Trade Has Stopped Wars, But Has It Kept the Peace?

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One of the defining features of modern Western foreign policy has been that trade helps maintain peace. Since Nixon went to China, policymakers have been convinced that by trading with other countries we both encourage democracy to spread in autocratic countries and make war less likely because of an unwillingness by those countries to disrupt those trade relationships. We have acted upon a belief that trade and economic principles have an ability to reform a nation's military behavior. Yet, what we are seeing now is that while trade may help discourage full-out war, it certainly is not enough to create peace.

China needs to trade with the U.S. and Western Europe in order to keep millions of its citizens employed. Russia needs to sell oil on the world markets to stay financially solvent. Iran and Cuba demonstrate the impact that a loss of or restrictions on trade can have on an economy. The theory that trade will make countries think twice about starting a war would certainly seem to have some strong evidence to back it up.

Unfortunately, what the theoreticians missed when this foreign policy strategy was developed is that the hesitance to disrupt trading relationships works in both directions. The democratic countries are just as wary of taking a hit to their economies by standing up to aggression by the trading partners that were meant to be restrained by trade.

Russia has seized Crimea and is now working its way into even more of Ukraine. Yet, Western Europe is struggling to take a firm enough stand against this aggression because Russia supplies much of its energy and buys many products from their manufacturers. The Western economies seem unwilling to go to war to help Ukraine and their trading relationships with Russia certainly are playing a role in that indecision.

China is acting more aggressively in several areas around Asia, inflaming what appear to the West as minor territorial disputes. Again, the trading links meant to reform the militancy of China are now backfiring against the West. Does the U.S. want China to stop buying our government bonds or to stop selling us the electronics, toys, clothes, and shoes that we no longer manufacture ourselves? The same calculus applies to Western European countries. Trade with China, both in goods and in financial assets, is now so large that both sides have much to lose from any disruption.

Multiple countries in the Middle East act in ways that are in opposition to Western interests and avowed principles of international relations. However, the specter of any widespread disruption of the world oil market means both that Western countries are continually drawn into conflicts with Middle Eastern countries and simultaneously are continually trying not to be drawn in too deeply. The Western democracies must attempt to walk the fine line of being diplomatically and militarily aggressive enough to keep oil flowing while not going so far as to trigger a boycott or blockade of the Gulf.

Business interests, more interested in profits than in human rights or other diplomatic niceties, continually remind Western governments of their trade relations, their export sales, and their foreign direct investment in the countries that are violating the modern norms of international behavior. To actually go to war with a country with which you built trade relationships in order to foster peace and democracy would necessarily mean both countries would lose economically because trade is by definition a bilateral relationship in which both sides win.

Iran in on the precipice of a nuclear weapon. Yet rather than taking military or even economic action such as trade sanctions in order to stop such an event, the West and particularly the United States are negotiating some sort of agreement that will likely do little to stop Iran's weapon development and will simply provide an excuse to more toward more normalized relations. Businesses from Western European countries are already negotiating contracts to do business in Iran on the assumption that trade will shortly be opened up. Here, just the desire for trade is causing the West to avoid war at virtually any cost.

The plan was that trade and economic ties would keep aggressive countries from starting wars. The reality is that as long as countries avoid a full out war with a Western country, they can use the prospect of disrupted trade relationships to scare the West out of taking any action to stop all sorts of behavior that appears worthy of stronger responses. Trade has proven to be a two-edged sword that is handcuffing the West at least as much as it is serving to rein in those countries it was meant to reform. Trade may be reducing wars, but it has certainly not created peace.


Jeffrey Dorfman is a professor of economics at the University of Georgia, and the author of the e-book, Ending the Era of the Free Lunch

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