Can Trade Be Moral?
BY BORIS GROZOVSKI
Democratic countries have long traded with authoritarian ones, ignoring what is going on in them. Russia’s aggression against Ukraine could put a stop to this free trade approach. The United States and the UK want countries playing leading roles in the global economy to behave well in politics or stop trading. If such a change is possible, in the long run, it could ensure that respect for human rights and freedoms becomes a global norm. But is that approach realistic in light of the interconnectedness of the global economy?
“Good” Politics As an Access Condition
Since Russia’s invasion of Ukraine, the West has shown an unexpected solidarity in supplying Kyiv with military, humanitarian, and financial aid. The EU, Britain, and North America quickly and effectively coordinated the kinds of sanctions against Russia that were unthinkable earlier. Ukraine is not alone as it faces Russia’s aggression; half the world is helping. This was not the case during the first phase of Russia’s war against Ukraine in 2014 or the 2008 war against Georgia.
However, sanctions are a double-edged sword. It is impossible to develop a sanctions mechanism that imposes costs on just one side. The harsher the sanctions, the greater the losses carried by the actor that imposes them. No democratic country can force its people and businesses to undergo economic hardship for unknown goals.
By the end of April, Ukraine’s allies in the U.S. and UK had started to outline their long-term goals in this war. “We want to see Russia weakened to the extent that it can't do the kinds of things that it has done in invading Ukraine,” said U.S. defense secretary Lloyd Austin. The Speaker of the National Security Council confirmed that the strategic goal of the United States was "to limit Russia's ability to do something like this again." To deprive Russia of the opportunity for present and future aggression, the world must give up Russian oil and gas, said U.S. energy secretary Jennifer Granholm.
Abandoning Russian oil and gas can be painful for Europe, but, as Estonian prime minister Kaja Kallas repeated from March, “Gas may be expensive, but freedom is priceless.” The victory of Ukraine is a “strategic imperative,” stresses UK foreign secretary Liz Truss. In a late April speech, she proposed a formula for the West’s new economic doctrine most explicitly: “It’s time to wise up. Access to the global economy must depend on playing by the rules.”
For years, developed countries have sourced energy from authoritarian kleptocracies and allowed authoritarian elites to buy real estate, yachts, and soccer clubs and to stash their loot in Western jurisdictions. The West has contributed to the flourishing of regimes that violate human rights. Now Truss is saying that free markets should serve human progress, not rule-breakers who commit crimes at home and in other countries. The club of developed countries no longer wants to fund wars and to help bloody autocrats, even unintentionally. This, Truss warns, applies not only to Russia but also to China.
Before the Crimes or after Them?
Asking markets to serve human progress represents an attempt to institute a new doctrine of international relations, trade, and finances. If accepted, it would fundamentally change the world economy and politics. Liberal intellectuals are debating whether Immanuel Kant's hope that trade would usher in "perpetual peace" has perished in the suburbs outside Kyiv. After all, in this case the objects of trade are raw materials controlled by state-dependent monopolies. In other words, that trade is not free. An autocrat can ignore the decline in the citizenry’s standard of living.
However, there are questions. Should Western countries refuse to trade with ones that have already violated the global rules and done something completely out of the ordinary? Or can the "Truss doctrine" work preemptively? Would it be feasible to deprive the violators of access to the global economy when they show the first signs of violating human rights, eliminating political competition, or dangerous saber-rattling?
In a scenario of the preemptive use of the Truss doctrine, Russia would have been excluded in mid-2000s, after mass massacres during the Second Chechen War, assassinations of journalists, closure of independent media, and reprisals against political opponents. All this began in Russia not in 2022 but shortly after Putin came to power. But then both liberal-minded Russians and Western countries preferred to welcome Putin as the new progressive sheriff in town.
The preventive use of the Truss-Austin doctrine would imply that every country exists almost in a vacuum, which is not how modern economics works. A country’s inclusion in global trade and finance is not a reward for good behavior, nor is it allocated by anyone to someone else for any reason other than being a good deal.
Cutting Russia out of the global economy now seems to be a morally justifiable decision. But what would happen if this approach were extended to China for crimes against the Uighurs. More generally, who should decide, and how, which crime was enough to throw a country out of the world economy? Where would the line be drawn between those who were allowed to trade and those who were not allowed? Would a tiered approach to admission to trade become necessary?
Farewell, Free Trade?
So far, free societies have been buying raw materials from autocratic regimes and selling to those unfree regimes the latest technological products, including dual-purpose ones. Free societies have profited a lot from this exchange.
This subject has been developed more by philosophers than by economists. Leif Wenar, a Stanford professor and author of the book Blood Oil: Tyrants, Violence, and the Rules That Run the World,writes that we must do away with resource privilege. As he explains, “any group sufficiently powerful to maintain coercive control over a territory’s population holds the legal right to sell off that territory’s natural resources.”
By making free and fair agreements with tyrants, free societies get property rights to commodities. But those commodities have been stolen by the autocrats from the local population, Wenar holds. According to Wenar, trading natural resources with autocrats is not unlike buying stolen goods and giving back to autocrats the money to buy weapons, surveillance technology, and whatever else they need to stay in power.
By authorizing firms in developed countries to acquire natural resources from tyrants and thus protecting the firms’ property rights in the resources so acquired, we are offering a prize to every would-be autocrat or junta anywhere, writes the philosopher Thomas Pogge, a Yale professor. Whoever can gain effective power by whatever means will have the legal power to confer internationally valid ownership rights to the country’s resources. The resource-rich countries are more likely to have an authoritarian government; a strongman or a junta that seizes this revenue stream can use the money to buy its way into staying in power.
By controlling rents, strongmen and juntas can levy low taxes, which exempts them from accountability to the citizenry. Finally, such countries are more prone to civil wars, have lower economic growth, and have more poverty. Pogge suggests that all countries should adopt a constitutional amendment stating that only countries with democratically elected governments can legally trade. Wenar proposes that trade with tyrants be treated as a violation of property rights and national self-determination resulting from the usurpation of power.
As the Russian example shows, an attempt to make an authoritarian regime less prone to war by means of trade has been unsuccessful. The “trade fosters peace” principle did not work in the Russian case. On the contrary, democracies became dependent on Russia’s supply of energy. Trade, as Paul Krugman has written, can be “a force for coercion, not peace.”
Authoritarian regimes have learned very well how to use free trade to their advantage. Now it is time for democracies to do the same. It won’t be easy: autocracies now account for 31 percent of the global GDP (14 percent without China). Cutting off a third of the global economy is impossible: autocracies are closely intertwined with democracies economically. They participate in the global division of labor, trade, investment, and finance.
As a result, the world will face not only higher prices for oil, gas, and wheat because of sanctions against Russia. Interdependency may manifest in the most unexpected ways. For example, supplies of metals (nickel, palladium, titanium, scandium) critical to the U.S. aerospace and defense industry, as well as renewable sources of energy, may be threatened. If Russia begins to manipulate rare-earth metal markets by cooperating with China, the effect will be even greater. These metals are used in the production of semiconductors and batteries. Russia accounts for almost 38 percent of global palladium production; in South Africa, an alternative supplier, the political risks are also high. China has strategic metal reserves; this market is easily subject to blackmail and manipulation. How can the Truss doctrine be put into practice in this case?
So we should divide authoritarian countries into groups according to how aggressive they are in the foreign policy arena and what human rights they violate at home. If a system of admittance to the global economy could be built, it would need several levels of access. In part, this is already being done. Investment screening is being applied by the United States, the EU, Japan, and other developed countries. To a certain extent the Truss doctrine is already working, but so far only in the area of investment and technology imports.
With the World Trade Organization as an arbiter, most countries have managed to agree on the rules by which they trade with each other. Violations occur, but a dispute resolution mechanism is in place. Now it is time to start negotiating the global rules for world politics and universal human rights. As the world has learned to trade by the rules, it will eventually agree on political rules of conduct and respect for human rights. None of this should put into question the sovereignty of individual nations. But if a country wants to be part of the global humanity, it has to abide by the common rules.
The opinions expressed in this article are those solely of the authors and do not reflect the views of the Kennan Institute.
About the Author
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The Kennan Institute is the premier U.S. center for advanced research on Russia and Eurasia and the oldest and largest regional program at the Woodrow Wilson International Center for Scholars. The Kennan Institute is committed to improving American understanding of Russia, Ukraine, Central Asia, the Caucasus, and the surrounding region though research and exchange. Read more