The Great Game: How Geopolitical Tensions are Shaping Global Trade

5th March 2021

Geopolitical issues, including US-China relations and Brexit's aftermath, are becoming significant drivers of the global economy in 2021. This piece explores their impact on international trade.

As we venture into 2021, the global economic landscape is increasingly defined by the geopolitical tensions between major powers. These tensions are not merely political spectacles—they are shaping the very structure of international trade, influencing everything from supply chains to tariffs and foreign investments. With the world still reeling from the pandemic's economic shockwaves, political fault lines, such as the continuing saga of US-China relations and the aftermath of Brexit, are having an outsized impact on the way goods and services move across borders.

The relationship between the United States and China has long been a cornerstone of global trade, but in recent years, it has transformed into a complex and fraught geopolitical struggle. What once appeared to be a cooperative economic partnership is now marked by competition, distrust, and the pursuit of strategic advantage. Tariffs and trade wars have dominated the headlines, and both countries have worked to establish trade alliances that could counterbalance each other's economic clout.

In 2018, the US launched a trade war with China, slapping tariffs on hundreds of billions of dollars’ worth of Chinese goods. In return, China imposed tariffs on US goods, triggering a cascade of retaliatory measures that destabilised global supply chains. While the "Phase One" trade deal signed in January 2020 provided a temporary ceasefire, the underlying tensions have not disappeared. The trade war and its consequences have forced companies to reassess their reliance on Chinese manufacturing and to diversify their supply chains. For many, the risk of economic decoupling between the US and China has become too great to ignore.

Yet, the story of US-China relations cannot be understood without considering the broader context of global trade. China has emerged as the world’s second-largest economy, and its market has become indispensable to businesses around the world. It is both a key supplier of goods and an increasingly important consumer of products and services. This dual role has made China a linchpin in the global economy, and any shift in its economic policies can ripple across the world.

From a trade perspective, China’s Belt and Road Initiative (BRI) exemplifies the country’s ambitions to reshape global trade routes and economic relationships. Launched in 2013, the BRI aims to build infrastructure projects and establish trade corridors linking China to Europe, Africa, and beyond. While critics argue that the initiative is a thinly veiled attempt to extend China’s political influence, there is no denying that it has had a significant impact on the global trading system. The BRI has fostered stronger ties between China and emerging markets, while also providing a strategic alternative to Western-led global institutions.

On the other hand, the United States has responded with its own initiatives aimed at countering China’s growing influence. The "Indo-Pacific Strategy," for instance, focuses on strengthening economic and military alliances with countries in Asia and the Pacific, counteracting China’s rise. At the same time, the US has continued to use its position in international organisations, such as the World Trade Organization (WTO), to challenge China on issues of intellectual property rights, market access, and industrial policy. The rivalry between these two superpowers is more than just a clash of economic interests; it is a battle for global leadership in a rapidly changing world.

The impact of these geopolitical tensions on global trade is far-reaching. Companies are being forced to rethink their global supply chains, with some opting to "onshore" or "nearshore" production in an attempt to reduce their exposure to the risks of trade wars and tariffs. The shift towards regionalisation of supply chains is a trend that is likely to accelerate in the coming years, as businesses seek to mitigate geopolitical risks and ensure greater resilience in their operations. The relocation of production to countries outside of China—such as India, Vietnam, and Mexico—reflects this growing concern over the unpredictability of US-China relations.

As if the US-China dynamic were not enough, Europe has also found itself at a geopolitical crossroads. The Brexit referendum, which resulted in the United Kingdom’s departure from the European Union, has left an indelible mark on the continent’s economic landscape. The UK’s decision to leave the EU has not only altered the political and economic relationship between the two but also introduced a host of uncertainties for businesses engaged in cross-border trade.

Brexit has brought about new trade barriers between the UK and EU member states, from customs checks to regulatory divergence. In particular, the introduction of tariffs on goods traded between the UK and the EU has been a significant blow to businesses that relied on frictionless trade across the English Channel. The effects have been particularly severe for industries such as agriculture and manufacturing, which rely heavily on supply chains that span multiple countries.

While the UK’s exit from the EU was portrayed by some as a triumph of national sovereignty, the reality has been far more complex. As the UK seeks to carve out new trade deals with countries around the world, it faces the challenge of negotiating on its own terms in a world that is increasingly defined by regional economic blocs. The United States, for instance, has been a key ally of the UK, but the Trump administration’s "America First" approach to trade has made it clear that the US is not necessarily inclined to offer favourable terms to its closest allies.

For Europe, the political ramifications of Brexit are also significant. The EU must contend with the departure of one of its largest economies and the weakening of its political cohesion. The UK’s exit has triggered a period of introspection within the EU, with some questioning the future direction of the union. Will it continue to deepen its economic and political integration, or will it become more fragmented, with individual member states pursuing their own national interests?

In many ways, Brexit has underscored the tension between globalisation and nationalism—a theme that has been explored in English literature for centuries. The concept of national identity and sovereignty has long been a central theme in works such as The Merchant of Venice, where the conflict between the individual and the collective plays out against the backdrop of trade and commerce. Just as Shylock, the Venetian moneylender, seeks to assert his own rights within the confines of Venetian law, so too do countries like the UK and the US seek to assert their sovereignty in the face of a globalised economic order.

Yet, as Shakespeare’s play reminds us, the pursuit of personal gain at the expense of others can lead to unintended consequences. The rise of protectionist policies and trade wars, both in the US and Europe, could ultimately harm the very economies they seek to protect. The lesson here is clear: in a world of interconnected markets, no nation can truly prosper in isolation. Just as the characters in The Merchant of Venice find themselves entangled in a web of legal and moral dilemmas, so too must countries grapple with the complexities of a globalised economy.

Looking ahead, the geopolitical landscape promises to remain a key factor shaping the future of global trade. As the US and China continue to jockey for position in the global arena, and as Europe adapts to life post-Brexit, businesses will need to navigate an increasingly complex set of challenges. The world may be more interconnected than ever before, but the path to economic cooperation will be fraught with political and economic tensions. Ultimately, the greatest challenge for global trade in the 21st century will be finding a way to balance national interests with the need for international collaboration—a task that, like the great works of literature, will require both wisdom and foresight.