Trade doesn’t solve war

You can’t trade with someone you’re at war with. So, the more two countries trade, the more costly a war between them will be, and the less likely they should be to fight. This argument is appealing for a few reasons. First, it makes intuitive sense. Second, it looks like it fits the data well, at least for the post-war period. Since WWII, international trade has grown dramatically while the rate of international conflict has fallen.

This theory also benefits from some seemingly-strong empirical support. Two prominent proponents, Bruce Russett and John Oneal, have produced a number of books and papers that show increased economic interdependence, usually measured as the value of bilateral trade between two countries divided by a country’s GDP, reduces the chance of war between two countries. More specifically, in a 2003 paper they report that “increasing economic interdependence from the 10th to the 90th percentile reduces the risk of a fatal dispute by 32 percent.” At that time, the volume of US-China trade was just below the 90th percentile for their data, and the authors conclude that the growth of US-China trade reduced the chance of conflict by 27%.

That said, while a 27% reduction in the chance of war is nice, it’s not a big enough effect to fully explain the Long Peace. Other reasons to think that the pacifying effect of global trade is smaller than is sometimes claimed include:

1. The economic benefits of trade with any one country are usually not that large. [FN 19] In 2003, the US-China trade as a proportion of the US economy was around the 90th percentile for trade interdependence, but was just 1.2% of US GDP (“Causes of Peace”, p. 383) [END FN 19]

2. Long-term gains from success in war can be larger than temporary disruptions in trade. [FN 20] “A dispute normally affects trade for only one or two years” (“Causes of Peace”, pp. 388-9), so the costs are typically bounded. But the benefits of conquering territory, stymying the rise of rivals, or gaining influence over international rules and institutions could flow for a long time. [END FN 20]

3. As the world gets more interconnected, trade with any given country A will become a smaller proportion of a country B’s economy.

4. Some scholars have noted that negotiating trade deals also gives one country more leverage over the other, and potentially raises more issues over which countries can disagree. [FN 21] For example, Europe’s reliance on Russian natural gas has been a source of tension between European countries, and between countries like Russia and France. [END FN 21]

5. Global trade was at historic highs just prior to WWI

Finally, disentangling the causal relationships among the highly-correlated variables of trade interdependence, GDP level, strength of democracy, and participation in international organizations is difficult. Russett, Oneal, and collaborators try things like measuring lagged effects to try and improve their causal inference, but I’m not sure how successfully this isolates causal relationships. I think these studies provide strong evidence of the direction of the effect, but my best guess would be that they overestimate its size. [FN 22] To quantify: I think there’s an 80% chance that doubling the amount of trade between two countries reduces the annual chance they go to war by between 0% and 35%. [END FN 22]