How should small countries navigate a “tripolar” world?
“The political dimension of a Swiss-US trade agreement”
By Jennifer Anthamatten and Patrick Dümmler, courtesy of Avenir Suisse
In the last two decades, global trade flows have shifted markedly, and the current geopolitical structure is in transition. The time in which there was an undisputed hegemon seems to be ending. Instead, a future tripolar world is emerging with three key economic players:
- The US-Mexico-Canada Agreement (USMCA), the successor to Nafta, is forming around the USA. Together, the three participating countries have a combined economic output of around $23 trillion.
- The European Union (EU) with its (still) 28 member states has an economic power of more than $18 trillion, of which the United Kingdom alone accounts for nearly $3 trillion.
- China already has an economic power of $13 trillion. The “Middle Kingdom” is part of the Asia-Pacific Trade Agreement (Apta), which includes India, South Korea, Sri Lanka, Bangladesh, Mongolia and Laos. This alliance brings together represents economic output of around $18 trillion.
Overall, the three economic areas together generate almost two-thirds of global GDP. For comparison, the European Free Trade Association (EFTA), to which Switzerland also belongs, achieves a cumulative just under 1 trillion. % of economic output. For a small state like Switzerland, the question arises of the right positioning in a tripolar world order.
Global trade flows with new dynamics
The shift of global trade flows is triggering power policy shifts. While 20 years ago a majority of countries still traded more goods with the United States than with China, the Middle Kingdom (including Hong Kong) has overtaken the United States.
The movement of trade flows is particularly pronounced in the Asia-Pacific region, where US trade dominance is limited to a few countries such as Cambodia, Bangladesh and Bhutan. Even in Africa and South America, the relative superiority of the United States has been broken. In Europe — traditionally closely linked with the United States in political and economic terms — China’s importance in foreign trade is also increasing dramatically. This is particularly evident in the Eastern European member states of the EU, namely Estonia, Latvia, Poland, Slovenia, Croatia, Hungary, Romania, Bulgaria and Greece. In terms of trade, today they are more closely linked with China than with the USA. To a lesser extent, this also applies to Scandinavia, Germany, the Netherlands and Spain.
USA is experiencing increasing competition from China
The position of the USA as a motor of world trade and international trade liberalization is increasingly questioned: not only has China struck deals with the ten countries of the Association of Southeast Asian Nations (Asean) Free Trade Agreement (FTA), it is also a member of Apta. By contrast, the US has a network of agreements with 20 countries, but none of them European, while China already has FTAs with Switzerland, Iceland and Georgia (Mofcom 2019 and USTR 2019). However, China is not only a competitor for the US on the economic level. The United States is also increasingly challenged by China on the geopolitical level. This fact also provides an explanation for the increasingly clouded relationship between the two actors, which manifests itself among other things in the worsening trade war.
Political-strategic significance of an FTA for the USA
In such a situation, it is particularly important for the US to conclude new FTAs with market-oriented countries such as Switzerland. Switzerland and the US share common values such as freedom, democracy, free markets and the rule of law. Expanding trade with a like-minded country like Switzerland through an FTA could therefore be an overseas economic opportunity for the US administration. In addition to the economic benefits that an agreement would bring with it for the US (see also the study “Win-win: Free Trade Switzerland-USA” ), an FTA would thus also make sense for political-strategic considerations.
Geopolitical relevance for Switzerland
For Switzerland as well, an agreement with the US has a geopolitical component in addition to the economic one. On the one hand, an agreement for the Swiss export industry could be a valuable addition to the preferred market access with the EU. On the other hand, due to weakening multilateralism the pointers in the international trading system are increasingly turning towards a power-based system. In a system in which the stronger dominates and small countries like Switzerland have few opportunities to act against larger states due to a lack of binding and sanctionable rules, bilateral FTAs are of particular importance. For this reason, Switzerland has woven a dense network of FTAs, especially since the mid-1990s, which today covers more than 70 countries. Against the background of weakening multilateralism, it is crucial to continue expanding this network. Due to the sheer size of the US market, an agreement with Switzerland’s “sister republic” should be high on the list of priorities.
Conclusion: economic, but also political win-win
On a global scale, the US and Switzerland are facing new challenges: while the US is struggling against increasing competition from China, Switzerland is preoccupied with weakening multilateralism and its stalemate with the EU. An FTA between the two countries thus represents a classic win-win situation, and in two ways: it would not only be a win for both countries, but also a gain in two dimensions, both economically and politically.
Jennifer Anthamatten joined Avenir Suisse in February 2017 as Senior Researcher. She holds a Bachelor’s Degree in Economics and Politics from the University of Bern and a Master’s Degree in Economics at the University of Zurich. Previously, she worked at PPCmetrics, Credit Suisse, Allianz SE as well as a research assistant at the ETH Zurich and the University of Zurich. Patrick Dümmler is Senior Fellow and Head of Research “Open Switzerland” at Avenir Suisse. He is responsible for such topics as free trade, farming and energy.