Chapter 5 Commercial Peace (Week 5)

5.1 Discussion questions

  • Does trade promote peace? Did any of the readings change your answers from last week?

  • What is Chen (2020)’s main argument? How does this paper advance existing work?

  • What is Beardsley et al. (2021)’s main argument? How do community and hierarchy in trade communities affect interstate conflict?

  • How can we advance the above studies? (*)

  • Thinking along the line of alternative markets, why/when (again) are sanctions ineffective (*)

The McDonald’s Peace Theory

5.2 Commercial peace theory

The theory of commercial peace has a long tradition. Kant (1795), for instance, argues that

“It is the spirit of trade, which cannot coexist with war, which will, sooner or later, take hold of every people.”

Indeed, commercial liberalism is one of the three key pillars of liberal peace. There have been lots of statistical analysis particularly since the 1990s; and most results find a strong correlation between increased economic interdependence and reduction of interstate conflict. Two main hypotheses have been proffered: opportunity costs and costly signaling. The former argues that the material losses of trade disruption will add to the costs of interstate conflict, thereby making states and leaders more hesitant in initiating conflict. The latter theory argues that with increased economic costs, states can better communicate their revolve since actors that are willing to endure higher costs are more likely to be determined. See Zeng (2020) on why we need to unite these two theories. In particular, I argue that the bargaining environment of economic interdependence allows states to inform and coerce simultaneously. Therefore, the costly signaling and opportunity costs mechanisms operate in parallel.

5.2.1 Trade and alliance networks

Chen (2020) focuses on the opportunity costs rationale and examines the economic cost aspect beyond the dyadic focus. To be clear, there have been many studies focusing on the impact of third-party states. Crescenzi (2003), Peterson (2011), and Kleinberg et al. (2012) have already discussed how third-party trade affects states cost calculation. What Chen (2020) brings in is a more refined perspective: not all third-party trade partners are equal. He argues that it is those trade partners who are also defense-pact allies that are likely to help impose economic costs because they may

  • reduce trade with the challenger
  • punish the challenger with sanctions or unfavorable trade policies
  • undermine challenger’s ability to access alternative markets

As for advancing this research, one can point to the core part of the argument which rests on allies’ willingness to help impose and increase the costs. It should be noted that this may not necessarily reconcile well with other lines of research. For instance, Early (2011, 2015) both talk about how U.S. allies are more likely to bust its sanctions efforts since these allies enjoy the political cover and can therefore reap the economic benefits without too much fear of being punished. For instance, US allies such as Great Britain, Canada, and Japan have been busting US sanctions toward Cuba (Early 2012). And Dubai also became a trading hub for busting US sanctions toward Iran after UAE signed a defense agreement with the US in 1994 (Early 2015). This is an important point because Chen (2020)’s argument rests on the assumption that even if allies do not choose to impose sanctions on challengers, they would at least not act as alternative markets. While this may hold on average, what really counts is just a handful of sanctions busters.

5.2.2 Community and hierarchy

Beardsley et al. (2021) uses arms trade to construct joint-production security communities (JPSCs), which they argue helps identify formal and informal alliances. They argue states within each community are less likely to fight against each other. Moreover, as each community gets more hierarchical, the reduction in intra-community conflict gets more apparent.

A very interesting question that is only briefly addressed is how do community and hierarchy affect inter-community conflict. For instance, it is a more intriguing and relevant question to ask how likely will China and the US fight against each other compared to counterfactual scenario of UK-US conflict. Their results suggest that as each community becomes more hierarchical, inter-community also becomes more likely (see the coefficient estimate for the Hierarchy (lower) term on page 742). Though not their focus, they do offer some conjectures

“Since more hierarchical communities better serve the dominant actor, they may induce a greater threat to strong external states, increasing the potential for conflict between central actors via a security dilemma logic. And if strong states are more likely to engage in conflict themselves, members of the hierarchical communities they lead will more easily be drawn into the conflict via a chain-ganging logic. Moreover, dominant states of different communities in dispute with one another have an incentive for the dispute to play out by proxy through confrontation between their subordinate states”

— Beardsley et al. (2021, 742-743)

Would their results suggest that if the US centrality in its own JPSC declines (which means the hierarchy lowers), it would actually lowers the risk of the community members’ conflict with outsiders?

5.3 Additional resources

For discussion of EU, China, US FDI screening policies, see Screening foreign investment in the EU – the first year.

International Relations – Liberal Theory (2/7), where Andrew Moravscik talks about the rationale behind engagement with China