Silk Road Economic Belt – How Will It Affect You?
The Silk Road Economic Belt is a proposal by Chinese central planners and the World Bank that links Asia, Europe and Russia together via the China Eurasian trade route. For years the Western World has criticized China for pursuing economic expansion at the expense of its neighbors. China defends its record on freedom of navigation and promotes bilateral free trade agreements with its neighbors. However, it is time for the Western World to come clean and admit that its trade practices are causing the deterioration of world trade relations and the failure of the post-cold war international economic architecture.
The Silk Road Economic Belt is part of this failure. The road was supposed to be the model for an integrated connectivity approach to expand the connectivity of the world’s nations via the ancient silk Roads. Unfortunately, that model no longer works. In fact, it is proving to be a major barrier to cooperation in the Security Council, the World Trade Organization and in the bilateral relationships with our Asian neighbors. It is important to understand why Silk Road economic belt.
A recent study by the Center for Strategic and International Studies in Washington, DC looked at the performance of the economic order in 21 different nations along the Silk Road. The result was a complete consensus that most nations in the economic order suffer from chronic trade and income deficiencies, weak institutions and poor infrastructures. It further stated that this condition is a major cause of political volatility that frequently jeopardizes the stability of the system.
As the economic trends in the Middle East, South Asia and Central Asia show no sign of improvement, the promotion of free trade areas will become even more important. Free trade areas provide a vital channel for both economic growth and political stability in these regions. Without such opportunities, countries in these regions will struggle to promote stable markets, secure international investment and open their societies to foreign capital. This will reduce both foreign direct investment (FDI) and foreign employment. These conditions will only worsen the regional economic imbalance and reduce political freedoms.
Silk Road nations must therefore embrace free trade as an important instrument of development. However, there are serious deficiencies in the current structure of the regional free trade area. For example, many governments in Middle Eastern countries lack the political will and capacity to develop and implement policies that will enhance economic growth. Similarly, most countries in the southern section of the Silk Road do not have the free trade policies that are necessary to ensure sustainable growth and job creation. Trade liberalization has therefore become a limited, if not impossible, option for many countries in the region.
Furthermore, many nations in the Middle East have poor infrastructures that remain underdeveloped. Many middle-sized and small developing countries rely on imported capital and products to develop and grow. When these nations use imports they face the risk of protectionism, a form of protectionism in which country A protects product A from being manufactured or sold in country B. The other problem is that when a country manufactures goods and sells them internationally they are required to comply with all of the rules and regulations of the World Trade Organization’s (WTO) and other international trade bodies.
This has resulted in a situation where low-income countries have been denied access to some of the foreign investment that they desperately need. Lack of access to capital also means that low-income countries cannot compete in the global labor market. The current scenario in the Middle East is one of extreme regional inequality. This has resulted in a regional imbalance of wealth, a phenomenon that is likely to continue if the political systems in the Middle East nations fail to address the issues. Political dysfunction and poor leadership are one of the key drivers of the regional inequality.
The current proposal by the US President, Mr. Obama, to boost economic aid is a step in the right direction. However, there is no clear indication as to how this plan will be implemented. Moreover, it appears to be part of a long term strategy to shift power away from the developed world and towards Asia and the developing nations. This is a recipe for failure, as the developing nations may suffer through excessive exploitation at the hands of powerful governments and corporations while poor citizens continue to live in extreme poverty.