Peace Through Trade?

Featured photo: IBM.com

Does the peace-through-trade doctrine hold any value today?

The underlying logic of the liberal theory is that international trade and integration bring benefits that states are unwilling to sacrifice for the sake of conflict. Different liberal schools of thought provide different views on the subject matter, and its necessary to examine the various ideas within their chronological context. In particular, it must be noted that when classical liberals were preaching peace-through-trade, liberal policies were not yet a major feature of the international order.

The notion is a corollary of the liberal assumption that international trade is a positive-sum game: Adam Smith pioneered the idea that trade brings mutual benefits, claiming that economies should specialise in whichever good(s) and service(s) they have an “absolute advantage” in, i.e. could provide at the lowest cost on a global scale, for the benefit of all agents in global trade. This theory was refined by David Ricardo, for whom specialisation meant that economies should focus on goods and services in which they possessed “comparative advantage”, i.e. could provide at the lowest opportunity cost on a global scale, sacrificing the production of the fewest possible alternatives. Variants of specialisation theory have continued to emerged, such as the Hecksher-Ohlin Model, which states that specialisation should focus on whichever factor of production is most abundant in an economy (e.g. labour). Despite the various differences between these theories, all of them call for increased interdependence as a tool to achieve greater prosperity.

In the second half of the 19th Century, interdependence advocates were campaigning, specifically claiming that increased economic interdependence would lead to peace. Among these voices was Richard Cobden, who in 1846 called for the repeal of Britain’s Corn Laws, a set of protectionist policies imposed on agricultural goods – policies that discouraged the internationalisation of production. This concept held traction into the early 20th Century, when the world saw new levels of economic integration. One of the more enthusiastic proponents of the time, Norman Angell, was so confident in the ability of economic interdependence to tame conflict that he claimed that war between England and Germany was practically impossible, as it would constitute economic suicide.

Not long after, of course, the First World War broke out. It was a blunt blow to peace-through-trade advocates. At this point, explanations surrounding the effectiveness of internationalisation of production and interdependence vary. On one hand, thinkers such as Lenin saw a world tearing itself apart as a result of the unquenchable thirst for the wealth and resources of the world’s empires. At no point, he claimed, would empires be satisfied by the resources currently under their control, and continued expansion would inevitably lead to war. Conversely, others claim that integration was simply not far-reaching enough at the time to prevent conflict – had globalisation pervaded Eastern Europe, or the West been less locked into events in the East, Europe might have avoided a Great War. The pre-World War I global economy, however, was not an archetypal liberal economic order, making it therefore misleading to use it as a counterexample to peace-through-trade theories. Instead, pre-WWI globalisation was driven largely by reductions in transportation costs and not by reductions in protectionist measures. In fact, a globalisation backlash led to an increase in European protectionism after 1879 – so much so that Russia received nearly two-thirds of its public revenues from tariffs and state-owned assets.

“The Sphere” was sculpted by Fritz Koenig in 1971 to represent world trade’s ability to bring world peace. It originally stood between the World Trade Center towers in New York City, but was moved to Battery Park after 9/11. (Photo: blackfive.net)

So what do these lessons hold for us today?

Trade Expectations Theory, developed by Dale Copeland, draws on past liberal theories but offers a touch of realism: when considering conflict, states will take into account expectations of future trade relationships and consequent economic benefits. A similar idea was proposed by Collier and Hoeffler, who formalised the cost-benefit analysis that insurgents ostensibly make when considering uprising and civil war. Among the deciding factors are variables such as the expected tax base of the economy following the conflict, the expected economic damage of the civil war, etc. Such a model could be, perhaps, exported to an international setting. It is even probable that international conflict would feature an increased number of complex variables that would be still more likely to deter a decision to engage in conflict. Patrick McDonald argues that free trade also simultaneously transforms distributions of power by eliminating economic regulations that strengthen the societal groups most likely to support war. McDonald’s theory is supported empirically, as the tendency of protective trade policies to increase military conflict has been shown to be strongly statistically significant. Overall, these theories seem to suggest that economic integration is still an important factor in the deterrence of conflict. It must be noted, however, that alone, economic interdependence may prove insufficient.

On March 25, 2017 the EU celebrated the 60th anniversary of the signing of the Treaty of Rome by reiterating and intensifying its promise of economic and political unity. (Photo: cnn.com)

While the European Union is occasionally praised as a modern-day example of how economic integration has maintained peace, the EU has not relied solely on economic integration to achieve stability. In fact, the aim of the Confederation’s founding fathers was to create a political union – with shared foreign and defensive policies – which would prevent war, using economic integration as the first step. The establishment of the European Coal and Steel Community (ECSC) in 1951 was pursued in an effort to reconstruct the economy of Europe and ensure lasting peace. The eventual implementation of the Common Foreign and Security Policy (CFSP) in 1993 renewed the EU’s belief in the peace-through-trade policy by stating that EU members shall not discriminate against non-EU states with regards to trade, driven by the fact that this strategy facilitates confidence-building and mutual understanding between the EU and the foreign actors involved. In fact, the effectiveness of interdependence as a tool for peace is also determined by the relationship between the internal members and the foreign actors involved. The United States, for example, has had reason to worry about the economic might of a more unified Europe, as the EU holds a nominal GDP of $16.5 trillion, against the US’ $18 trillion. The United States has previously taken action as a result, and US pressure on EU countries to support sanctions against Iraq in 1990 and to join coalition forces in 2003 undermined the CFSP and the EU’s peace-through-trade policy. The importance of actors not involved in equal amounts of economic interdependence then must also be considered.

Overall, the effectiveness of economic interdependence as a conflict deterrent has been debated over the last centuries, and a conclusive answer continues to be elusive. The impact of World War I on the doctrine is ambiguous, given the difficulty of determining just how much economic integration there was prior to 1914 and, today, the EU may or may not be an example of how a close interplay between political and economic integration is required to assure future peace. In a political context where the benefits of international integration are questioned by many political leaders, the quest for an answer is as important as ever.


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