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If trade and economics really are all about politics these days, the horrific Hamas attacks and Israel’s deadly bombing of Gaza will surely open up a new global fissure between rich and poor nations. The US has dutifully supported Israel, its long-term client, and low and middle-income countries have generally sided with the Palestinians. Could the Gaza conflict be the moment when the soi-disant “global south” finally asserts itself as a geoeconomic force?
Answer: probably not. On a superficial reading, America’s isolation will damage its global standing, both among the misnamed “western” alliance of rich democracies it leads and the emerging markets it wants to join its China-sceptic geoeconomic gang. Closer examination suggests that’s heavily overstating it. The episode doesn’t show the “west” or the “global south” (the east and the north apparently don’t get their own grouping, sorry) coalescing into firm blocs. In any case, a foreign policy issue without a big global economic impact is unlikely to do much to change patterns of trade.
In the UN general assembly vote on October 26 calling for a ceasefire in Gaza, the US was in a small minority joining Israel to oppose it. Only 14 countries voted against, compared with 45 abstaining and 120 in favour. But the EU, far from slavishly following the US lead, was all over the place. Four EU member states opposed the motion, 15 abstained and the rest — including Nato members France and Spain — supported it. Most developing countries were in favour, but India, self-styled leader of the “global south”, has been tacking closer to Israel in recent years and abstained.
The US also retains foreign policy heft in some quarters that might be expected to sympathise with the Palestinian side. The United Arab Emirates, which signed a trade deal with Israel last year after normalising diplomatic relations in 2020, voted at the UN in favour of a ceasefire but may in fact move closer to the US, its traditional security guarantor, in case the conflict spreads through the Middle East.
At any rate, history suggests that even when the US is more squarely blamed for mass deaths through its foreign policy adventurism, it doesn’t affect its ability to trade or negotiate. Global opinion of the US took a huge dive after George W Bush’s Iraq war in 2003, dropping by 30 or 40 percentage points in some European countries and falling sharply in middle-income Muslim nations. But that didn’t make the US a trade pariah. Exports as a share of US gross domestic product rode a recovery in global trade to rise from 9 per cent of GDP in 2003 to more than 12 per cent in 2008, Bush’s last year in office.
And the US managed to launch talks for the Trans-Pacific Partnership trade deal of 11 nations in 2008, including those such as Singapore that tilt economically towards China. Similarly, this week the US is leading negotiations with 13 Asia-Pacific countries in its Indo-Pacific Economic Framework programme. There’s not much substance in the initiative, but it is a political signal for countries wanting to remain on good trade terms with the US, and there’s no sign of IPEF countries walking off in protest against US support for Israel.
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Rhetorical support for the Palestinians is an easy way for emerging markets (and some Europeans) to pose as sceptics of a US-dominated political order, but in economic terms their reaction to events in Gaza is likely to be pragmatic. Although the conflict is causing damage to Middle Eastern economies, it’s unlikely to be noticeable much outside the region unless a wider conflagration drives up oil prices.
After Russia’s invasion of Ukraine, the rich democracies formed a pretty solid geopolitical bloc to oppose Moscow, but developing countries have mainly remained determinedly (and sensibly) opportunistic on trade and economics rather than taking sides. Sometimes explicitly emphasising their non-aligned status, emerging markets have pursued trade relations with both the US and China, playing one off against another.
True, if the Gaza conflict weakens Joe Biden domestically to the point that Donald Trump is elected US president next November, or if China is emboldened to invade Taiwan, the catalytic impact on the global economy will be severe. But short of that, although trade is certainly more politicised than 20 years ago, most governments probably won’t let conflict in a faraway territory affect their pursuit of economic self-interest.
The Gaza conflict may be a turning point for US activity in the Middle East, especially given the domestic resistance Biden is encountering to his pro-Israel line. But absent a rapid escalation or knock-on effects in the US and China, it’s failing so far to provoke a widespread realignment in geoeconomic relations. The “global south” and the “west” are no more coherent blocs now than they were before the conflict began.