C Gopinath

Businesses as pawns

C Gopinath | Updated on October 31, 2019

US President Donald Trump   -  Bloomberg

Leaders use them to settle political disputes

Powerful governments have often used economic activity as a tool in international relations. President Trump threatening to suspend aid to Ukraine unless it did his bidding is new only to the extent that it was not for national but for his personal benefit. The US has believed in the power of sanctions to make countries with whom it has a dispute to bend to its ways. The embargoes and sanctions against Cuba have been going on since 1958 with no end in sight.

More recently, President Trump threatened Turkey with sanctions against the energy ministry and to raise tariffs on steel imports to 50 per cent. He even threatened to ‘kill’ the Turkish economy if they did not listen to the US in their fight with the Kurds. With the Turkish president using similar bad language against the US, it is good news all around that the dispute has been resolved and there will be no sanctions.

From threats to economies, the US has now made corporations a pawn in political disputes. This is worrisome. The benefit of economic globalisation has been welcomed by many for reducing poverty levels around the world by allowing companies to expand. Global supply chains have kept product prices low, inflation in check and generated jobs in countries smart enough to take advantage of globalisation.

Perhaps because of his business background, Trump realised how businesses can be threatened and they have limited powers to fight back. As part of his ‘America First’ campaign, he bad-mouthed US firms that had plans to expand outside the US to keep jobs at home. Firms also become instruments of foreign policy. Huawei comes immediately to mind which stands accused of violating Iran sanctions and of being too close to the Chinese government. The latest is the blacklisting of 28 Chinese entities for playing a role in the repression of Uighur Muslims.

Trump is not unique in using nationalism as a handy weapon in this political game, hurting businesses that have nothing to do with the fight. The Chinese government has mastered this art. A survey in June showed that 56 per cent of the Chinese consumers said they did not buy an American product to show support for their country in the trade war with the US. Perhaps keeping Huawei in mind, the Chinese government is delaying orders for planes on US aircraft manufacturer Boeing.

Just like the Chinese, South Koreans are trying to teach Japan a lesson by boycotting products of Japanese companies to show their displeasure of Japan’s policies towards South Korea.

And now the Solvent Extractors Association of India has unwittingly wandered into the swamp. It has advised its members to stop palm oil imports from Malaysia because of displeasure with that government’s political position regarding Kashmir. The idea is to hurt Malaysia at the cost of paying higher prices for importing from elsewhere! It is bad enough when politicians hold business hostage. It is worse when businesses seek to curry favour with the politicians by shooting themselves in the foot.

For global businesses, the attraction of global sourcing and global markets now come with a significant price tag — not knowing when you will become a pawn in someone else’s game. Clearly, politicians may not care, but when would business leaders seat down the politicians and teach them some basic rules of engagement?

The author is a professor at Suffolk University, Boston.

Published on October 28, 2019

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