Security gains outweigh trades benefits

Despite a resurgence in global tensions in recent years, we live in an era of unprecedented peace between nations. Seventy years have gone by without a repeat of the major conflicts of the early twentieth century; and, since the end of the Cold War, the number of inter-state conflicts has steadily declined to practically zero. The expansion of international trade since World War II, in particular, is credited with ensuring a more secure global order by raising the economic costs of war (Polachek, 1980; Martin et al., 2008; Glick and Taylor, 2010). Nonetheless, global expenditure on defense in 2018 was roughly $1.8 trillion, a 76% increase in real terms from the post-Cold War lows of the late-1990s. Aside from the West’s recent interventions in the Middle East, a major driver of this trend is the rapid expansion of defense spending by emerging economies that have become more integrated into the world trading system in the past few decades.1 Though the growth of these economies due to trade has been welcome on the whole, the accompanying trend in their defense spending underscores the basic point that wealth created by trade is wealth that can be used to invest in one’s military capacity.

Economists have recently begun to expand the scope of international trade theory to explore the importance of arming and conflict (see, e.g., Skaperdas and Syropoulos (2001); Garfinkel et al. (2020) discussed below). These theories, however, are silent on why we continue to observe increases in arming in a seemingly peaceful and continually globalizing world. Furthermore, while “realist” security scholars have long expressed the view that the standard “gains from trade” could be outweighed by the negative consequences for a country’s future security if these gains are asymmetrically distributed, trade theory has not examined this argument specifically.2 This oversight diminishes our understanding of why and when nations expand trade with one another. Even in the present day, policymakers openly regard trade policy as an instrument for achieving security-related goals.3