Trade or Foreign Policy: The E.U. on Illegal Israeli Settlements

During the summer of 2026, the E.U. found itself at one point trying to make the unnecessarily arduous and utterly artificial distinction between trade and foreign policy as if they were mutually exclusive. This task was foisted on the Council of Ministers due to the domain-specific application of the state veto, which is to say, the requirement of unanimity. The sheer artificiality was outdone only by the absurdity of any of 27 states still being able to veto proposed federal law and policy in some but not all policy domains, and thus hamstring the E.U. even when the good of the whole, supported by the vast majority of states and E.U. citizens, supported action on the federal level. The global context at the time with respect to international relations belied a stark separation of trade from foreign policy.

In declaring a recommencement of a naval blockade on Iranian ports on July 13, 2026, for example, U.S. President Trump also said the U.S. would “be reimbursed, at the rate of 20% on all cargo shipped for any and all costs necessary to do the job of providing safety and security” to ships passing through the Hormuz Strait.[1] As a countering move of rhetoric, “Iran’s military command insisted it would not allow the US to ‘interfere’ in the key conduit for oil and gas, while also warning its Gulf neighbours—who have borne the brunt of Tehran’s attacks—against cooperating” with the U.S.[2] Clearly, trade itself, and especially protecting its conduit, can be seen as being closely intertwined with foreign policy in this case. The rising price of oil was clearly on Trump’s mind, especially with the “midterm” elections less than four months away, but also standing up to the Iranian military attacks on ships in the strait was also a probable motive, rather than merely to make “toll” money on shipping in the Middle East. In other words, political economy, rather than just business and economics, best describes the interlacing of trade and foreign policy. 

In fact, historically, the field known today as economics spun out of political economy. Even in Adam Smith’s Wealth of Nations, a non-mercantilist, regulative role of government in protecting competitive markets and even the role of the state in covering the “social” costs of capitalism, such as in providing housing and food to the unemployed, for example, are salient. Left to its own devises, a competitive market could concentrate into an oligopoly or even a monopoly as the refining industry did in the last quarter of the nineteenth century in North America, where oil was first discovered.

Therefore, it can be regarded as a legal fiction of sorts that the E.U. would treat a legislative proposal to ban trade with Israeli settlements, such as covered most of the land in the West Bank by 2026, illegally according both to international and E.U. law, as a matter of trade rather than foreign policy so only qualified majority voting rather than the unanimous consent that is necessary on foreign-policy proposals would be needed to pass the Council of Ministers. Referring to that council, the E.U.’s federal foreign minister Kallas reported, “The option that got the most support was banning the trade with the illegal settlements.”[3] She was referring to the E.U.’s states, which are represented both in the European Council and the Council of Ministers, similar to U.S. states being represented in the U.S. Senate. In American parlance, the consensus among “senators” was to ban all trade with Israeli settlements in the occupied territories, which by 2026 was down to the West Bank as Israel had razed Gaza to the ground in a holocaustic genocide. That the consensus was not instead to ban all trade with Israel as well as its illegal settlements, given the state-sponsored destruction of Gaza, is another question, which presumably would also qualify to be decided in the Council by qualified majority vote rather than unanimity, for trade even as foreign policy is still trade.

That the E.U. still made such a distinction as to the voting threshold in 2026 even as the Union was considering adding more states to the east even though foreign policy and trade had become so integrally related in international relations generally can be said to be artificial, and thus irrationally political rather than having merit in the functioning of the E.U.’s federal system. In fact, even at 27 states, the requirement of reaching unanimity on legislation and policy in the European Council and the Council of Ministers (aka Council of the E.U.) had already made it very difficult to pass even widely favored proposals due to Viktor Orbán’s “Euroskeptic” (i.e., anti-federalist) ideology. In other words, he was able to undercut the E.U. from within, and yet even months after his fall from power in the E.U. state of Hungary, the matter of subjecting the matter of deciding how to vote on whether to ban trade with illegal settlements was still arduous! Even though Kallas was the foreign minister of the E.U. (under the stealth misnomer of “High Representative” to satisfy anti-federalists), banning trade falls under trade primarily, and thus qualified-majority voting rather than unanimity. Perhaps a more robust, courageous, foreign-policy proposal worthy of human-rights and even just international-law proponents would have been to ban trade with Israel en toto, but even such a proposal would fall under trade and thus rightly be subject to qualified-majority voting. Moreover, with 27 states, and thus 27 political opinions of sitting governors, that the Councils still subjected any decision to unanimity especially after Viktor Orbán suggests that the need to distinguish trade from foreign policy anyway could and should have been obviated by common sense. 

That on 13 July, 2026, “a majority of member states . . . backed framing the measures as a trade rather than a foreign policy tool, which would avoid the need of all E.U. [state] governments to unanimously back the move” should have been enough because, simply put, banning trade is about trade, which is subject to qualified-majority voting.[4] The “move” should not have been needed in the first place, were enough Europeans convinced that the very existence of the state-veto in the Councils is an antiquated notion based on the former days before the E.U. when the states were fully sovereign, rather than semi-sovereign in a political union, which also has some governmental sovereignty. In fact, qualified-majority voting itself is an instance of such sovereignty because states on the losing end of such a vote must obey the decision nonetheless. 

Therefore, the very continuance of the state veto is predicated on denial. Put another way, the world was moving forward; why, then, were the E.U. state governments so utterly intractable, so beheld to their own power, even as the E.U. was poised to add even more states without first jettisoning the requirement of unanimity in the two councils that represent states? Perhaps the Parliament and the Commission should have been delegated more authority at the federal level until the states could get their act together in the two federal councils.

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1. Aleksandar Brezar and Peter Barabas, “Trump Reimposes U.S. Blockade and Demands 20% Hormuz Shipping Fee,” Euronews.com, 13 July 2026.
2. Ibid.
3. Mared G. Jones, “Full Ban on Israeli Settlement Trade Gets ‘Most Support’ from EU Countries, Kallas Says,” Euronews.com, 13 July, 2026.
4. Ibid.

On America’s Dominance in NATO: The E.U. as a Contributory Factor

Just after the E.U. had successfully negotiated (mostly) free-trade treaties with India and a few South American state-level countries, the E.U. and U.S. were at odds on the ownership and control of Greenland to such an extent that the NATO alliance was strained if not fraught. The resulting power-vacuum with respect to military alliances could be filled by the E.U. strengthening its federal foreign policy and defense powers and forming a military alliance with India and even South America in order to put less reliance and thus pressure on the weakened NATO alliance.  This is not to say that new military alliances would necessarily or even probably form; rather, such alliances would be in line with the dynamics and logic of power itself at the international level. I contend that the unbalanced balance of federal-state power in foreign policy and defense in the E.U. was a major contributory factor of the dominance of the U.S. in NATO.

U.S. President’s politically aggressive threats regarding making Greenland a U.S. territory (but not a state) made the American dominance in NATO suddenly unsavory to the Europeans. At the end of January, 2026, the former European Council president Charles Michel was unusually blunt by European (but not American Midwestern) standards. “NATO chief Mark Rutte should stop being an ‘American agent’ and unite the fraught military alliance in the face of the United States’ ‘hostile rhetoric’ and ‘intimidation’,” Michel told Euronews.[1] Whereas his words, hostile rhetoric and intimidation, applied to President Trump were nothing new; it was the expression, American agent, that stood out. Even though the dominance of the mighty American military power in NATO was hardly news, that Michel said it out loud signaled the depth of the Europeans’ displeasure at Trump’s overt messaging on Greenland. Michel was just as blunt about Rutte himself. “I want to be clear, Mark Rutte is disappointing and I’m losing confidence. . . . I’m not expecting Mark Rutte to be an American agent. I’m expecting Mark to work for unity within NATO,” Michel said.[2]

Rutte’s claim that Trump was the “Daddy” of NATO was admittedly over the top (Trump’s ego hardly needed the accolade of Daddy), but Michel’s criticism is weaker concerning Rutte’s efforts to find “an off-ramp for Trump to climb down on his recent threats to trigger a trade war” with the E.U. over differences on Greenland.[3] Dissipating the related economic and political escalations between countries in NATO served the interests of unity in NATO, so Rutte deserves credit for providing Trump with an off-ramp.

Michel also claimed that the E.U. had been a “very loyal partner” to the U.S. and thus did not deserve Trump’s threats.[4] Instead of going on to analyze the relative validity of the positions of the E.U. and U.S. on which continent should own and control Greenland, the road less travelled by analysts concerns the argument that the E.U. would be more likely to reach a parity of power with the U.S. in NATO were the E.U. states willing to transfer more governmental sovereignty to the federal level in foreign policy and defense. This would include (but not be limited to) moving off reliance on the principle of unanimity to hold votes in the Council by qualified-majority. As the executive branch, the Commission would of course have more shared and exclusive competencies (i.e., enumerated powers) in foreign affairs and militarily (with control over more than the 60,000 troops). As in the U.S., both the states and the Union would have armies, and the Commission could temporarily borrow the state militias as needed. That the state governments have direct power in the European Council and the Council of Ministers, whereas the American states are only indirectly represented in the U.S. Senate, means that the E.U. would be less likely to abuse its federal police and even the federal borrowing of state armies as Trump was able to do.

Moreover, that the U.S. had become so violent, in part due to the astounding corruption in local police departments and in part due to the Trump administration is itself a reason why E.U. citizens and their elected representatives have good reason to bolster defense at the federal level. Gone were the days when America stood for the little guys rather than the bullies in the world. Unfortunately, the language that speaks most clearly to Trump, Netanyahu, and Putin is that of counter-force. Were the E.U. not so bottom-heavy militarily (i.e., reliant on the state armies), perhaps a federal force could have gone into Ukraine and Gaza to push the aggressors back. Might-Makes-Right would have suffered a set-back rather than stand to become the default in post post-World War II global order. Therefore, the Europeans could stand to do some navel gazing on why the U.S. has been so dominate in NATO.  

1. Mared G. Jones, “Mark Rutte Should Stop Being an ‘American Agent’ and Unite NATO, Charles Michel Says,” Euronews.com, January 30, 2026.
2. Ibid.
3. Ibid.
4. Ibid.

E.U.-India Free Trade

Early in 2026, “(a)fter months of intense negotiations,” the E.U. concluded “a free-trade deal with India,” which, if ratified by the E.U.’s upper and lower chambers (the European Council and the European Parliament), would sharply reduce “tariffs on E.U. products from cars to wine as the world looks for alternative markets following President Donald Trump’s tariffs.”[1] Signaling that something more than trade was involved in the treaty, “(b)oth countries hailed a ‘new chapter in strategic relations’ as both sides” sought “alternatives to the US market.”[2] The E.U. had just engineered a free-trade treaty with four South American countries. Competition for better, cheaper, trade was reducing Trump’s bargaining power by means of tariffs. Using them to inflict geopolitical harm on other countries, including the E.U., would become less effective as free-trade deals excluding the U.S. materialized. The implications, and even the motive in the free-trade negotiations between the E.U. and India, extend beyond economics.

At the time, India was “facing tariffs of 50% from the Trump administration.”[3] Half of that percentage was a penalty on India for buying Russian oil. The tariffs “severely dented” India’s exports and thus gave India a huge incentive to negotiate with the Europeans. On the European side of the equation, Trump had just threatened to impose tariffs on any country opposing the American purchase of Greenland before relenting at Davos. Such market uncertainty had momentarily stirred Wall Street and shaken European export-oriented businesses. Quite understandably, given such uncertainty, E.U. President von der Leyen was emphatic when the India deal was reached. “We did it—we delivered the mother of all deals,” she said.[4] “This is the tale of two giants,” she added, “who choose partnership in a true win-win fashion. A strong message that cooperation is the best answer to global challenges.”[5] The American president, von der Leyen’s counterpart, was without doubt among the challenges, which also included Russia’s militaristically aggressive president and the wholly unrepentant genocidal state of Israel. The broader message from the E.U.-India trade announcement is that the bad boys can be obviated, and that really good trade deals can be reached as a result.

The E.U.’s trade minister Sefcovic observed that the pressing need to find other markets and thus insulate E.U. trade from whimsical American impediments to E.U.-U.S. trade gave an incentive for negotiations to proceed “with a new philosophy” of avoiding subjecting sensitive goods to free trade. “If this is sensitive for you, let’s not touch it,” he explained as the new modus operendi in the negotiations.[6] I contend the pressing mutual interests to render Trump’s threats powerless fostered this new strategy. That is, both countries looked “to de-risk their economies from the threat of Trump’s tariffs.”[7] The hurdles that had scuttled E.U.-India trade negotiations beginning in 2007 were thus obviated at least in part due to the erratic trade policies coming out of Washington.

It is significant that the E.U. characterized the deal with India as an instance of “rules-based cooperation.”[8] Russia and Israel were both severely breaching international rules, and even U.S. President Trump’s whimsical application and withdrawal of tariffs can be viewed as contrary to the constancy of rules. Business abhors such volatility, and so do most governments. The bad boys are the exception, and the good boys and girls were smart to work around the baddies. Given the extent and depth of corruption (i.e., lies and refusals to enforce criminal law with impunity) and the sheer, unprovoked aggressiveness in the police departments of too many of the U.S.'s member-states and at the federal level, where the aggression directed at Minnesota citizens was nothing short of animalistic in January, 2026, the challenge to a rules-based rather than power/whim-based order was a major American problem beyond “merely” Washington having supplied weapons to Israel to wipe Gaza and its people off the map—literally into cold, wet tents.  

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1. Peggy Corlin and Maria Tadeo, “EU Inks ‘Mother of All Deals’ with India Trade Agreement Amid Global Turmoil,” Euronews.com, January 27, 2026.
2. Ibid., italics added.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.
7. Ibid.
8. Ibid.

Tariffs as a Negotiating Tactic: Undercut by Wall Street Expediency

With all the economic and political turmoil from the anticipated American tariffs, it may be tempting, especially for financially-oriented CEOs and billionaires looking at quarterly reports, to call the whole thing off even though doing so would deflate the American attempt to renegotiate trade bilaterally with other countries. The concerns of the wealthy, whether corporations or individuals, have their place, but arguably should not be allowed to "lead the proverbial dog from behind, lest the dog run in circles and get nowhere." Moreover, the notion that any goal that is difficult and takes some time to materialize can or even should be vetoed by momentary passions at the outset is problematic and short-sighted. That U.S. President Trump's announcement of bilateral tariffs quickly brought fifty countries to the negotiating table is significant as a good sign for the United States, as long as that country's powerful business plutocracy (i.e., private concentrations of wealth that seek to govern) can be kept from vetoing the emergent trade policy, which at least in part is oriented to trade negotiation and ultimately to the notion that fair trade is conducive to increased free trade. 

As of 3:10 pm (CET) on April 7, 2025, the Euro STOXX 50 was down 5.27 percent, and the STOXX 600 lost 5.15 percent of its value. “The bloodbath is in full swing, and that’s exactly what you see when you look at the European markets. There is no safe haven; equity markets have entered a complete free-fall with no clear bottom in sight,” according to Zaye Capital Markets.[1] Meanwhile, the Dow Jones opened down 3.2 percent.[2] “The sheer volatility was enough to spook CEOs on that rainy Monday in New York. The Dow “briefly erased a morning loss of 1,700 points, shot up more than 800 points, then went back to a loss of 629 points.”[3] The S&P 500 “likewise made sudden up-and-down lurching movements”.[4]

U.S. President Trump had “announced a 20% across-the-board tariff on imports from the European Union, set to take effect on 9 April,” with steel, aluminum and cars being subject to a separate 25% rate; over all, over €380 billion in E.U.-made products could be affected.[5]

In that uneasy context, I contend that two markers are worthy of attention, only one of which is arguably productive.  E.U. President von der Leyen proposed to her counterpart, U.S. President Trump, that both unions cut their respective tariffs to zero; essentially, there would be a free-trade agreement on industrial goods. Just such an overture is in line with President’s intent that other countries get rid of their unfair trading practices, which, the president believed, had aggravated the U.S. trade deficits for decades. In this regard, President von der Leyen’s proposal can be viewed as an overture, which could lead to a counter-proposal that not only tariffs, but also non-tariff barriers of the E.U. be removed (or that the E.U. compensate the U.S. for those annually).

Adam Smith’s ideal of competitive free-trade rather than mercantilism presupposes trade that is free even of non-tariff barriers so comparative advantage can be a major factor in international trade. To be sure, national-security concerns are arguably legitimate constraints on Smith’s ideal of competitive advantage. Being dependent on China for computer chips would be risky for both the E.U. and U.S. because China could hold either or both unions hostage as Taiwan is invaded by China with impunity.

So von der Leyen’s response was in “the right direction,” if free and fair trade was among Trump’s goals in unilaterally imposing tariffs—that is to say, to the extent that the announcement of tariffs was geared to triggering real negotiations.

That the billionaire hedge fund manager, Bill Ackman, a supporter of President Trump, just one day earlier, had “urged the president to pause his sweeping new tariffs, warning they could economically devastate America if implemented, as planned,” can be likened to a driver unilaterally letting some air out of his own car’s tires just before a race.[vi] Ackman may have been rich, but his intelligence was lacking in his assumption that the tariffs would be permanent even though fifty governments were already willing to negotiate on trade with the American government. Also, his understanding of negotiation could have used a spare tire.

It is one thing for a republic to be an open society, and quite another for a dog to be led by its own tail, meaning for the U.S. Government to be led by greedy and short-sighted finance managers and CEOs of even major corporations. The enlightened self-interest of whom would be focused on the wealth that could be obtained from fewer trading obstacles in other countries, for the money that an American-based (and owned) company can possibly be made on exports from the U.S. is hardly nugatory. The capture of legislative and regulatory bodies by private companies and billionaires is a danger not only to democracy itself, but also to a country’s pursuit of its long-term strategic interests globally. A dog that is led by its hungry tail doesn’t get very far, and an argument can be made that such a dog doesn’t deserve to get very far, for weakness within a polity is hardly laudatory. Put another way, that elected offices in a republic have terms of years rather than, say, just a few months, is an important impediment to short-term passions in society seeking to get their way in policy. Sometimes long-term goals require momentary sacrifice even if the measures are erroneously assumed to be permanent rather than negotiating tactics.

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1. Angela Barnes, “European Markets Dive as Global Tariff Fears Shake Investor Confidence,” Euronews.com, April 7, 2025.
2. Ibid.
3. The Associated Press, “Stocks Are Making Wild Swings as Markets Assess the Damage from Trump’s Trade War,” Apnews.com, April 7, 2025.
4. Ibid.
5. Jorge Liboreiro, “Von der Leyen Offers Trump ‘Zero-For-Zero’ Tariffs Deal on All Industrial Goods,” Euronews.com, April 7, 2025.
6. Lee Moran, “Billionaire Trump Backer Warns America of ‘Self-Induced Economic Nuclear Winter.” The Huffington Post, April 7, 2025.

Russian Electricity Hits a Financial Curtain

On February 8, 2025, the E.U. states of Estonia, Latvia, and Lithuania turned off all electricity-grid connections to Russian and Belarussian supplies of electricity, thus reducing revenues for the belligerent country and its ally. Electricity would thenceforth merge with the Continental European and Nordic grids through links with the E.U. states of Finland, Sweden, and Poland. Europe was taking care of its own, for a price of course, while Russia was increasing trade with China and other countries to make up the difference from decreasing trade with Europe. In short, it can be concluded that unilaterally invading a country has economic consequences that diminish and reconfigure international business.

At the time, European media played up the “geopolitical and symbolic significance” of the “severing of electricity ties.”[1] To these, economic significance could be added. No longer could officials in Russia’s government count on the stable revenue to help finance the military incursion into Ukraine. The economic interdependence between Russia and the E.U. was decreasing. Moreover, the philosophy of international business, which maintains that increasing commercial ties, including trade and foreign direct-investment, reduces the probability of war because such conflict would come with a financial cost. In fact, decreasing economic interdependence can itself make war more probable as there is less to lose financially from going to war.

Moreover, taking the E.U. and Russia as empire-scale countries that in themselves can be viewed as regions in the world, a financial curtain replacing the Iron Curtain of the Cold War could be said to be the “big picture” of which cutting off supplies of Russian electricity is just a part. In the age of nuclear weapons, a financial divide between the E.U. and Russia (and Belarus) could give rise to dangers of much greater magnitude than even Russia’s threats to use tactical nuclear weapons in Ukraine. Even though the view that if enough international business is established between two or more countries, war can finally be obviated has been shown to be faulty, eliminating trade and foreign direct-investment makes it easier politically for countries to go to war over other matters.

In short, the severing of business relationships can be viewed on the macro economic-geopolitical level on which the severing of ongoing business contracts can itself be viewed as a political weapon and, together with other severings, as part of larger economic wedge between even regions of the world. At that scale, as the world wars of the twentieth century demonstrate and perhaps pre-figure, war can be of a magnitude that the weapons unleased are nothing short of horrendous. Drawing an economic line roughly between Europe and Asia can have very significant geopolitical and military implications. Perhaps it is owing to human nature that we are more prone to drawing such lines in which economic relations are severed than to reinforcing economic interdependencies in spite of the fact that they do not obviate war. It takes some time for a spider to weave its web, especially if the spider happens to be named Charlotte, but only a moment for such a web to be destroyed.

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1. Daniel Bellamy, “Baltic States Cut Russian Electricity Ties, Ending Decades of Reliance,” Euronews.com, February 8, 2025.

On the Potential of International Business to Render War Obsolete: The Case of Russian Gas

In a graduate-level course on international business, a professor sketched out the political-economic philosophy of international business, whose mantra is that if two or more countries have enough trade and foreign direct-investment, those countries would be less likely to go to war. In short, economic interdependence, thanks to international business, can render war obsolete and thus greatly enhance the human condition. Decades after I had taken that course, a business professor at the same university wrote extensively on the role that business can play in facilitating peace. Unfortunately, that economically-sourced theory of international relations downplays or ignores that the reasons or rationales for going to war and the decisions taken by a government for military-strategic reasons during a war can trump the (especially immediate) economic benefits from international business, whether in terms of imports, exports, or foreign direct-investment by foreign firms at home or by domestic firms abroad. This can occur even though revenue from taxes or state-owned enterprises having to do with trade and foreign-direct investment can help a government in fighting a war. The case of Ukraine cutting off Russian natural gas from traveling through Ukraine in pipes to the E.U. as of January 1, 2025 is illustrative of vulnerability in the theory of international business as a way to world peace.

In not allowing the 2019 transit deal between the Kremlin-owned gas company, Gazprom, and Ukraine’s Naftogaz to be renewed for 2025 and beyond, the Ukrainian government faced “the loss of some $800 million a year in transit fees from Russia, while Gazprom [stood to] lose close to $5 billion in gas sales.”[1] At the time, Russian forces were making further incursions in eastern Ukraine, so the Ukrainian military could have used the military hardware that $800 million could have bought, especially with isolationism soon to gain a foothold in the White House. Furthermore, that Gazprom had “recorded a $6.9 billion loss, its first in more than 20 years, due to diminished sales to Europe,”[2] suggests that Putin’s decision to invade Ukraine, largely for a noneconomic, imperial reason, had come with some economic costs. Put another way, Putin’s regime could have used the $5 billion in gas sales to the E.U. to help finance the invasion. International business was clearly not foremost two either government in the war. Rather than the pipeline reducing the chances of war when it broke out in 2023, the international commerce would become a casualty of war. Although international business benefits states, to reduce state interests in political realism to economics misses a lot and thus can lead to bad predictions regarding war and peace.

As for the E.U., at first glance it would seem that Europe would be less supportive of Ukraine in its war, including financially and in terms of sending military hardware because the Ukrainian government had just cut off Russian gas from reaching the E.U. in the middle of winter. Fortunately, the E.U. had anticipated the geopolitical strategic move by seeking out other sources of natural gas, such as the U.S., so the Russian gas through Ukraine only “represented about 5% of the European Union’s total gas imports, according to Brussels-based think tank Bruegel.”[3] A spokeswoman for the European Commission said at the time, “The European gas infrastructure is flexible enough to provide gas of non-Russian origin to (central and eastern Europe) via alternative routes . . . since 2022.”[4] Taking into account the continuing pipeline through Turkey, the E.U. had reduced “Russia’s share of its pipeline gas imports down from over 40% in 2021 to about 8% in 2023, according to the European Council.”[5] I submit that even if the E.U. had not prepared for the rather obvious decision of Ukraine’s government not to renew the transit deal with Russia in the midst of the Russian invasion, non-economic, geopolitical interests would have continued to fuel the E.U.’s desire to support Ukraine militarily, for fear of Russian inroads in eastern and even central Europe can easily be understood to trump even the economic benefits from international trade and foreign direct-investment with Russia.

In short, states are foremost political entities; not that they and the people who run them are not motivated by the economic benefits arising from international trade and foreign direct-investment, and these can admittedly make a difference on close calls on whether to go to war, but geopolitical considerations are primary. War and the effects thereof go beyond economics and business. A town being occupied, whether in Ukraine or Gaza, has existential implications for the people therein that extend beyond how trade is being impacted. In fact, as Israel has demonstrated toward Gaza, economic resources can be weaponized such as by withholding food and other humanitarian relief so as to kill off a population. Such a goal is not economic in nature, and international business is not sufficient to override such ideological goals, or even hatred itself. The limits to peace through economic interdependence stem from precisely this point: hatred goes beyond economics, so the latter can only go so far in constraining the former. The problem, in other words, is not that international trade and business haven’t been extended sufficiently to insure world peace, but that hatred can override economic self-interest.  

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1. Kosta Gak, Alex Stambaugh, and Anna Cooban, “Ukraine Ends Supply of Russian Gas to Europe,” CNN.com, January 1, 2025.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.

Energy and Global Population

There is a temptation, especially since the global average temperature reached the 1.5C increase threshold in 2023 much faster than anticipated, to focus narrowly on the progress in renewable energy sources without placing it in perspective relative to the total amount of energy being used globally, the annual increases in energy demand, and the root cause, the explosive growth in human population since the early 20^th century. The strategic geo-political international interests of countries impacted and should thus be considered as well.  

According to Nick Butler, a former advisor at BP, a European oil company, the global use of energy increased 4-fold by 2024 since 1965. The increased use of energy commercially has led to increased trade as supply has become global. The world has thus become even more interdependent, which means that yet another basis for political instability has sprung up. Interruptions in supply led to a political push in the U.S. for energy independence. Even though as of 2024 every country still depended on the global trade in energy, the U.S. was trending towards energy independence and could eventually even be in a position of being able to export energy supplies without importing any. It’s debatable, however, whether exporting energy increases a country’s power. It had not worked for OPEC in managing prices, although the oil shocks in 1974 and 1979 gave the impression that OPEC could have considerable leverage over the U.S. As it turned out, substitution and the development of new supplies undercut OPEC’s higher prices. In contrast, Butler contends, building up sources of energy is a source of wealth, though political instability can also result as fights can break out over the new wealth.[1]

Besides being at odds with efforts to reduce carbon emissions if the stock is exported to be consumed, maximizing stocks of oil, natural gas, and coal as a source of a country’s wealth be wrongheaded. It may suffer from the same fallacy that is in mercantilism. Under that economic policy, a country minimizes imports and maximizes exports in order to accumulate as much silver and gold as possible. According to Adam Smith, “The exportation of gold and silver in trade might frequently be advantageous to the country.”[2] Historically, “the exportation of gold and silver in order to purchase foreign goods, did not always diminish the quantity of those metals in the [British] kingdom. That, to the contrary, [the exportation] might frequently increase that quantity.”[3] This still assumes that increasing the stocks represents an increase in a country’s wealth. Before critiquing that assumption, let’s look at the argument wherein exporting gold and silver to pay for imports actually winds up increasing the domestic supply of those metals to a net-increase.”

How could trading away some of those precious metals that were used as money increase a country’s wealth? If a country has gold and silver in surplus, part of it could be exchanged “for something else, which may satisfy a part of [the domestic] wants, and increase [the people’s] enjoyments” at home.[4] The benefits from the exports of the metals to pay for imports of goods extend back to domestic manufacturers being able to produce more output, given the increased demand, and thus increase the division of labor—Smith’s big thing!—and thereby produce goods more efficiently.  According to Smith, “By means of [the increased demand], the narrowness of the home market does not hinder the division of labour in any particular branch of art or manufacture from being carried to the highest perfection.”[5] The increased division of labor enhances efficiency of production, which in turn makes the pricing of exports more competitive, and thus demand increases. As exports to satisfy the increased foreign demand for the goods rise, the gold and silver that are used abroad to pay for the goods come into the home country and thus increase its supply of the two metals.

As for the need to increase the holdings of gold and silver as much as possible, the assumption that this enhances a country’s ability to fight a war is something else that Smith contests in his text. Regarding the need for stocks of silver and gold from which to be able to send abroad some in order to pay for the home army while it is fighting abroad, “(t)he commodities most proper for being transported to distant countries, in order to purchase there, either the pay and provisions of an army, or some part of the money of the mercantile republick (sic) to be employed in purchasing them, seem to be the finer and more improved manufactures.”[6] These, rather than sending silver and gold, have the benefit of increasing the demand of manufactures. “The enormous expense of the late war,” Smith contends, “must have been chiefly defrayed, not by the exportation of gold and silver, but by that of British commodities of some kind or other.”[7] So the need to accumulate silver and gold by minimize the imports of manufactured goods while maximizing exports—the key tenet of mercantilism—is, according to Smith, less beneficial than free-trade. Moreover, he holds that the market mechanism is much better than government fiat in allocating goods, services, and even metals used as money and wealth.

Similarly, perhaps exporting other commodities than coal, liquified natural gas, and oil might benefit the U.S. more by enhancing the efficiency of domestic producers of other goods (and services), especially if economies of scale exist, and increasing employment since more workers would be required and each could be more efficient and thus valuable to the companies. Additionally, carbon emissions would not be as high were the U.S. to sit on, rather than export, its stockpiles of “dirty” energy sources.

Admittedly, the pressure from unmet energy demand in other countries that are not energy-independent would tempt the U.S. Government and American companies to respectively allow and make more exports of coal, liquified natural gas, and oil because such sales would be lucrative. Behind this pressure is the relationship between a steeply growing global population and the ongoing prevalence of the “dirty” energy sources in meeting the increasing demand from an exponentially growing population. Indeed, because of shale, the US had become the largest exporter of natural gas in the world by 2024.

As of February, the world had 4 billion more people than in 1970. That translates into a 10,000 increase per hour, which in turn means 200 million new customers for commercial energy supplies every year.[8] Along with the increased global population, oil consumption increased by 150% since 1970. Because renewables were still focused on electricity, which was only one fourth of energy demand globally in 2023, the “dirty” sources were still supplying most of the increased demand.[9] Put another way, the increased supply of renewables was not even keeping up with the annual increases in demand for energy. In spite of the carbon-emission targets, oil and gas still accounted for 80% of global energy in early 2024.[10]

Most of the increase in energy demand and all the increase in carbon emissions during the previous 20 years was in Asia Pacific (esp. China).  By 2024, China was importing a lot of energy supplies—even markedly changing the patterns of global trade away from the U.S. being the dominant import market—and accounted for about a third of total global emissions.[11] Crude oil imports doubled from 2013 and 2023.[12]

Unfortunately, forecasts did not include a dramatic reduction in oil and coal use. In China, 300 million poor people in China were projected in 2024 to move into the middle class by 2050. This means more energy use, and thus more oil and gas. Nuclear energy was being developed there, but coal was still a major source of employment in 2023, and fit the Party’s goal of shifting wealth inland. Also, wanting to be the world’s leading industrial power is not in the direction of decreasing the commercial demand for energy.[13]

It is important to include the impact on international relations. As of the start of 2024, China was dependent on imports from Russia and the Middle East. As the U.S. strategic oil-imports interest in policing the Middle East diminishes as the U.S. gets closer to energy independence, the increased interest of China in exercising control in that region meant that a new conflict-zone might open up between the two empires. 

With the world going from over 8 billion people in late 2023 to a projected nearly 10 billion in 1045, we can anticipate more demand for energy, and with it, more international (and domestic) instability. With plenty of oil still in the ground and decreased demand due to substitutes such as electric cars and nuclear energy, the world won’t run out of oil.[14] This is bad news for our species as the planet continues to warm. Even as the press highlights the increase in renewable energy sources, the default is much, much larger and thus diminishing the share of “dirty” sources will not come as quickly as we might think. In short, we are in quite a mess as a species both because it isn’t easy to reduce our sluggish reliance on sluggish oil and invisible gas, and our global population grew so fast and so much in the 20^th century and has continued to increase in the first two decades of the next century that, as biological organisms needing external sources of energy, the energy demand of our species is likely to keep on increasing even if we become more efficient. The expediential increase in population can be so large that its baleful effects outweigh any gain from increased efficiency. Again, the baseline is so massive that changes from greater efficiency merely mitigate the increased harm done. 

Similarly, the large amount of energy consumption from “dirty” sources relative to the increased supply from renewables renders any shift very gradual. The Titanic could not turn fast enough to avoid the iceberg in 1912 because the rudder was too small for the mass, and thus momentum, of the ship. We would like to turn away from “dirty” sources of energy, but our rudder pales in comparison to the magnitude (and proportion) of those sources. We need a bigger rudder, or we too may flounder. The global economy does not “turn on a dime.”

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1. Nick Butler, Lecture on Energy and Security, Yale University, February 15, 2024.
2. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 4^th edn., R. H. Campbell, A. S. Skinner, and W. B. Todd, ed.s (Oxford, UK: Clarendon Press, 1776/1976), sec 9, p. 433.
3. Ibid., sec 7, p. 431.
4. Ibid., sec 31, p. 446.
5. Ibid., sec 31, pp. 446-47.
6. Ibid., sec 29, p. 444.
7.  Ibid., sec 27, p. 443.
8. Nick Butler, Lecture on Energy and Security, Yale University, February 15, 2024.
9.  Ibid.
10. Ibid.
11. Ibid.
12. Ibid.
13. Ibid.
14. Ibid.

China or USA: Which Will Rule Trade?

The Association of Southeast Asian Nations (ASEAN) announced at its meeting in November 2012 that it would host negotiations among its members on “a sweeping trade pact that,” according to the New York Times, “would include China.” The trade agreement would include not only the ten countries that are in the association, but also six other countries that have free-trade agreements with the association. In addition to China, those countries include Australia, India, Japan, New Zealand and South Korea. Half of the world’s population would be included in the pact. Notably absent is the United States. This is no accident, as the Obama administration’s own proposal for an eleven-nation Trans-Pacific Partnership excludes China. In other words, the contending proposals may be more about a “control battle” between two contending empires—the United States and China—than anything else. Moreover, which proposal succeeds could say something about whether China succeeds the United States as the hegemonic super-power of the twenty-first century.

Barack Obama and Wen Jiabao: A contest of wills at the East Asia Summit in 2012.   Jason Reed/Reuters

That the immediate issue was that of China’s inclusion or exclusion can be gleamed from Barak Obama’s statement during one of the presidential debates in 2012. “We’re organizing trade relations with countries other than China so that China starts feeling more pressure about meeting basic international standards.” The inclusion of basic can be read as a slight against China. However, that protecting state-run enterprises as done by China would continue to be allowed under ASEAN’s Regional Comprehensive Economic Partnership suggests that what the U.S. takes to be settled in terms of what constitutes the basics of international trade may not have been so settled after all. China could point to U.S. companies being able to deduct expenses on their income tax forms as a form of government aid to the home team. Since at least the mercantilist era in the seventeenth century, governments have carried out industrial policies designed to profit domestic companies and increase tax revenue. Laissez-faire-based trade may not be realistic, considering the myriad ways in which governments interact with business. Regulation itself, in being of a strategic to some firms more than others, could have a differential impact on domestic and foreign firms. It is unrealistic to assume that governments would stop regulating just so the trade is “fair” as well as “free.”

As the twenty-first century was coming into its own, two major economic powers in the world were contending not only for economic dominance, but political hegemony as well. Would it be another American century, or would power follow economic growth over to Asia? The “control battle” itself ostensibly about ordering trade alliances could be an indication that power was about to shift on a massive scale in terms of which economic power would become the definitive superpower.

Source:

Jane Perlez, “Asian Nations Plan Trade Bloc That, Unlike U.S.’s, Invites China,” The New York Times, November 21, 2012.  

European Officials at the G20 Grapple with a New American Trading Position: Beyond the Joint Communiqué

It is perhaps only natural---only human—for us to take ourselves and our produced artifacts too seriously. Diplomats and other government officials, for example, fret arduously over mere words. When those words are etched in governmental or treaty parchment, the effort is understandable. The flaw of excess is evident in all the time and effort that go into the joint communiques of international conferences and meetings. I submit that the real politic at such occasions is much more significant even if nothing shows from it for some time.

At the March 18, 2017 meeting of the Group of 20, which includes the E.U. and U.S., the joint statement “became an unlikely focus of controversy” issuing in “a tortured compromise stating, in effect, that trade is a good thing.”[1] I submit that the use of such language is spurious—certainly much less than the attendees and even their principals back home supposed. The real politic was instead that the U.S. was “overturning long-held assumptions about international commerce,” and such transformational change takes time even just to register in minds ensconced in the status quo. That is to say, the real shift in power would need to play out in actual negotiations on trade, rather than in how to word a meeting’s joint statement.

A European official, Wolfgang Schauble, perhaps straining at the meeting to understand the new American position. (source: NYT)

“We thought that it was very important for the communiqué to reflect what we discussed here,” Steven Mnuchin, U.S. Secretary of the Treasury, said at the time.[2] He added that the historical language was not relevant. I submit that neither was it important that the joint statement reflect what was actually discussed, for such discussions—laying out the initial bargaining positions for upcoming negotiations—had legitimate importance. Yet even such importance was only as “the first shots,” for the true importance lie in the arduous negotiations to come, for the tyranny of the status quo never gives up without a struggle. At that G20 meeting, the American government’s “lack of reverence for existing norms and treaties” was “particularly unsettling to the change-averse Europeans.”[3] It is precisely such a struggle that is so important—for real shifts in power must somehow be accommodated or defeated. In relative terms, the importance of what to hand to the press after an initial meeting is but a napkin dwarfed by the real politics underneath.

Therefore, we need not be distraught that the best the Group of 20 could come up with on that Saturday was this: “We are working to strengthen the contribution of trade to our economies.”[4] Such an obvious statement is worth only scant time. Much more important were efforts of the Europeans to understand—in the sense of comprehending—just what the new American perspective was, for something new that does not fit within the existing modus operendi takes effort to be understood, and only from this basis can real negotiations begin.

1. Jack Ewing, “U.S. Breaks With Allies Over Trade Issues Amid Trump’s ‘America First’ Vows,” The New York Times, March 18, 2017.

2.  Ibid.

3.  Ibid.

4.  Ibid.

Wallonia Threatens to Veto the E.U.-Canada Trade Treaty: Complicating State Sovereignty in the E.U.

"The European Union and Canada signed a far-reaching trade agreement on [October 30, 2016] that commits them to opening their markets to greater competition, after overcoming a last-minute political obstacle that reflected the growing skepticism toward globalization in much of the developed world."[1] The obstacle may indeed have reflected increasing resistance at the time to globalization, but this veil can be pulled back to reveal the underlying political obstacle--that of states' rights in the E.U., taken to a crippling extreme.

The full essay is at "Wallonia Threatens to Veto the E.U.-Canada Trade Treaty."

1. James Kanter, "Canada and E.U. Sign Trade Deal, Bucking Resistance to Globalization," The New York Times, October 30, 2016.

E.U. Free-Trade After Brexit: Applying Domestic Requirements to International Trade

With Britain set to secede from the European Union, one major question was whether British businesses would continue to get unfettered access to the E.U.’s domestic market. I submit that subjecting free-trade negotiations to stipulations that are oriented to states rather than trading partners is unfair to Britain. Given the extraordinary influence of E.U. state officials at the federal level, this is a case in which the political influence of British business would be constructive rather than subversive of the public domain to private interests.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

China’s Increasing International Role: A Historical Departure

Historically, China was isolationist. The Opium Wars in the mid-19^th century is a good illustration of why. From this context, China’s announcements of a series of international trade and finance initiatives by which China would assume a larger leadership role internationally are stunning. Doubtless the enhanced role is in line with China’s geopolitical and economic interests. After all, political realism is hardly a dead theory in the 21^st century. Even so, the impact of the reversal on the culture is significant, and thus worthy of study. Specifically, the traditional mistrust of foreigners is likely to diminish. As it does, the Chinese will be more likely to consider and even advocate for economic and political principles, such as liberty and rights, that are valued elsewhere in the world but not so much in China. The result could be increased political instability. In short, the initiatives timed to coincide with the Asia-Pacific Economic Cooperation (APEC) meeting in November 2014 could eventually weaken the Chinese government’s grip on power.

In the Qing Dynasty (1644-1911), relations with non-Chinese peoples were conducted by “a variety of bureaus and agencies that, in different ways, implied or stated the cultural inferiority and geographical marginality of foreigners, while also defending the state against them.”[1] Even though countries such as Burma, Thailand, and Vietnam “shared many of the basic values of Chinese culture,” the emissaries “were expected to make a formal acknowledgement of China’s cultural and political prestige by [using] a language of subservience in diplomatic documents and by making the ritual prostrations (kowtow) before the Chinese emperor in royal audiences. In return, these countries were allowed to conduct a controlled volume of trade with China.”[2] Interestingly, a certain subservience and even inferiority may have been implied at the APEC meeting in Beijing in 2014 to the extent that China held huge quantities of foreign currencies in reserve (which could be used to invest in other economies) and foreign government debt (e.g., U.S. Treasuries). In this sense, China’s enhanced leadership role internationally is in line with the history. Even the taking on of a leadership role implies that the resulting increased trade and foreign economic relations more generally would be controlled in their contours, as the leadership was oriented to designing international economic infrastructure, and no system-design is perfectly neutral.

Just before the APEC meeting, the Chinese government announced a free-trade agreement with South Korea; both the timing of the announcement and the taking of initiative on the agreement imply significant—though not complete—control. Additionally, Chinese regulators “approved a plan to open Chinese stock markets wider to foreign investors by linking exchanges in Hong Kong and Shanghai.”[3] Simply in having a plan, the Chinese government was controlling how foreign investors would relate to the stock exchanges. Put another way, control is implied in having a plan, rather than alternatively watching foreign investors come in do as they will (e.g., speculate by selling-short, thereby trashing even some sound companies). Lastly, the Chinese government announced a $40 billion Chinese-financed fund to improve trade links between Asian economies. The money alone implies control. At the very least, the Chinese would have a big say in how the links are made.

The extent of the Chinese involvement in international economic relations is startling from a historical perspective, but the degree of control implied is not. Historically, the Chinese had good reason to distrust foreign governments. On August 29, 1842, the Chinese signed the British treaty of Nanjing in what is now known as the first opium war. Facing an epidemic of addiction, the Qing government had outlawed trade in the drug. In the treaty, British opium merchants could live and operate in five Chinese cities—Canton, Fuzhou, Xiamen, Ningbo, and Shanghai. Although only the latter was a boom town, illegal opium would come into China at a rate of at least 20,000 chests a year.[4] Additionally, the island of Hong Kong was to possessed in perpetuity by the British.[5] The United States, France, and a host of other countries also extracted concessions. All told, the Qing “had lost control of vital elements of China’s commercial, social, and foreign policies.”[6] As if this were not enough, the Tianjin treaty in 1858 opened all Chinese ports to British opium traders in spite of the fact that the possession and sale of the narcotic was still illegal under Chinese law. To pressure the Qing into signing the treaty that implied deep disrespect for Chinese law within China, the British burnt down the Yuan Ming Yuan, the exquisite summer palace on October 18, 1860. The Chinese were humiliated at such a disgrace.[7]

Deep scares inexorably become etched in the subterranean contours of a society’s perspective of the world. An insistence or at least a proclivity to control relations with foreign powers naturally goes along with an inner sense of insecurity masked as an insistence to relate only from a position of power—whether it be militarily or in having massive reserves of foreign currencies or debt as assets. What has changed is the extent of China’s interaction with other countries, economically and politically. Ironically, from the controlled design of international economic regimes, increased exchange can be expected—not only of economic goods and services under free trade, but also of ideological principles. In this sense, the Chinese government risks opening China up beyond what that governing party can control.

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1. Jonathon Spence, The Search for Modern China, 2^nd ed. (New York: W. W. Norton, 1999), p. 117.

2. Ibid, p. 118.

3. Joe McDonald and Youkyung Lee, “Asia-Pacific Leaders Agree to Work Toward Possible Adoption of Trade Deal,” The Associated Press, November 11, 2014.

4. Spence, Search for Modern China, p. 164.

5. Ibid., pp. 160-61.

6. Ibid., p. 163.

7. Ibid., p. 182.