It is a cherished truism among numerous Western officials: international commerce reduces the risk of war. This idea motivated the British parliamentarian Richard Cobden when he championed the repeal of tariffs on grain in 1846. In 1918, U.S. President Woodrow Wilson called for “the removal, so far as possible, of all economic barriers and the establishment of an equality of trade conditions” as part of his blueprint for world peace. Cordell Hull, the longest-serving U.S. secretary of state, argued in 1948 that “unhampered trade dovetailed with peace.”
Such thinking persisted during and after the Cold War. In the 1950s, France and Germany sought to mesh their economies, partly in hopes of preventing another disastrous conflict between them. After the Iron Curtain fell, many European politicians saw greater economic links with Russia as helpful for creating a cooperative diplomatic relationship. The United States and its allies worked to integrate China into the world economy for similar reasons. U.S. President Bill Clinton, for example, declared that admitting Beijing to the World Trade Organization would “plainly advance the cause of peace in Asia.”
And yet scholarly research has not confirmed that such thinking is accurate. Before 1990, academics vigorously debated the question but largely in the abstract: there was a marked dearth of empirical research on the links between the global economy and conflict. The past three decades produced an explosion of empirical studies examining this relationship, but the findings were a mishmash.
Today, there is enough research to offer some answers, but they are hardly straightforward. The notion that more trade and globalization inherently curtail war turns out to be mistaken, yet so is the inverse. The relationship between the global economy and international security is, instead, mixed. Some factors matter, and others don’t. The types of economic ties that are meaningful appear to have both stabilizing and destabilizing effects. Trade, for example, sometimes dampens conflict and sometimes fuels it. The globalization of production—that is, the dispersion of economic activity by global firms across borders—has a stabilizing effect among great powers, but it increases the likelihood of conflict among developing countries. International financial flows—the cross-border purchase of bonds, stocks, currencies, and so on—have no clear effect at all.
Washington does not seem to have digested this reality. American leaders once seemed to believe that a policy of economic engagement with China had only upsides for U.S. security; today’s leaders seem to think this policy was an abject failure. But policymakers must understand that both views are wrong. If the United States wants to prevent war, it should adopt a nuanced, modulated approach to economic engagement with China—curtailing it only when significant risks exist. Commerce is not helpful for advancing peace, nor is it detrimental. It is both.
MIXED MESSAGES
Scholars have been thinking about the relationship between trade and peace for thousands of years. In AD 100, Plutarch argued that international commerce brought “cooperation and friendship.” Enlightenment philosophers such as Immanuel Kant, Thomas Paine, Jean-Jacques Rousseau, and Montesquieu all believed that international economic ties made war among states more costly and, therefore, less likely. “The natural effect of commerce is to lead to peace,” Montesquieu wrote in 1748. A century later, John Stuart Mill proclaimed, “It is commerce which is rapidly rendering war obsolete.”
But other thinkers have strenuously disagreed. In 1787, the American statesman Alexander Hamilton rebuked the notion that the “spirit of commerce has a tendency to soften the manners of men,” concluding that history had numerous cases of wars “founded upon commercial motives.” The Austrian philosopher Friedrich List asserted in 1841 that reducing participation in international markets was the surest route to enhancing a country’s productive power and thus its security. And in 1917, Vladimir Lenin famously wrote that the quest for foreign markets made war among capitalistic states inevitable.
During the Cold War, liberal scholars of international relations such as Richard Rosecrance declared that commerce promoted peace, whereas realists such as Kenneth Waltz argued the opposite. In Waltz’s view, World War I, breaking out as it did among intertwined economies, falsified the notion that economic links can prevent war; instead, he claimed, greater ties created new areas for friction and contestation. Rosecrance, by contrast, believed that history was shifting in the direction of “trading states,” which he maintained would have little reason to go to war because states could buy everything they needed and because conflict would mean lost wealth.
For a quarter century, U.S. officials treated commerce with China as unambiguously good.
As it competed against the Soviets, the United States usually behaved as if economic integration promoted peace. Washington leveraged its leadership role to push for global economic openness, propelled partly by the widely held view that the protectionism of the 1930s had undermined economic stability and thereby helped spark World War II. But the U.S. push for integration had its limits. The Soviet Union had little appetite to participate in economic globalization, and Washington was happy to let Moscow largely isolate itself. The United States correctly saw increased integration with its allies as a means of outrunning the Soviet bloc in terms of growth and technological development.
After the Cold War, academics began conducting significant empirical research into economics and peace. By far the most prominent perspective that emerged from this literature was capitalist peace theory. The concept’s lead proponent, Erik Gartzke, argued that free markets, free trade, and the free movement of global capital were all beneficial for peace.
For a quarter century after the Cold War ended, U.S. policy toward China matched this optimistic perspective. American officials, treating commerce with China as unambiguously good for security, eliminated tariffs on Chinese products and encouraged U.S. companies to set up shop in the country. But over the last ten years, the dominant view in Washington has shifted to the exact opposite: that pursuing economic engagement with China had been a mistake and had harmed U.S. security. Policymakers seem to believe there is a relationship between commerce and conflict. They just cannot settle on what it is.
KNOWN UNKNOWNS
There is a good reason for such confusion: on close inspection, the relationship between global economics and global stability turns out to be extremely multifaceted. Although there have been notable individual studies supporting the optimistic view that commerce promotes peace, they are just that—individual studies. A systematic examination of all the empirical research on commerce and conflict shows that the connection is far more complex.
Consider trade. In a forthcoming book, I have identified 57 empirical studies published since 2000 that examined the influence of trade on war and peace. Just 16 of the studies supported the optimistic perspective that trade universally promotes peace. One found that it promotes conflict, and nine found no effect. The remaining 31 concluded that trade has a mixed effect on the likelihood of war—sometimes preventing it, sometimes promoting it.
These mixed-effect findings would be useful if they yielded consistent, clear insights regarding the circumstances that lead to peace. But instead, the list that emerges from this scholarship is long, unwieldy, and sometimes contradictory. Recent studies, for example, have found that trade leads to peace only when it occurs among democracies, among rich states, among states that are members of the World Trade Organization, among states that mostly trade products from different industries, among states that mostly trade products from the same industries, among states that are members of common regional trade pacts, among states that trade with one another at very high levels, among states that trade with one another to a roughly equal extent, and among states that have low levels of protectionism. Small wonder, then, that policymakers have struggled to craft peace-enhancing trade agendas. The relationship between trade and conflict has so many asterisks that it simply cannot be boiled down into anything pithy for officials, students, or anyone else to follow.
The effect of international finance is even murkier. Many analysts have argued that international capital flows prevent war. The New York Times columnist Thomas Friedman, for example, once maintained that international investors will “not fund a country’s regional war” and will “actually punish a country for fighting a war with its neighbors by withdrawing the only significant source of growth capital in the world today.” But the literature does not show that investors consistently flee states that are at war. Moreover, of the four studies that looked directly at how flows of capital influence the likelihood of conflict, only one found a stabilizing effect. Two concluded there was no relationship, and one found that greater foreign ownership of government debt increased the likelihood of conflict.
When it comes to the globalization of production, the effects are clearer yet still cut both ways. In Producing Security, published in 2005, I concluded that by reducing the economic benefits of conquest among advanced countries and making it far harder for states to manufacture advanced weapons without international supply chains, the globalization of production reduces the most dangerous form of great-power security behavior: applying lots of military power to fundamentally revise the territorial status quo. Great powers that launch wars of aggression, for example, could lose access to international supply chains. Subsequent research by Marc DeVore reaffirmed that cutting-edge defense production requires extensive integration into global supply chains. Andrew Coe and Jonathan Markowitz have also shown in greater detail that recent production changes have dramatically lowered the economic benefits of conquest.
To see why recent changes in production can curtail great-power conflict, look at World War II. When the Nazis took over the factories of Czechoslovakia’s Skoda Works—one of the largest armaments manufacturers in Europe at the time—they were able to use them to churn out massive amounts of weaponry. After the war ended, the Soviet Union effectively plundered the eastern portion of Germany by disassembling thousands of factories and transferring their equipment to Soviet territory, where the plants were reconstituted and run by Soviet workers.
Because today’s sophisticated industries are geographically dispersed across so many countries, replicating the Soviet Union’s accomplishment would be much harder. Now, a state that conquers an advanced country will possess only a portion of the value chain—and perhaps a very small portion. Moreover, much of today’s advanced production depends on highly skilled workers with specialized training and experience, and such workers may flee or not be innovative for an occupying force.
China faces a dreadful dilemma, one no other rising power has had to confront.
In addition, until the final decades of the twentieth century, great powers had also been able to make cutting-edge weapons essentially on their own. But because of the high complexity of advanced production today, no state, not even the largest ones, can remain on the cutting-edge in defense-related production while relying just on its own companies. Although past great-power revisionists could sustain their capacity to produce weaponry even after extensive supply cutoffs were imposed on them by counterbalancing coalitions, the constraining effects of such cutoffs would be greatly magnified today.
When the economic benefits of conquering advanced countries are low and great powers cannot go it alone in production, it is harder for them to use force to overturn the fundamental international order. But the security benefits of globalized production do not extend to smaller revisions or to actions taken by developing states. Poor countries, after all, are not positioned to conquer advanced ones, and so the kinds of military actions they undertake rarely prompt widespread economic restrictions.
For developing countries, the globalization of production actually seems to make conflict more likely, largely through the spread of weapons. By joining global defense manufacturing supply chains or by purchasing weapons from a state that did, developing countries can secure more advanced weaponry than they otherwise would have. Better armed, they can attack a greater number of states and employ greater force.
DOUBLE-EDGED SWORD
The ambiguous relationship between commerce and conflict is visible everywhere, but perhaps no country better exemplifies it than China. China would not have been able to rise so rapidly, becoming the world’s second-largest economy, without globalization. (Its share of global GDP in 2021 hit 18 percent, up from just four percent in 2001.) Yet in its quest to quickly grow stronger, China now faces a truly dreadful dilemma, one no other rising power has had to confront: to remake the global order, Beijing will need to directly confront the United States and its allies; if it does that, however, it will be in danger of losing access to the economies that its growth depends on.
The United States has already shown it can leverage China’s extensive reliance on foreign companies to great effect. Beginning in May 2019, Washington used export restrictions to decimate Huawei—once a leading telecommunications firm. Then, in 2022, the United States used such measures to hobble China’s entire semiconductor sector. These targeted technology restrictions provide just a small taste of what the United States would likely do to China in a wartime situation. Should Beijing launch a conflict, Washington could implement a comprehensive economic cutoff, one that might devastate Beijing in a way that has not devastated Moscow. The Russian economy is largely dependent on oil and gas, and, as U.S. President Barack Obama dismissively quipped in 2014, Russia “doesn’t make anything.” China, by contrast, makes plenty, and it needs access to global firms for its economic survival.
Unlike past revisionist states, China cannot really augment economic power through conquest. Even if Beijing could take Taiwan, it would be unable to effectively exploit Taiwan Semiconductor Manufacturing Company—the crown jewel of the island’s economy—because TSMC is so heavily dependent on access to tools and parts from companies throughout the world to make its chips. TSMC’s production also relies on the very specific expertise of its employees, who could easily flee Taiwan in the event of a Chinese invasion. TSMC, in other words, is no Skoda.
But Washington has its own tradeoffs to make. It has leverage over Beijing, but if it drives too hard, that leverage could quickly be exhausted. Should the United States preemptively hit China with too many economic restrictions, Beijing might decide to attack Taiwan—not because it has much to gain but because it has little left to lose. The United States, then, must walk a narrow path, constraining China when appropriate but not excessively pressuring its economy.
It will be hard to strike the right balance. The relationship between economics and conflict is simply too complex to offer clear, prescriptive guidance. U.S. officials need to recognize that engagement with China is not akin to a single light switch that should be turned on or off. Instead, they should treat the economic relationship as a series of dimmers, with some turned all the way down, some turned all the way up, and others set in between.
In 2022, the Biden administration completely turned off China’s access to cutting-edge chips and the machines needed to make them. This decision was an easy call, given that these chips have immense significance for weaponry and for China’s general technological competitiveness. Other sectors are trickier, such as rare-earth minerals—a group of difficult-to-extract metals critical to modern technology. Washington is right to be concerned that China accounts for roughly 80 percent of the world’s production of rare earths. But it would be a mistake to try to restore the United States’ past dominance of this sector, given how environmentally destructive it is. (Processing just one ton of rare earths produces 2,000 tons of toxic waste.) The best response is to instead build up large stockpiles of these minerals, which will require more trade with China, not less. Supplies of raw materials from many years ago, after all, are just as useful as supplies produced more recently. During the Cold War, the United States had a large stockpile of raw materials, and now it needs to create another one.
Key U.S. foreign policy officials recognize the value of being targeted in their restrictions. When announcing the semiconductor cutoff, U.S. National Security Adviser Jake Sullivan noted that Washington was following a “small yard, high fence” approach. But following this guidance will clearly require immense effort. The political pressure to impose protectionist barriers on a wide variety of Chinese exports, including many that are not in strategic industries, is clearly strong, and deciding which restrictions are valuable and which aren’t is especially difficult in an era in which new technologies keep sectors constantly in flux. To chart the right course, Washington will have to hire more economic strategists and do a better job of making sure those experts coordinate with one another. Currently, officials dealing with economic statecraft are scattered across six mostly siloed portions of the government: the State Department, the Commerce Department, the National Security Council, the Office of the U.S. Trade Representative, the Central Intelligence Agency, and the Treasury Department.
But ultimately, the best way for Washington to make the right call is less about bureaucratic reforms and more about exercising basic modesty. The relationship between commerce and conflict is too complicated for anyone, anywhere, to nail down completely. Washington should be humble and skeptical. In evaluating the relationship between the global economy and security, easy answers are beguiling. But they are almost always wrong.
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