Does economic interdependence pacify interstate relations?
trade deter conflicts or conflicts deter trade?
Intro
Is economic interdependence conclusively and unequivocally correlated with peaceful interstate relations? Interdependent commercial relations implies that states become reciprocally dependent on one another due to shared gains from trade that incentives states to maintain peaceful interstate ties. With high levels of economic interdependence, globalization, and democratic peace, the rate of interstate warfare and incentives for war has noticeably decreased; the call for immediate conflict resolution has risen (Pinker, 2011). Not every analysis but most of the empirical research support the Liberal argument that trade promotes peace even after controlling other variables that’s relevant (Wagner, 1988). Nevertheless, the relationship is weak, more complex, and conditional than liberal assumption (Jack & William, 2022).
Correlation doesn’t imply causation; the causal relationship might be different as the hope for peace may also results in more trade. Its simplistic to claim that peace is always achieved with high economic interdependence due to the complex causal relationship & confounding variables. The purpose of this analytical essay is to assess the nexus of economic interdependence, interstate relations and peace. In this essay, economic interdependence is conceptualized as vulnerability interdependence that hinges on the cost a state would suffer if interstate relations were disrupted (Mansfield & Pollins, 2003,2001).
Liberal theory
Following the works of Kant, Montesquieu, and A.Smith, liberals argue that advanced economic integration where states dependent on each other for supply chains, increases size of trade flows, reinforces liberal norms via transnational relations, induces states to pacify interstate relations. They find that economic spirit can’t coexist with war as it’s not practical for states to trade with each other whilst at war and that trade will always be a desirable option for states to acquire new resources or markets rather than costly military considerations. The potential gains from territorial expansion, foreign conquests, and imperialism may not offset the loss resulted from trade disruption. Economic interdependence ensures that use of military force to be economically futile as the damage caused on state’s economy affects the aggressor as well (John Ravenhill, 2021).
Signalling argument finds that recognition of the mutual benefits from trade between states, increases further cooperation in communication exchanges, reduces misunderstandings/uncertainties, leads to formation of economic treaties along cultural and political institutions (Gartzke, 2007, Polachek,et al, 1999) This integration develops a sense of community that prevents violent conflict resolves and is capable to mediate potential conflict of interests that emerge. Conflicts between states impact the foreign supplies of a state’s imports & demands of exports negatively, high levels of trade relations results into high potential welfare loss from conflicts. Opportunity cost argument finds that due to the fear of losing welfare gains, rational elected leaders in representative democracies are deterred from starting conflicts against trading partners. Because they’re dependent on public support to maintain political power thus, consider the role of agencies/actors that’s dependent on trade exchanges with other states (Flores, 2021, Polachek, 1980). The same also implies for autocratic states with high economic interdependence when major constituencies can’t afford to lose economically (Oneal & Russet; 1996,2001).
Realists & Neo-Marxists theory
Realists find that, unfettered cross-border economic exchanges foster more insecurity than security due to shift in interstate power relations and lowering deterrence credibility of state. Neo-Marxist note that trade creates surplus, the gains from trade aren’t always distributed proportionately and mutual interdependency is highly unlikely. Grieco asserts that states care about relative gains than absolute gains caused by economic interdependence hence, states fear unequal profiting from high economic connectivity, that could translate into higher military power and lead to security dilemma. Moreover, they find that asymmetrically dependent states fear loss of autonomy and face economic coercion due to heavy dependence on other trading partner (Gelpi, & Grieco, 2008).
Economic vulnerability incentivises states to use force to decrease dependency on foreign trade, states may consider prospects for war due to increase in opponent territory’s value/to control foreign resources & markets. Japan-Sino 1894–95 war shows that highly dependent state, resorted to initiate conflicts to decrease vulnerability to trade cut-offs. High interdependence results in high chances of belligerence and trade alone may not obstruct less dependencies from instigating hostilities, the case of WW1 is often cited by realist to counter liberals. European states did achieve economic interdependence, but war was inevitable, and it was due to interdependence that affect core national interests; Waltz also claim that it was low interdependence that resulted peace in the post-WWII period (Kim,2013).
Empirical Analysis & Limitations
Polachek, Mansfield & Gasiorowski, assert that low to moderate degrees of mutually beneficial dyadic economic exchange result in reduction of likelihood of conflicts and war; also confirm that higher economic relations between US-Warsaw Pact led to decrease in interstate conflict (Jean, et al, 1999,). However, (Barbieri, 1996, 1999, 2002) finds that higher economic interdependence for both symmetrical and asymmetrical trade gains, amplify hostilities, wars and increase militarized interstate disputes (MID). These findings have been criticized as outdated and heavily challenged by other scholars with new data; liberal scholars also have emphasised on the limitations of their own analysis primarily due to data unavailability in selections of dyads. Information on developed states is higher compared to developing states and this leads to bias/over-representation of major powers. Hence, empirical analyses are conflicting due to difference in empirical domains, inadequate specification, and variables (Copeland, 1996; Hegre, et al 2010).
Discussion
Symmetrical trade ties between dyads stimulate peaceful resolutions while asymmetrical trade relations led to conflicts/war; some analysts claim that high interdependence increases conflicts while few argue that the relationship is irrelevant. In the case of former Yugoslavia, free trade & democratization resulted in economic independence due to uneven patterns of gains from trade and it further exacerbated the global political-economic dispute (Moravcsik, 1997, Gartzke et al, 2001). Moreover, the case of Egypt-Ethiopia Nile dam resource dispute shows that states consider the prospects for war due to high economic interdependence (Emiel, 2013). Greece-Turkey economic case study along similar context cases of India-Pakistan, Russia-Ukraine and Yemen-Saudi Arabia also indicate that economic interdependence had no pacifying effect on inter-state relations due to contiguity and increase in defence expenses despite increase in exports (Pistikou et al, 2018,2021).
Conversely, due to common trade interests, economic cooperation & interdependence Turkey and Arab countries were able to mutually benefit from trade, solve misunderstandings stemming from ethnic separatism and pacified Turkish-Syrian and Iraqi disputes without resolving in coercive security approaches (Shaimaa, 2011). The EU is an example of how economic interdependence promotes peace amongst European states with longstanding history of conflicts and wars. There are instances where fear of economic disruption prevents inter-state conflict from further exacerbating, the case of Serbia-Balkan region shows that economic interdependence and eventual prospect for EU membership has enabled the state to diffuse politically dangerous situation (Braddon, 2012). Hence, under liberal conditions economic interdependence leads to peace whilst under realist conditions it results conflict thus it’s dependent on the nature, degree and context specific circumstance of interstate and trade relations (Katarzyna 2021).
Public perceptions on economic interdependence and cost of conflict between states plays a vital role in determining the conflictual or pacifying element of interdependence; higher understanding about economic interdependence among citizens influences political outcome of a conflict by increasing prospects for peaceful solutions. Awareness on importance of economic interdependence between Japan-South Korea was recognised and considered in trade policies to curb long-standing animosities and hostile relations between both states (Braddon, 2012). Similarly, research by (Tanaka et al, 2016) show that citizens with knowledge on economic interdependence and territorial dispute between Japan-China become less favourable to belligerent acts.
Different trade commodities have varying pacifying impact on interstate relations; goods that are easily attainable in market such as non-ferrous metal, chemicals, energy goods are unlikely to inhibit conflict due to lower opportunity costs for states. (Flores, 2021) show that exports have pacifying effect, as 1% trade flow reduces 4% potential bilateral conflicts whilst imports, promote hostilities up to 2.3%. However, importers will be less reluctant to start conflict against exporters if the commodity is non-interchangeable or scarce. More extensive and highly valued economic ties decrease the probability of MIDs between states. In 2012, Russia became Japan’s most important energy supplier, this enable both states to overlook their geopolitical disputes over Sakhalin islands and strengthened interstate relationship (Osman & Emre,2022).
Moreover, the correlation between peace and economic interdependence is strongly observed among states with certain extent of democratic features however, this isn’t the case for authoritarian regimes as there’s no democratic institutions to constraint leaders hence, they experience more conflicts (Park, 2018). Pacifying effect is stronger in liberal democracies due to integration of state in global economy that enables varying domestic coalitions and interests group such as MNCs in private sectors to influence conflict-preventive state policies. Regional or bilateral trade agreements along PTA and involvement in international or regional institutions such as WTO, UN, etc. increases relative levels of economic interdependence and foster peaceful political relations (Suzuki,1994)
Peace-making effect of economic interdependence increases when expectations of trade are optimistic. Copeland finds that states that anticipate high future trade relations with partner will curtail hostile/belligerent approaches and prevent prospects of war; whilst low expectations will lead to scepticism about future trade and security relations. He argues that expectation of trade for Soviet Union shifted positively after post-cold war when Nixon offered extensive economic relations hence, the USSR began to accommodate the US, and this led to peaceful ties between the two (Copeland, 2014).
Some analysis show that conflict deter trade however, the case of Taiwan-China commerce and interstate relations indicates that political conflict may not affect economic flows/interdependence, due to mutual economic interests of leaders who prevent adversarial political disputes to influence trade relations (Kastner, 2022). Contrary to the liberal claim, trade isn’t interrupted under warfare, during Anglo-Dutch war, Britain carried on to insure Dutch ships that were destroyed by its own military; during WWII American companies also continued trading goods with Nazi Germany. Hence, wars can’t radically eradicate trade relations between states especially in this globalized era unless states assume high potential opportunity costs (Brett & Emerson, 2007).
Conclusion
Due to profitability of free trade and willingness to endure economic disruption, states that trade with each other tend not to initiate full-scale war and small-scale MIDs. However, economic interdependence alone is insufficient to foster peaceful interstate relations, it remains to be a contingency plan that heavily depends on the understanding & actions of communities, private sector, and state. Regime type, involvement in international institutions/alliance, strength of strategic interests at stake, traded commodities, awareness on importance of economic interdependence and balance in distribution of gains must be taken into consideration to assess the liberal hypothesis. The pacifying effects of economic interdependence subject to change and inhibited if states believe economic ties contributes to more economic inequality and dependence (Yuleng, 2020).
