Economic diplomacy refers to the bringing in use the state’s resources to promote its economic interests and achieve the foreign policy objectives. Economic diplomacy is carried out by increasing trade activities, promoting investments, collaborating on bilateral and multilateral trade agreements and MOUs etc. In broader sense economic diplomacy, is concerned with the any sort of diplomatic activity which uses state’s national and political interests. In narrow sense, economic diplomacy deals with the export promotion and inward investment in the shape of foreign direct investment (FDI), which is also called as the commercial diplomacy.
The ancient Greece contributed to the establishment of diplomatic institutions. The evidence of such institutions found in the Denial League. Later in the 7th century, the League of Denial emerged in the European consulates, which were established around the Mediterranean seas and its adjacent areas in the middle ages. After 1500 BC, there was rise of the economic diplomacy till the WWI. Furthermore the decline of the Ottoman Empire speeded up this phenomenon. International trade began to grow enormously in the first half of the 18th century and later at the end of the 19th century. This was supported by the capitalist states like Britain, France and Germany through their direct and portfolio investments. Later US also started to join them.
In the modern concept of the economic diplomacy, the era of great depression led to the new concept through diplomatic tools like economic prosperity, wellbeing and reconstruction of the declined states. Various states adopted the policies and strategies to come out of this decline which includes Smooth-Hawley Tariff Act which was signed in the United States. The era of Great depression eroded the international economic cooperation and coordination leading to severe consequences. It caused instability to various states. The fuel crisis of Germany is one of the examples, financial constraints caused by the Great Depression.
After the WWII, such strategies were proposed to rebuildanduplift the declined economies. Such strategies include Bretton Woods System (1944); which provided the way to establish the international institutions like World Bank (WB), International Monetary Fund (IMF) and dollar was linked with gold; i.e. dollarization. Other steps which were taken involved General Agreement on Tariffs and Trade (GATT 1947), Marshall Plan (1948) and the creation of United Nations (1945).
“Economic diplomacy is the new frontier of international relations and it is more than ever in today’s interconnected world”,
[Robert Zoellick- Former President of World Bank]
Bayne Woolcock argued in their seminal work “The New Economic Diplomacy: Decision Making and Negotiation in International Economic Relations” that economic diplomacy is gaining prominence in 21st century. The advents are globalization and liberal world order. Countries are dependant for trade and investment due to the interconnectedness of the global economy. Globalization led to the creation of World Trade Organization (WTO), which has pivotal role in the economic diplomacy. It has also expedited Export Credit Agencies (ECAs). In context of the liberal world order, economic diplomacy developed multiple institutions and organizations such as G20, G7 AND SCO etc. due to the economic diplomacy, the influence of non-state actors such as inter-governmental organizations (IGOs), non-governmental organizations (NGOs) and multinational corporations (MNCs) has significantly enhanced.
Objectives of economic diplomacy include designing the trade policy, investment promotion and development aid. While the tools and techniques include diplomatic channels, public diplomacy, MNCs, trade sanctions, blockades and embargoes etc. Belt and Road Initiative (BRI) is the Chinese led project, which was launched by the President of China Xi Jinping in 2013. BRI has a profound impact and influence on the global affairs such as the economy and diplomatic terms with the other states. It was originally designed to link East Asia and Europe through the land route, but later it was expanded to Africa Oceania and Latin America.
The purpose was broadening and enhancing China’s economic and political influence in the region. New Silk Road was originally comprised of Central Asian countries including Afghanistan, Tajikistan, Kazakhstan, Kyrgyzstan, Turkmenistan and Uzbekistan as well as Pakistan and India. As Central Asia was the epicenter of the first wave of globalization, establishing the link between East and West. According to Xi Jinping, the BRI’s objectives are to establish vast network of railways, energy’s pipelines, highways and streamlined border crossings. For now 147 countries has ratified to China’s this valuable project. China-Pakistan Economic Corridor (CPEC) is considered the largest of the projects of BRI’s projects, which includes collection of projects connecting China and Pakistan’s Gwadar port on the Arabian Sea.
China has both the geopolitical and economic interests behind this project. China has tried to counter USdominance in the global affairs. China has aimed to achieve its objectives through cultivating its economy via enhancing trade, promoting its market, Chinese income and its excess to productive capacity. China is aimed to boost global economic conditions by establishing the links with the western region as well. BRI is seen as a potential actor having ability to change the dynamics of global affairs and politics. US showed its concerns over the Pivot to Asia policy. US adopted various strategies to counter Pivot to Asia which includes fostering cooperation and building infrastructure. Donald Trump passed the Build Act which facilitated the overseas private investment cooperation (OPIC). In 2021, Biden collaborated with the leaders of the G7 countries and launched an initiative of Build Back Better World (B3W). B3W is a project and infrastructure investment to compete with BRI.
The obstacles and changes brought about by World War II and the Great Depression are intricately intertwined throughout the history of economic diplomacy. These incidents demonstrated the need for strong international economic cooperation and paved the way for the foundation of important organization and laws that still influence international economic relations today. The Marshall Plan and the Bretton Woods Conference demonstrated a case of successful economic diplomacy in promoting recovery and stability, while the Smoot-Hawley Tariff Act demonstrated the perils of protectionism and the necessity of cooperative measures. Economicdiplomacy has changed in the contemporary period to deal with the challenges posed by globalization, with key roles being played by organization like the World Bank, IMF, WTO, and the Belt and Road Initiative (BRI). The modern importance of economic diplomacy
The Author, M.Usama Rehan is a Dedicated International Relations student with a strong academic background and practical experience in public sector organizations.
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