Free Trade and Peace

We investigate the effect of trade integration on interstate military conflict. Our empirical analysis, based on a large panel data set of 243,225 country-pair observations from 1950 to 2000, confirms that an increase in bilateral trade interdependence significantly promotes peace. It also suggests that the peace-promotion effect of bilateral trade integration is significantly higher for contiguous countries that are likely to experience more conflict. More importantly, we find that not only bilateral trade but global trade openness also significantly promotes peace. It shows, however, that an increase in global trade openness reduces the probability of interstate conflict more for countries far apart from each other than it does for countries sharing borders. The main finding of the peace-promotion effect of bilateral and global trade integration holds robust when controlling for the simultaneous determination of trade and peace.

From Lee and Pyun, Does Trade Integration Contribute to Peace?

Comments

These days, isn't the question more based on civil war than interstate military conflict?

After all, as free trade (or at least the perception of free trade) is reduced, apparently the talk of intrastate conflict war seems to increase, if recent news reports from such places Hong Kong, the UK, or the U.S. seem to indicate.

"Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!" -- Patrick Henry

So now free-trade is slavery? Are you working on a 1984-style 'Trumpspeak' dictionary?

My point is, China is deatroying American jobs and using its ill-gotten money fo arm itself and destroy us. We are paying for the rope they want to hang us with!!

You know, the "a conflict is inevitable so it's best we start it now on our terms" is pretty much exactly the way the German war cabinet was thinking in 1914. Are you trying to convince the rest of us that Trump supporters are more militaristic and dangerous than we'd previously assumed?

Evidently I can not speak for all Trump supporters, let alone for the President.

My point is, waiting China to become more powerful and dangerous is foolish. We must impose our own terms now. Otherwise, as Churchill famously said about those who appeased Hitler, we will be chosing dishonor and have war anyway. It is a time for bold, uncompromising, unyielding action.

Well, let's hope you're not typical of Trump supporters. The old claim I heard them making, was that, no, Trump was really a free trader at heart and all the tariffs were a necessary step toward achieving greater openness. Now you're telling me that, in your view, economic growth in China is inherently dangerous and the goal of U.S. policy should be to keep China as poor as possible. Do I have that right?

What i am saying is that we shouldn't be expected to hollow out America's economy and destroy American workers' lives to make China (and so e Americans) richer. Much less should we foolish pay for the weapons they want to use to kill American youngsters. Have we forgotten the Korean War?! Have we forgotten how the Chinese betrayed the Societ Union and invaded it? How it betrayed Vietnam and invaded it?

Much less should we foolish pay for the weapons they want to use to kill American youngsters.

You're being weaselly -- by 'not paying for their weapons' you mean nothing less than 'try to keep them poor enough that they can't afford to buy or build them'. Admit it. What you're calling for is effectively economic war against China to prevent further economic growth (or even 'better' an economic collapse) with the goal of preventing them from arming.

It is not that simple. I believe in fair trade and protecting America's security. It is clear China's current regime wants to destroy America. We have a right to protect ourselves against Chinese aggression.

Yet more weaseling. Be specific -- what exactly did you mean by 'paying for weapons that will be used to attack us'? And what do you think should be done to prevent China from acquiring such weapons? For such a tough-talking, anonymous internet commentator, you sure seem reluctant to say what you actually mean.

It is clear China's current regime wants to destroy America.

No, it simply isn't. Why would they want to destroy their main trading partner? That is a lunatic belief. The Chinese want to sell goods to the U.S. and buy things from the U.S. and, in doing so, continue to develop their economy. Many Chinese also want to invest in U.S. companies and have U.S. funds invest in Chinese compnaies, provided Trump doesn't ban that too, and continue to send their sons and daughters to U.S. universities.

"For such a tough-talking, anonymous internet commentator, you sure seem reluctant to say what you actually mean."
We should issue a ultimatum and make it clear that either the Chinese will comply with or they will crushed liked a grape.

China's leaders know America is a threat to their plans of world domination.

I think we can put the situation is a slightly different context, and so a different conclusion (though I don't really disagree with most of what was said about China).

China and the western market societies have a fundamentally different understanding of property rights. Property right are a core institution for market exchanges. If we are starting from such radically different view points trade will never produce anything but increasing frictions between the two regimes.

No need to suggest was is the solution but limiting trade is not a bad thing to do. Moreover, that should not be viewed as some act of "economic warfare" or cast in the language of "trade war".

As a side note, why do people not call China's propaganda claims about it's economic miracle being purely a Chinese result. Trade is always two sided and China's growth and success just as dependent on the west as any internal factors.

Exactly.

If we are starting from such radically different view points trade will never produce anything but increasing frictions

But trade between China and the U.S. (and the rest of the world) has already produced amazing things since China liberalized its economy under Deng Xiaoping. Obviously bilateral trade can and does work very well. So well that you're busy advocating intentionally screwing it up with trade barriers (since it's obviously not going to fail of its own accord).

Moreover, that should not be viewed as some act of "economic warfare" or cast in the language of "trade war".

So the U.S. should engage in a trade war and try to harm Chinese economic prospects but not call it a trade war and deny what we're trying to do? One problem with that 'stealth' strategy -- Trump called it a 'trade war' from the get go. You're going to have to work pretty hard on the re-branding project, and I don't think the Chinese (or anybody else) would be fooled.

We must place America first.

Favorable reading ever?

Yes, that was poorly worded but I don't this anyone should have tried to interpret the statement as denying the reality we have seen. Yes, there will still be gains from trade or the trade would not exists. But clearly the increasing trade with China is producing a lot of friction with it's trade partners.

Apparently even Pakistan is rethinking its trade relations with China. Again, a case where the underlying conception of property rights differ in some non-trivial ways.

International trade *always* produces 'friction'...from protectionists looking to demonize foreigners in order to justify sweetheart deals. For Bastiat's candlemakers, it was trade with 'perfidious Albion' that caused friction. For the U.S. protectionists in the 1980s, it wasn't China but Japan. Trade with Japan wasn't alleged to be unfair because of 'differing conceptions of property rights' but because Japan had the had the rationalized industrial policy of MITI and workers who would put in amazing numbers of hours per year (not to mention Kaizen and morning calisthenics) -- and who could compete and trade with a country possessing such amazing superpowers? The Japanese were buying everything (Movie studios! Rockefeller Center! This must be stopped before they own everything!) Pat Buchanan was the Trump of the day, running for President in a conservative, populist, protectionist platform. Fortunately, he lacked Trump's charisma and couldn't really make the populist shtick work. Unfortunately Trump had just enough charisma to pull it all off.

Slocum is making some excellent posts here, +10 internet points

"International trade *always* produces 'friction'...from protectionists looking to demonize foreigners in order to justify sweetheart deals. For Bastiat's candlemakers, it was trade with 'perfidious Albion' that caused friction. "

But none of those are complaining about forced technology transfers or state level economic espionage activities. Nor are those groups particularly complaining about the refusal of China to accept it is a developed country so should not enjoy the ongoing special privileged trade terms if wants to keep.

You need to put a baseline in for the free trade and then look at what is happening based on the different underlying property right regimes. Chinas's simply does not fit with that of the western market societies. All that continuing trading and investing in China as if it were following the same property rights approach will be continued claims of illegal acts by the Chinese and their denial and claims of prejudice and envy of their "success".

Add to that China's often stated goal of remaining the global order in its image....

If everyone wants to avoid a global war then limiting trade and economic interactions across the incompatible property rights regimes is the only way. Neither side is going to drop its regime or legal system, nor should that be expected. Every country and society should live under the order the people wish to maintain.

When the west chooses to adopt a system compatible with China, or the reverse, then open trade will make sense.

The problem is that the west welcomed China into the international trade order thinking that would result in it changing to the western model. It did not. The "experiment" has failed.

In the 1960's (it was in high school) a teacher said the 20th century could be quickly explained by two concepts/movements/whatevers: The Industrial Revolution and E = MC-squared. To each his own.

Now, poor abused and terrorized children in public schools seem to be subjected to force feeding double rations of slavery and racism.

"It is in vain, sir, to extenuate the matter. Gentlemen may cry, Peace, Peace– but there is no peace. The war is actually begun! The next gale that sweeps from the north will bring to our ears the clash of resounding arms!" Patrick Henry

"Only the dead have seen the end of war." Plato

"Only the dead have seen the end of war." Has Plato really said that or was MacArthur who said that Plato said that? But the point is the same: "Eternal vigilance is the price of liberty".

A good example would be the Japanese during the 1930s. The decline in trade and the rise in population meant their per capita number of calories was declining, so the Army set off to conquer East Asia.

And a bad example would be 1914 when world trade was something like 33% of world GDP, every major power had extensive commercial interests in every other major power, and nonetheless war occurred. Similarly, in 1812 the US went to war with its largest trading partner.

I might suggest that the 1950 - 2000 data set is a pretty skewed period in time. Those states that were open to international trade typically had a lot of structural elements from joining or belonging to the capitalist bloc. After all most of the wars of this period were waged as as anti-imperialist revolutions or by states outside the the capitalist bloc.

Excellent points.

Also, what is the direction of causality here? Does trade really promote peace or is peace enabling trade?

"Also, what is the direction of causality here? Does trade really promote peace or is peace enabling trade?"

+1

"Also, what is the direction of causality here? Does trade really promote peace or is peace enabling trade?"

They don't mention that in their abstract and I scrolled through 2/3 of the article before seeing them address that point. In theory they have it covered, by coming up with a couple of instrumental variables to account for reverse causality.

Maybe it's good solid work. My initial reaction was that their instruments don't sound particularly powerful but I'm not an expert. I'm a bit disturbed that they spent more time diving into the distinction between bilateral vs multilateral relations than they did looking into causality; that seems like not the useful or correct emphasis to have in their research.

Japan invaded Asia even way before the 1930s. Korea, Taiwan, Russia, China. Are you sure your calories thesis holds up, Steve-o-rini?

What if the war was fought to make free-trade possible? If the objective was somehow reached, no more need for war =)

In biology there's a concept called resource partition. Many organisms can utilize the same resources, but when two organisms have ranges that overlap they tend to only utilize part of that resource--for example, one bird species may feed higher in a tree and the other lower, despite both being able to feed throughout the whole tree. This reduces confrontations.

Trade, with the consequent increase in specialization, encourages this sort of thing. Some areas have more iron; others have more people; others have more fish. Instead of me going to war with you to obtain your iron, I trade my fish for it.

Confrontations--including (especially) war--are expensive, in both economic and ecological/biological terms. Specialization in something that your neighbors want, on the other hand, is relatively cheap.

That's an interesting analogy, with some parallels but some differences with economic relations (which in turn have some parallels but also differences with international relations).

When the birds specialize in lower vs higher tree branches, it could be looked at as analogous to the division of labor but I wonder if a better analogy is with oligopolistic firms choosing different parts of the market to cater to such as airlines with regional dominance or PCs vs Apple, or grocery stores with Trader Joes vs Whole Foods vs Walmart. (Or if they're a powerful conglomerate, moving into a whole range of markets e.g. GM with Chevrolet up to Cadillac.)

Thinking aloud here: I guess the relevant underlying elements of cooperation vs competition include these: if we're looking at oligopolies, they're essentially in competition with each other but can raise their profits by colluding.

Workers are similarly in competition with each other but might increase their wages by segmenting or specializing: the resulting wage increase might be due to increases in productivity thanks to the division of labor, or it might be due to collusion as with unions or guilds raising wages.

Birds might best be thought of as analogous to households, they are both suppliers of labor and consumers of goods. There are gains from the division of labor. But they aren't trading with each other (unless there's some cooperative stuff such as some birds help spread seeds whereas others eat harmful insects or some such). So I think they're more like the labor guilds or oligopolies who are segmenting the market. And less about the division of labor enabling specialization and more gains from trade.

But maybe that sort of bird specialization is analogous to households trading with each other? I'm thinking not really, it's not direct trade but maybe that specialization results in trade-like effects?

Trade > war, that is unless one side has literally nothing of value to trade eg British in the Opium Wars (China, self sustaining empire with no need for any legal British trade good) or pretty much any barbarian horde vs settled civilization.

I always find this hard to believe. China, after all, had long banned imports and restricted trade to Canton and a few other similarly corrupt and inefficient ports. George Macartney, for instance, believed that better trade terms could be had from trading rice grown in Madras than from opium.

Unfortunately, China's trade policy made bulk trading unprofitable. Following the Flint affair, where the Chinese acknowledged that the monopolists it had placed in charge of foreign trade were stealing from the British, things became worse with mandatory transhipment and even more restricted access to the Chinese market. The Macartney Embassy of 1793, again tried to open China to bulk shipping, and again the Emperor basically said that life would be too hard if every nation could have access to the markets while, of course, being explicitly racist.

Frankly it seems highly doubtful that China actually lacked demand for British products. Certainly China had millions of people living at near starvation levels, had need of European style armaments, and frankly was many things as cheaply as Europe.

If China truly had so little demand they would have let the traders out of Canton and let them return to Europe empty handed. Instead the Qing valued social stability and preferred the immiserated, but tractable peasantry.

Certainly following the Treaty of Wanghai, the US managed substantial trade in furs and other goods with only a minimal interest in opium. Now opium was certainly highly profitable and no doubt was a major reason for reversing the trade deficit. It just seems hard to take at face value the idea that British Empire of 1800 had no viable export commodities for the Chinese merely because her emperor asserted that to be so.

I believe it is clearly evident that they needed modern weapons...

The main problem with trading goods into China in the 18th-19th century was that China's currency was so deeply unstable and undervalued relative to the face value of silver that there were largely always better terms to be had simply trading Chinese goods and Chinese silver bullion for imports Spanish coin, which were far overvalued compared to the base cost in China of silver.

And so that's what traders did, largely turning only to opium when the Latin American revolutions disrupted the supply of desired Spanish coin. (With some degree of probable tacit support from the British state, not because Chinese trade was any significant component of GDP, but because tariffs were such an important part of state funds.)

Now, the reason for that's probably because the Chinese had pretty a bad coin "technology" and regime, again probably a consequence of the large extent of the empire and difficulty imposing uniforms standards, set against the limited resources of the Chinese state (rather a weak, low tax bureaucracy) and following various Chinese experiments with paper fiat currency (which led to hyperinflation). Hence the peso (and peso "chops") became almost the standard coinage of China.

(See https://mpra.ub.uni-muenchen.de/43987/ - ""A 'Trojan Horse' in Daoguang China?").

Digressing, China has frequently reached an equilibrium of being an efficient exporter, largely because wages have tended to be so low and the export capacity large relative to most the West, rather than 'pure' productivity advantages. But they have persistently had significant problems with currency, these have led to this sort of arbitrage being common.

At the same time though, British exports, even of tradeable goods they had large productivity advantages in such as cotton cloth, nails, matches, paper, candles, etc. (ultimately essentially most goods, tradeable and non, other than a few Chinese luxuries), tended to suffer that China's market wasn't actually very large because of the very low wage levels of the late Qing and limited disposable income of most Chinese (lower than most of India, let alone Europe, let alone England), and Chinese import restrictions added severe further costs...

In seismic activity, etc, frequently the impact of freezing a joint is that it breaks dramatically instead of adjusting frequently. Does market integration lead to larger but less frequent wars?

On the one hand, free trade promotes peace, reduces global inequality, and increases economic growth. On the other hand, free trade facilitates tax avoidance, increases within country inequality, and increases within country political unrest. It's perfect for the two-handed economist. [An aside, when I was an undergraduate studying economics, trade was something very different, with developing countries supplying the natural resources to be used by developed countries to make finished goods, thus maximizing the comparative advantage of each (and leaving developing countries and developed countries pretty much where they started, comparatively). If economists had been able to foretell the future, a future in which developing countries would compete with developed countries, I suspect trade and development economists would have been taught very differently.]

"and increases within country political unrest" by those bullies who would deny liberty. But in the end, even they, in all their ignorance, benefit from freer trade.

Lumping all violence together under one umbrella and declaring it a negative is asinine. Such an evaluation would show no difference between, say, those fighting to free slaves and those fighting to subjugate entire populations.

Maybe, just maybe, free trade increases violence because those places are horrible to begin with, and when shown a better way to live the population decides to make a stand. Obviously this isn't going to be universal (see China's attempts to censor the internet), but that's my point: violence as such tells us remarkably little.

When was that? Back in the '70's the ideas you describe were sort of a cliche know to have been refuted. Underdevelopment was blamed on having copied too any bad policies from "developed" countries -- protection, interest rate controls -- and places like HK, Singapore (the was before China's adopting semi-capitalism) showing what could happen when they were rejected.

Blocking China’s exportation of Fetanyl has disrupted peace in the heartland. No longer soothed by letting a thousand Walmart’s bloom and 24/7 MMA channels the proletariat is being activated by the Orange Man. His under medicated troops are going to rise up and demand a domestic supply of narcotics. Who exactly are these wreckers trying to take down our coal mines steel mills, and Purdue Pharma? Soros no doubt; surely he is in bed with the Mexican cartels smuggling black tar heroin in his Trilateral Commission directed caravans.

Peace promotes trade.

Relatively free trade sure worked to keep the peace in August of 1914, didn't it?

The theory that trade promotes peace has been around for a long time, yet finding truly conclusive evidence to support that assertion remains as elusive as proving any other grand theory of history.

At a minimum, it's complicated by the inevitable mix of trade with politics. For example, it seems undeniable that the USA offered unequal trade (you can be protectionist, we will be open) to many nations in order to promote political objectives during the Cold War.

Given the difficulty of ever reaching a conclusion on the effect of trade on peace, perhaps it would make more sense to evaluate trade from a more utilitarian viewpoint? Such as analyzing the more objective costs and benefits of such trade?

Also remember just how anomalous world affairs were during the start of this dataset. US GDP was 1.6 trillion (1990 international dollars). GWP was around 4.1 trillion or about 40% of GWP in one country. This has never been seen before or since, further back when China represented its largest share of GWP it was mostly in the form of huge populations barely above the subsistence level. The US in the early cold war not only controlled massive wealth, it could also afford policies that were never possible any other time in history.

And let us not forget that a lot of the terms that made international trade possible were due to the US using its relative economic power on the French, British, and everyone else to open up the global trading system. After all the Anglo American Loan Agreement explicitly was engineered to free trade into the sterling area. I suspect a lot of the impact of free trade on was not from free trade as such, but more that signing onto free trade was a condition for full membership in the US bloc.

Looking back through history, economics seems just a wee bit less important. Germany killed a third of the population in spite of being the most "internationally" minded trade area in Europe during the 30 Years War. The Ottomans traded extensively with Venice and were a massive percentage of Venetian foreign trade, yet they still invaded Cyprus and other Venetian holdings.

Seems very much like the late 20th century was weird.

The ability of economists to ignore literally decades of analysis in other social sciences, perform a rudimentary version of said analyses, and then think they had a Genius Moment... well it continues to amaze.

It is obviously best to have free trade between good, democratic, market based nations.

At various times we had hopes that the Shah's Iran, Gorbachev's Russia, or Hu's China were on a road to get there. Americans were enthused with those futures.

Now those countries have back-slid, and Americans are pessimistic. Probably too pessimistic, and perhaps counter-productively so. Because in the long term it just might work out, because good, democratic, market based nations are the best. No one is doing it better.

We just have to stay focused on that ourselves, and on the necessity of an engaged citizenry protecting the rule of law underpinning all good, democratic, market based nations. Putin, Xi, and God forbid MBS or Kim, should not be *our* models.

How does one know which way causality runs? It seems plausible that a reduction in military conflict would allow free trade to flourish.

Don't they basically have just one global data point/time trend? Inferring from just increasing all-around global trade patterns in the 20th century might not be enough to establish causality

Sampling bias, 1950 - 2000 is peak US hegemony. I expect things will be similarly quiescent under joint US-China hegemony (if it comes to that).

Does that particular time period strike anyone else as a potentially biased sample period?

Reverse causation.

Wood and trees. 'Free trade' perhaps does promote peace, narrowly, by decreasing competition, ceteris paribus, *but*:

- When 'free trade' nourishes and passes power to intergovernmental organisations with significant democratic deficits, that likely worsens political stability (since eventually the demos will react), and ultimately decreases peace.

- When 'free trade' nourishes the power of rising Communist dictatorships and puts them on a collision course and convergence with the democratic world, that likely decreases peace.

- Should 'free trade' centralize institutions to the point that all interconnected institutions and complex, interlinked supply chains are fragile and vulnerable to a shared shocks, then when a shock hits, that likely decreases peace.

- Where 'free trade' promotes declining relative incomes in tradeable sectors relative to traded, within a nation, that exacerbate income inequality within nations, that likely ultimately decreases civil peace (and thereby, ultimately international peace).

The conditions and actual states that are freely trading, and their relative divergences and structures at onset, and what political changes the move to free trade involves are all likely far more important for the question of peace than 'free trade' itself.

.....

Ultimately, the authors seem to have the same vulnerabilities that Pinker does - if civil state conflict is not decreasing, and certainly analyses suggest it is not (https://phys.org/news/2019-09-international-conflict-isnt-declining-analysis.html), then since we are undoubtably globalizing and moving to freer trade, these sons of guns don't have a thesis!

Free trade is a subset of trade integration. No access to the paper so have to wonder how something like the EU, which attempts to simultaneously remove trade barriers between members while maintaining uniform common tariff barriers against outsiders is supposed to be categorized. There are very few New Zealands in the world with no tariffs against anyone. The bloodthirsty USA which is always in at least a half dozen wars had a very low average tariff rate of 1.66 percent in 2017 compared to 3.38 percent for China and 2.51 percent for the EU, while peaceful Bermuda manages to stay out of war despite it’s world’s highest rate of 20.85 percent for the same year. If I had to bet, I would say the study probably has some fairly tortured definitions of trade integration.

The analysis of averages that dominates metrics from linear regression onwards is inappropriate when we talk about interstate conflict when we clearly care about the tail risk scenario that classically get absorbed into the error term. What methodology isolates what went wrong in the tail?

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