Leibowitz: New Tensions—Will They Affect Global Trade?

First, Russia has massed between 100,000 and 200,000 troops on its border with Ukraine. No one is talking publicly about why that is happening, but the obvious concern is that Vladimir Putin intends to use them somehow.

Russia and Ukraine have been skirmishing for more than a decade at this point. In 2014, shortly after the Winter Olympics, Russia seized the Crimea. The global reaction was not able to reverse that action, which was one of the few forcible seizures of territory in the world since the 1970s.

Ukraine is supported by the United States but is not a member of NATO; the U.S. is not bound to defend Ukraine against a Russian attack. As of this writing, the U.S. has only mentioned increased sanctions against Russia if it violated Ukrainian sovereignty.

So, what are the possible sanctions? The list is long—given the willingness of many countries to impose trade sanctions in any number of situations, traders must pay increasing attention to the possibility that trade will be more difficult with Russia if things get hotter in the Ukraine. President Biden is scheduled to talk with President Putin on Tuesday with regard to Ukraine.

There are other trouble spots. The situation in Taiwan, another non-ally of the U.S., continues to be tense. China has been observed to violate Taiwanese airspace with increasing frequency. President Biden had a long video conference with President Xi Jinping on Nov. 15 about economic and geopolitical issues. Little appears to have been resolved and the tensions continue to mount. If Taiwan gets “hot,” trade restrictions are very likely to increase with China.

Last week, the Biden administration announced that talks on removing the Section 232 steel and aluminum tariffs were on hold because of concern with the EU-UK “protocol” concerning Northern Ireland. As a result of Brexit, the land border between Northern Ireland the Republic of Ireland, which has been largely unrestricted since 1998, has become an economically significant boundary, with Ireland continuing to be a member of the EU and the UK, which includes Northern Ireland, out of the trade bloc.

An interim solution was negotiated on the eve of Brexit that calls for the land border to continue to be open, but Customs and trade restrictions to affect trade between Northern Ireland and the rest of Great Britain. Northern Ireland is not happy with this situation. The UK government has the right under the EU protocol to impose “safeguards” on trade between Northern Ireland and the Republic of Ireland, but the U.S. is opposed to this and is holding the Section 232 tariffs hostage to UK concessions, roiling relations between the UK and the U.S. It’s ugly and likely to get uglier.

Ethiopia, in conflicts in recent years, looks to be increasingly unstable. The Horn of Africa is a vital international waterway, and is a very dangerous area now. North Sudan and especially Somalia are home to pirates that threaten shipping lanes from serving Africa, Asia and Europe (through the Suez Canal) as well as the Western Hemisphere. China has been active in the region, and its activity seems in part to be directed to driving a wedge between the countries of the region and Western powers, including France and Britain, who, along with Italy, had colonial possessions there until 1960.

Should confrontations in Ukraine, or Taiwan, or both get more serious, the first response may be sanctions—trade restrictions on the countries involved, financial restrictions on conducting international business transactions and the like. Undoubtedly, these measures will have collateral effects on traders and other businesses that depend on international commerce. We all need to pay close attention to international developments.

The situation is not unlike the run-up to World War II. In the summer of 1939, Europe was waiting for war. It was clear that Poland was the next target for Nazi Germany. In August, Germany and the USSR agreed on a non-aggression pact that sealed the fate of Poland and made war inevitable.

In 2021, there are similarities but major differences from 1939. One difference is the incalculably greater destructive power of weapons, which should made traditional war unthinkable. If that’s true, why is Russia massing on the Ukrainian border; and why is China increasing flights over Taiwan’s defensive perimeter?

Of course, we need to wait and see. For the present, it’s clear that the United States and other Western nations are looking for leverage to prevent the tensions with China and Russia from boiling over into conflict. Trade and economic sanctions are the first tools that come to mind.

Tariffs and financial restrictions may be increased and, for the moment, are unlikely to be relaxed, except in cases where the Western alliance can be strengthened. The agreement on steel and aluminum between the U.S. and the EU is a case in point. Japan and the U.S. could reach a similar deal soon. But that does not explain the U.S. posture with the UK. There may be some U.S.-EU politics at play here. It is not clear what is motivating the Biden administration. But it is troublesome evidence that agreements with friendly countries will not always be quick or easy.

We are living in troubled times.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
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