Can trade prevent war?

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.

 

Email:rizwanasghar5@unm.edu