Trade with the Enemy


"The war in Europe, the sanctions against Russia, the dollars we pay Putin for oil and gas, which he uses to finance the war, raise the question of how wise it is to have economic relations with an enemy."



Google Translated from Dutch to English. Here is the link to the original article in Dutch. The article was originally published on 28 March 2022.



During the Cold War, the world was uncluttered. Not only did each bloc have its ideology, but they also had their economy, and economic relations between the blocs remained limited. This was not optimal from a financial perspective. Relative cost differences, the driving force behind international trade, also exist between countries that are sworn enemies. Mutual trade and the resulting international division of labour would increase total prosperity.


Immediately after the Second World War, world trade was at a low ebb, and it was evident that trade relations with communist countries would remain limited. After all, there were plenty of opportunities in our world to enter into and expand trade relationships. There was great distrust between East and West. China was in deep poverty and did not count at all.



The success of the global market economy

The situation changed after the Berlin Wall fell. Former communist countries joined the global market economy, and some even became our real friends. But we also liked establishing trade relations with countries that did not immediately become our friends. There was also room for them in the global market economy. As the international trade theory predicts, this led to a higher average standard of living in all countries involved, with the disparities between poor and rich countries narrowing.


The rate at which extreme poverty has been reduced over the last 30 years is nothing short of spectacular. Superlatives fall short of describing the success of the globalising market economy. We hoped we were convinced that autocratically led countries would move towards liberal democracy through economic progress. The latter turned out to be a colossal miscalculation. The proportion of humanity living under an autocratic system is increasing rather than decreasing.


Without reflecting on how that came about or what it will cost us, we now want to undo that dependence as quickly as possible, like a headless chicken. Heroically, Germany leads the way, as it previously courageously decided on the "Atomausstieg", which now stands under an unfortunate star. Oh well, the Germans from nuclear energy, we in it; we off the gas, the Germans just on it, but no longer Russian gas while Nordstream-2 is just ready. That is European unity and strategy in a nutshell. Do you still understand?



Time for reflection

I fully understand that all the attention in the short term is on how we can stop the war and receive millions of refugees. But this also seems to be the time to think carefully about our economic relations with autocratic regimes. There is, of course, the elephant in the room, and that is China. Besides oil, gas and other commodities, the Russian economy is entirely irrelevant. We can stop trading with that country without significantly damaging ourselves, except for the energy sector. The Chinese economy, on the other hand, is highly relevant.


About 30 per cent of all goods made on Earth come from China. What will we do if China tries to annex Taiwan? Impose sanctions, suspend trading? Let us have no illusions about the intentions of a country like China, especially its current leadership. We've already made that mistake with Putin. China is a country that has felt humiliated for several centuries and, at the same time, considers itself superior and 'entitled'. A dangerous combination.


The Chinese cannot be caught with much empathy for other people. Moreover, the Chinese look with amazement and contempt at our divisions and unwillingness to make sacrifices to protect our values and way of life.


Back to the earlier question, should we have economic relations with our enemies? I think there is a simple answer. You can maintain that kind of relationship with your enemies without any problem, but you shouldn't be dependent on them. There should always be a plan B. It is high time to develop a plan B for our economic relations with China.