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Can trade prevent war?
By Rizwan Asghar
February 03, 2017
Print : Opinion
The world has experienced a dramatic increase in economic trade and exchange between states
over the past few decades. This increased economic exchange has not only been helpful in the
efficient allocation of resources of production, but also increased our ability to produce more
goods and services.
US President Donald Trump has promised an economic agenda that aims to reduce the US’s
economic interdependence with other countries, arguing that it is not an American interest.
Trump’s argument has been that the US has gotten a raw deal from its major trading partners and
he wants to renegotiate the terms of trading agreements.
This has raised concerns in certain quarters: this delinking of economies would blow up the
underpinnings of a modern global economy and endanger cross-border commerce worth trillions
of dollars, prompting a new phase of global recession.
It is also feared that Trump’s trade policy and resulting reduced economic interdependence could
lead to trade wars with several countries, including China and Mexico. On the contrary, many
observers and journalists believe these fears are exaggerated and somewhat overwrought.
The crucial point is to pay attention to the broader theoretical perspective underlying the
correlation between economic interdependence and probability of conflict. Liberal theorists
propose that economic interdependence lessens the likelihood of conflict because economically
interdependent states would prefer to trade rather than invade. German philosopher, Immanuel
Kant, envisioned free trade as one of the key ingredients of a peaceful world.
On the other hand, realists argue that more economic interdependence ends up increasing the
possibility of conflict. In their view, interdependence increases the vulnerability of states which
then constantly worry about their security in an anarchical world. Rousseau believed that
economic interaction would bring discord and conflict. In an anarchical world, states are
paranoid about their security and will always remain vulnerable to the fact that other states can
cut the supply of vital goods during times of crises. A sense of vulnerability resulting from
mutual interdependence provides states with incentives to attack others in order to ensure
continued access to necessary good.
Neoliberal theorists cannot explain state behaviour before the start of World War I:
unprecedented high levels of trade could not prevent the European countries from going to war.
Germany and Japan were largely dependent on other countries for critical raw materials but they
still chose war over trade benefits. Similarly, the fact that trade interdependence was much
higher in the 1920s as compared to the 1930s but war did not happen in the 1920s remains a
question mark on the realist perspective.
A more plausible argument is that economic interdependence creates opportunities for
cooperation if states, assuming they are rational actors, expect trade levels to be high in the
future. Thus, states show less reluctance to go to war if they do not see many opportunities for
trade expansion. However, future expectations of high trade levels can prevent states from
resorting to war even if the level of economic interdependence is not very high at present.
In the modern age of nuclear weapons, states are forced to make a choice between a nationalist
obsession with its territorial expansion and promotion of its economic well-being through
commerce.
Due to high hopes for future trade, decision-makers are more likely to assign a high expected
value to the continuation of peaceful trade which ultimately reduces the likelihood of war. But if
expected value for trade is negative, the frightening prospect of war would be more likely. In
such a situation, states view war as lesser-of-two-evils because continued trade would imply a
gradual decline in power.
The logic of this theory is based on different states’ efforts to gain maximum advantage in a state
of mutual vulnerability. Yet, if a state is dependent on a sustainable supply of raw material from
its trading partner, cutting trade ties would be the least likely option. The crucial variable here is
a state’s ability to foresee the expected benefits of trade and adopt a course of action based on an
evaluation of the alternatives.
The expected value of trade is never based on the current levels of mutual trade between two
countries. Rather, it is based on future trends in trade. If both trading partners are confident that
they will stay committed to free trade in the future, the expected value of trade would be high. In
the same way, if one trading partner is likely to cut trade soon, we can anticipate a negative
expected value.
Despite a general lack of scholarly consensus, economic incentives have long been used as a
policy tool in the West for encouraging better ties. One of the leading arguments for allowing
China into the World Trade Organisation (WTO) was that the increased economic interaction
with the rest of the WTO members would foster cooperation with China. Similar arguments have
bolstered the US’s past efforts to push for market reforms in many other regions.
Donald Trump’s decision to pull out of the Trans-Pacific Partnership (TPP) trade deal is
unfortunate because the real beneficiary of that is China. A great majority of Republican voters
do not understand how Trump’s economic vision would cause damage to the US economy and
working families.
Donald Trump has exploited the politics of fear over the course of his presidential campaign and
he will continue to do so. His protectionist agenda can spark a global trade war. The age of
insanity is upon the US and there is no stopping it.
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