant. Without access to international financial markets, it is difficult for the Russians to find capital for investment. That could eventually have major implications for the economy of a country.

Trade negotiations during a WTO summit in Bali, 2013. source: wto.org

World Trade Organization as arbitrator
In international trade, the World Trade Organization (WTO) seeks to expand free trade wherever it can. In several meetings of the member states, 160 countries worldwide, agreements are made on trade. These negotiations usually take several years to complete and are named after the place where the negotiations begin. The final negotiations, the Doha Round, began in 2001 in Doha, Qatar. Amongst other agreements on trade for agricultural products, services and intellectual property rights were on the program. To date, no agreement has been reached.

But the WTO has another function. Countries can approach the organization to resolve a trade dispute. The WTO operates as a kind of arbitrator and decides whether barriers are justified or not. If a country is vindicated, that country often gets permission to impose certain restrictions on the country with which it has a conflict.

Economic sanctions used more often
Since the end of the Cold War, the number of times that sanctions were imposed has greatly increased. Progressively, economic sanctions are seen as an alternative to military conflicts. Experts disagree about the effectiveness of the sanctions. The business community is generally critical of sanctions. Several CEOs have expressed concerns about the sanctions now imposed on Russia.

But politics and trade can also reinforce each other. Political decisions to establish a common market within Europe, may offer additional trade opportunities. Import and export from EU Member States has become easier, even though EU critics lament the cost of membership.

Trade missions
Trade missions are another way in which politics and trade are mutually beneficent. Regularly, a trade delegation accompanies a Secretary on foreign visits to strengthen economic ties. King Willem Alexander of the Netherlands has spearheaded a promotional campaign to facilitate Dutch trade abroad. Just how effective these missions are, is hard to tell.

The media sometimes report on the supposed benefits of a given trade mission. A recent trip to China is reported to have yielded 300 million Euro and a stack of letters of intent for further steps. As for the participation of Royalty into a trade mission, the successes are difficult to gauge. The Dutch Ministry of Economic Affairs has calculated that the participation of the Royal House in trade missions is beneficial. The missions, it claims, would yield 200 million Euro annually. The presence of a king gives extra weight to a delegation, proponents say.