Introduction
In recent years, global trade has erupted at unprecedented levels. Industrialization, decolonization, and the emergence of new technologies have birthed many new economic hotspots, manufacturing hubs, and service industry-based countries. Nowadays, supply chains are stretched globally. Hence, any small obstacles anywhere in the world can topple the trades and happenings in the business world. The MNC revolution and the inception of e-commerce have played a key role in furthering an interconnected business system. This means there is virtually no nation that is self-sufficient and independent of any other nation. The recent economic sanctions on Russia have proved this again. While the western economies have sanctioned Russia for invading Ukraine, Russia in turn has stopped the supply of natural gases through its Nord Stream 1 pipeline (Source: Forbes).
Due to the conflict, businesses and civilians from both sides have experienced difficulty in their operations and survival. In such scenarios, international trade law must be a foundational framework that safeguards businesses due to geopolitical decisions. Are they effective, though? Sadly no. In this article, we will discuss some scenarios where international trade laws can be ineffective. While the WTO upholds fair trade across countries, it is not always followed. Here are some prime examples.
Top 7 geopolitical crises to keep your eyes upon
1. Wars
Wars have always been the most destructive evil that humanity has faced. Modern warfare is technology-based and fought between nations using economic, psychological, cyber, and conventional means of warfare. The looming threat of nuclear warfare is still present in many countries that are in conflict, like Israel and Arab countries, India and Pakistan, China and Taiwan, etc. While the decisive threat of nuclear warfare between the USA and Russia is over, the above-mentioned conflicts are still ongoing and have a deeper impact on the businesses that have an operational structure in these countries. International trade law has little influence over nations in the most conflicted situations.
Apart from the ongoing energy crisis due to the Russia-Ukraine war, one primary example would be the Arab-Israeli Yom Kippur War of 1973 and the resulting oil crisis. Then, the consequences of the war were felt by most of the world's nations, including superpowers like the USA. Because of Western intervention and policies in the war, the Organization of Petroleum Exporting Countries(OPEC) deliberately reduced oil production and raised oil prices by 300%! As a result, even developing countries like India underwent a period of dark economic turmoil (Source: CNBC TV18). As history will repeat itself, energy crises and raw material shortages can be fuelled by a remote war between two small nations. Hence, keeping an eye on wars is essential for every business owner.
2. Genocides
In 1995, Rwanda witnessed a genocide in which over 800,000 people were gruesomely killed. Furthermore, over 2 million people fled the country (Source: Wikipedia). It was the first modern genocide to shake the world since the Holocaust of World War II. Moreover, it started a refugee crisis, and two other wars in its aftermath and resulted in further instability and economic losses in the neighbouring regions. It was not only a disaster for humanity but also caused an economic crisis in the Rwandan economy. However, little research has been conducted on the economic downfall after genocides, whether it is Rwanda, Armenia, Germany, Poland, Rohingya, or Uyghur.
According to the researcher, Roland Hodler, Rwanda's GDP decreased by a staggering 58% in 1994. Its effects can still be felt in a country where there is a 31% decrease in GDP per capita. If the genocide had not happened, the country would have reached its current GDP levels 17 years ago (Source: ResearchGate)! The industry and services sectors took a massive hit, and only the agriculture sector could hardly cope with the diminished workforce. This is not only the case in Rwanda but also in every other country that has sheltered genocides. Genocides are some of the most intense and violent human disasters that can devastate a country's emotional health and resources. Moreover, businesses operating in these disaster zones are forced to reach extinction levels. Having a business in sensitive zones need you to keep updated about propaganda, genocide mentalities, and its possible effects on your business.
3. Cold wars and the weapons race
In the aftermath of WWII, the Cold War became a global security concern. America and Russia began a race for supremacy in terms of technology and weaponry. However, this rivalry only resulted in global anxiety about a nuclear holocaust. Even today, these two countries hold massive numbers of nuclear warheads in the world. Threshold events, such as the Cuban missile crisis, pushed humanity to the brink of global destruction. However, gratefully, these events did not relate to full-scale wars, thanks to the heroics and hard decisions of certain individuals.
Though the collapse of the USSR officially ended the cold war, newer weapon races in other countries have made it obvious that mankind is never free from the fear of a nuclear holocaust. Chief among them is the acquisition of nuclear technology from three rival countries, India, Pakistan, and China. A race for advanced weaponry, markets, and resources is ever-present in these countries. Another is the repeated efforts by Iran to become nuclear power in the Middle East and become a threat to its nuclear-powered neighbour, Israel. Even North Korea is a major threat with its chaotic internal management (Source: Our World in Data).
These nuclear arms races, rivalries, border disputes, and hatred between nations can severely affect the business world. Where governments need to invest in infrastructure, education, and a healthy environment for businesses, the money gets lost in attacks, defences, and warfare. This militarisation can affect economies and thus businesses between nations.
4. Pandemics
Pandemics are not new to humanity. From the Black Plague to Polio and SARS, mankind has survived every onslaught with a heavy cost and loss of lives. It has dire effects on the operational structure of the businesses. The Black Plague of the Roman Empire destroyed 75 - 200 million Europeans and thus altered the history and economy of Europe. Unlike other pandemics, the recent COVID-19 was not devastating for lives but the economy. The economy took a direct hit as a result of safety measures taken by governments, such as the lockdown of entire countries. Businesses were shut down, and supply chains faltered. Since the times of the Great Depression or the World Wars, economies have reached an all-time low. International business was hindered by heavy losses, inflation, economic recession, and supply chain crises.
5. Trade restrictions
Economic sanctions or economic warfare have always been a primary but largely ineffective measure against nations that offend other nations' borders, economic interests, or beliefs. For example, before the beginning of WWII, the allies sanctioned Germany to stop it from furthering its expansive policies. This barely stopped Germany from occupying its neighbours. Considering this, economic sanctions can be a double-edged sword for the sanctioning country as well. Some examples would be US companies losing markets in Iran, German machine-builders forced to reduce their exports to Russia, and French shipyards, which have suffered through the freezing and potential cancellation of the sale of Mistral ships to Russia (Source: We Forum).
Even recently, the economic sanctions on Russia resulted in a massive fuel shortage for the western economies. These sanctions can be a threat to international businesses that are operating in these countries. While many companies like Amazon, Apple, Shell, Volkswagen, and Toyota have scaled down their business with Russia, many are still in turmoil (Source: CNN Business). Their investments, physical structures, real estate, and money are all in turmoil.
6. Supply chain crashes
International business is highly dependent on the supply chain for sourcing, marketing, and delivery of products or services. Though the supply chain is highly advanced due to the integration of technology and economic policies around the world, it is still sensitive to any external threats. As was seen by the world when the Suez Canal was closed five times in the past, twice because of Arab-Israeli wars and thrice due to the blockade of a massive ship (Source: Business Insider). Supply chains' dependence on local politics, sensitivity, and catastrophic outcomes have been well-researched and understood by economic experts.
While international trade law prohibits any country from interfering with critical supply chains, the reality is far from that. During the Arab-Israeli wars, Egypt deliberately closed the Suez Canal for eight long years. It had already been closed to Israeli ships since 1948. As a result, Israeli ships had to travel for days around the sea to reach their ports. This was one of the major reasons why Israel occupied the land between Egypt and Israel (Source: Wikipedia). While international trade law has some provisions for some of the geopolitical turmoil, it lacks authority and control over such sensitive matters where only war becomes an option for some countries. It was the case with Israel before the six-day war. Similarly, international trade reached an all-time low during the pandemic due to supply chain crashes. Hence, being familiar with your supply chain is critical for the survival of your business.
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7. The Rise of China
The rise of an alternate economic superpower has been of much concern lately. The emergence of China as the world's new manufacturing hub and its unparalleled growth go unchallenged by any other country except the USA. The reasons for China's growth are its massive manpower, resources, clever economic policies, and decreased costs for its products. The cost factor is especially a boon for the Chinese, as the developing and poor countries that make up most of the world are a formidable market for China. Customers buy China-made products as the cost is and always will be a decisive factor in the buying behaviours of middle- to low-income individuals.
The problem for international business, then, is the cost factor of the Chinese economy. One good example of this would be the boycott of Chinese products, which was launched in India. As the two largest economies on the Asian continent, both countries are rivals in every aspect of the economy, defence, and border issues. After the Galwan Valley clash in 1978, Indian citizens and governments called for an economic boycott of Chinese products. However, this campaign was utterly defeated despite the social media campaigns and rage from citizens (Source: EconomicTimes).
The reason for this is simply that the Indian economy, just like every other country in the world, has already been deeply dependent on Chinese products in major industries like electronics, apparel, and footwear. This poses a problem for local manufacturers, who have neither the technological advantages nor the cost competence to compete in the market. Moreover, the middle class of India, which comprises over 35% of the population, and the poor, who comprise 6.7% of the population, are simply unable to find alternatives that cost more than in other countries.
It is not only the situation of India, Africa, or other Asian countries but also of superpowers like the USA. Only recently has the USA halted production of its most advanced F-35 warplanes following the discovery of made-in-China alloys in its project (Source: SCMP). The emergence of China as the next economic superpower is still unchallenged by most countries. International businesses must cope hard with the "X factor," i.e., cost, to attract customers from low- and middle-income countries.
How can international business laws hold up against the odds?
International business law has little to do with this situation because these are situations out of the control of international bodies. Even the international body that is safeguarding international trade, the World Trade Organisation, has little to do in these scenarios to control the shortcomings of the laws regarding international trade. Hence, even in the globalised world, international trade is not free from risks. Even then, the presence of the WTO is not a waste of time. Through its power, it is doing what is possible according to its measures and providing international traders with a ray of hope. Only the future can provide international businesses with a sense of control over their trades. Until then, international business will be a victim of these crisis scenarios.
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Conclusion
As we can see, international business law is effective during easy times. However, as times get harder and crises hit the business world, international business law holds its own. These can pose serious risks for businesses operating in crisis-hit zones. In such instances, surviving the crisis is harsh, and the temporary withdrawal or hibernation of businesses seems to be the best choice. As was discussed earlier, minor obstacles in the supply chain, wars between seemingly unimportant nations, trade restrictions, and pandemics can affect businesses negatively. Major wars, genocides, and weapon races contribute to the increase of risk factors in business operations. And finally, the rise of China is also a concern for several businesses around the world due to its competitive nature.
While international business law asks all nations to treat all businesses equally and fairly, these situations price the ineffectiveness of the process and global authorities. International authorities like the WTO and the United Nations can help global economies only to a certain extent. So, if you are an international business owner, keeping an eye on all these risky situations helps you in making better decisions.
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