America’s new rules are redefining global trade and finance
An interview with Andrew Cainey, RUSI Senior Associate Fellow, International Security, and Co-founder of the UK National Committee on China
US trade policy is reshaping global trade dynamics and geopolitics itself. There is some talk of an emerging “India-China-Russia economic alliance”, for instance. Andrew Cainey argues that “alliance” is much too strong a term, and likens the situation to three distinct bilateral relationships with some overlaps, driven by each country’s national interests, while relations with the US also remain of great importance to each.
Mr Cainey then speaks about how US policy is prompting countries like India to re-evaluate its global bilateral relations, and the nature of the de-dollarisation push, seen most strikingly in the almost total use of renminbi and rubles in China-Russia trade.
StoneBench: There are talks of a India-China-Russia economic alliance of sorts. What are your thoughts on what might play out?
Andrew Cainey: “Economic alliance” is just too strong a phrase. “Alliance” suggests some tight binding of aligned mutual interests. And it over-emphasises the economic dimension: it’s even harder these days to wall off the economic from questions of security and national identity. The leaders of the three countries take a more holistic view of relations—and have done so for a long time. The framing also suggests a sudden, dramatic shift which is not the case.
China and Russia have long been getting closer. Notably since February 2022, when they announced a ‘no-limits’ partnership—which though has clear limits. Russia’s invasion of Ukraine has already brought closer economic ties, with China importing energy and commodities and exporting a range of manufactured goods and technology.
India and Russia have their own long history, with defence-related ties an important feature. Certainly, there is now stronger mutual engagement and, importantly, deliberate signalling of this engagement to the world. Or, more precisely—in the wake of Trump’s 50% tariffs on India and other messaging—India is signalling warmer relationships with both China and Russia.
In substantive terms though, Russia-India-China is better seen as three distinct bilateral relationships with some overlaps. It is a truism that countries, or rather their leaders, pursue their interests as they see them. These days there’s an even stronger focus on national interests—whether it’s the ‘strategic autonomy’ of India or the EU, ‘multi-alignment’, ‘Make America Great again’ or the ‘Great Rejuvenation of the Chinese People’. And the circumstances and interests of each country are quite different. Beyond a shared interest in projecting resistance to US coercion and seeking stability at a time of US policy volatility, they do not form an aligned triumvirate.
StoneBench: So US policy in general has resulted in an appearance of realignment between other countries?
Mr Cainey: US trade policy is prompting a fresh look, especially in India, at the pluses and minuses of different bilateral relations—just as countries judged their own responses to Russia’s invasion of Ukraine. But India was not previously lining up with the US against China and now it will not line up with China and/or Russia against the US. India remains in BRICS, the SCO and the Quad, while reaching out to Japan, Europe and others. What’s happening is shifts in emphasis rather than binary choices. A few years ago, Indian Foreign Minister Jaishankar notably wrote that India’s strategy hinges “on advancing [its] national interests by identifying and exploiting opportunities created by global contradictions” so as “to extract…gains from as many ties as possible”. A sensible articulation that holds true for many countries.
Moreover, in strict economic terms, India runs significant trade deficits with both China and Russia, whereas it runs a surplus with the US. Russia and China are not going to replace the US as a source of Indian export demand any time soon. Despite the recent warming in tone, the US has shown itself to be a less than reliable partner for both defence and technology cooperation. In these circumstances, energy and defence imports from Russia to India will continue, both for the benefits they bring and for reasons of diversification.
With India and China, despite fundamentally competitive elements to the relationship over the longer term, there does appear to be a renewed willingness on both sides to manage border tensions and other security questions. There is also again appetite for increased investment and technology transfer to India that supports growth.
StoneBench: How do you think this alliance will work on reducing dependence on the US dollar? And will this now change the global trade dynamics for the next few decades?
Mr Cainey: One area where these diverse countries can find common ground is reducing exposure to the US dollar, first in trade settlement and over time by diversifying reserve assets away from the dollar. And the interest is widespread across BRICS and the rest of the Global South. There’s great interest in alternative payment systems that limit the US’s ability to threaten meaningful sanctions. For example, when the US imposed sanctions on certain Hong Kong legislators in 2020, the dollar’s central role meant that China’s state-owned banks complied rather than fall foul of US regulators. More recently, US sanctions over Ukraine mean that more than 90% of China-Russia trade is already settled in renminbi and rubles—the bulk in renminbi. Trump’s threats to impose higher tariffs on countries that move away from the dollar just further incentivises diversification.
We’ve moved quickly from a world where everyone sees the benefits of shared platforms to one where the focus is on the risks of dependence. The push to de-dollarise, to find alternatives to the dollar, is much more about resilience and risk management rather than economic efficiency.
Efficiency alone still favours the dollar and legacy systems. But second- or even third-best solutions are now attractive, at least as a fallback, even if they lack scale. And over time, these alternatives will improve and become more attractive in their own right. Digitisation means that some initiatives do in fact offer cheaper, quicker solutions too.
StoneBench: Will you say that the future of the internationalisation of the renminbi is already here?
Mr Cainey: This is not simply or even mainly about the ‘internationalisation of the renminbi’. Many countries would be just as concerned at heavy reliance on the RMB as on the dollar. And the dollar’s overwhelmingly dominant role remains around the world.
The near-term focus is on trade settlement. As yet, there are few robust, fully-scalable alternatives. But there’s lots of energy and initiative going into creating solutions—both separate systems infrastructure and using currencies other than the dollar. The solutions will involve a mix of different currencies operating on new digital infrastructures that allow for bilateral settlement rather than flowing via the US dollar. For example, the BRICS Pay initiative focuses on interoperability between national currency systems and mBridge links together various central bank digital currencies.
In reserve assets, there is also some diversification away from the dollar, with a rise in gold holdings in China and across the Global South. China’s capital controls and trade surplus mean there are limited attractive investable RMB assets to hold as reserve assets even where trade has been settled in RMB. Again, countries are investing effort to see what can be done within these constraints.
What won’t work is a single, new ‘BRICS currency’. The countries are just too different, about as far from an ‘optimal currency area’ as it is possible to be.
StoneBench: How will trade dynamics and security dynamics influence one another across the world?
Mr Cainey: For decades we’ve been in a world where trade liberalisation has advanced pretty much separately from security considerations. Yes, the US has been the dominant provider of a security umbrella in Europe and Asia. But it’s been separate from trade – very much in the background while economies prospered.
Now, there’s a refocus on the historic link between security and economics. I call this “The End of Separation”. We can go back in history to Chinese Legalist philosophers emphasising the critical pairing of ‘rich country, strong army’; Meiji Japan embraced the same phrase. Now Xi Jinping speaks of security and economic development as being “two wings of the same bird, two wheels of the same cart”—you can’t have one without the other. And for the US, “economic security is national security”.
So, trade and security are increasingly intertwined. The causation mostly runs from security to trade rather than vice versa. Looking at the recent EU-US trade deal, it’s pretty clear that the EU’s relatively supine approach had a lot to do with Europe’s reliance on the US for security—in Ukraine specifically and through NATO more broadly.
StoneBench: Are governments now arm twisting—in other words, using geoeconomics—to drive their political agendas?
Mr Cainey: When governments focus on trade and security, they prioritise becoming more resilient by diversifying trade away from dependence on one or two key countries as suppliers or markets, especially those they view as strategic competitors or potential adversaries. They also put in place controls on what companies can do. Countries have an eye on how trading partners might use economic ties to pursue a broader political agenda. China effectively cut off trade with Lithuania over a Taiwan-related dispute. Trump imposed 50% tariffs on Brazil despite a US trade surplus because the Brazilian government is proceeding with Bolsonaro’s trial. They limit exports of advanced, often dual-use technology (for example, the US in advanced semiconductors, China in rare earth processing technologies). And they limit imports of technologies that play a role in critical national infrastructure or potentially create vulnerabilities (for instance, differing national approaches to Huawei 5G equipment).
All of this leads to fragmentation of economic activity, losing some economic benefits and hitting productivity, while, hopefully, getting some security benefits in return. Unfortunately both costs and benefits are hard to track in an ever-changing world. Within this more fractured world, there are then tailwinds to support more trade with countries judged ‘like-minded’. And there are headwinds to trade with countries seen as a potential threat or where diplomatic tensions are more likely. There are though pretty severe limits to how far this goes in practice. Absent legislation, decisions on trade (what to buy and sell where) are made by consumers and companies. They will look for the best deal, at manageable risk. Governments can only change this by bans and controls or by incentivising non-commercial choices. Taken too far, the former chokes up the economy, reducing living standards and the latter quickly becomes too expensive to fund as government budgets are already tight. So, barring situations of extreme conflict, extensive trade between geopolitical rivals,—‘non-like-minded’ countries, if you will—is set to continue.
About the interviewee
Andrew Cainey is a leading advisor, educator and analyst on China, geopolitics and global business. With over 30 years’ experience advising corporations and governments, he expertly bridges policy and practice. Formerly based in Asia, Andrew now leads initiatives on UK-China relations; analyses China’s development at home and abroad and the reactions of others; and helps firms navigate the shift to a multipolar world. He is the co-author of Xiconomics: What China’s Dual Circulation Strategy Means for Global Business (2023).
This interview was originally published here.