Does trade cause peace? Ask an economist
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In case you haven’t heard the embarrassing tale of the British writer Norman Angell, here’s how it goes: in a bestselling book, The Great Illusionhe argued that the economic ties between European nations were so strong that war was impossible. Hurrah! His book was such a hit that he produced several editions, including a special bulked-up version that hit US bookshops in . . . 1913. Oops.
A closer look at Angell’s writing reveals falsehoods within this folklore. In the 1913 edition of his book, he wrote: “War is not impossible, and no responsible Pacifist ever said it was; it is not the likelihood of war which is the illusion, but its benefits.” His argument was more subtle than is often remembered: trade had made war so expensive that any leader with half a brain should avoid it. It followed that stronger economic connections should help to sustain peace.
It’s a nice idea, but does it hold up? Two recent data points seem supportive.
Had Iran not been isolated from the global economy after years of sanctions, perhaps its recent attackers would have been more cautious about dropping bombs. (Shame they didn’t think through the implications for energy markets.) China is much more integrated into the global economy and hasn’t tried to take Taiwan. Perhaps part of President Xi Jinping’s calculus is the devastating economic fallout.
Interpreting the broader sweep of history is tricky. The past few decades have seen both a surge in trade and relative calm, but it could be that the peace was causing the trade. Not ones to duck a challenge, economists have swooped in with a smattering of new studies arguing that yes, strong trade ties are pacifying.
In onea group of researchers built a model where trade flows affect the cost of conflict, as well as the power of punitive economic sanctions. They noted that after 2014, Ukraine’s imports from Russia fell dramatically, in effect lowering the cost of war and raising the chances of fighting. According to the model, had trade flows continued, Ukraine would have been more likely to pursue a policy of appeasement later on.
Given it was Russia that invaded Ukraine in 2022, this sounds suspiciously like victim blaming, though Mathias Thoenig, one of the study’s authors, emphasised to me that of course Ukraine was not responsible for Russian aggression. But decoupling makes other sources of protection more important. Western ties with Russia should have made economic sanctions a powerful deterrent, for example. If only governments had been able to commit credibly to a major package of punishment, they might have secured peace.
Another new study takes a longer view, exploring how the dramatic expansion of air travel over the 20th century raised trade and lowered the chances of conflict. In the 1970s, for example, aircraft underwent the “wide-body revolution”, allowing them to carry much more cargo, including cars, machines and containers. Between 1965 and 2004, the share of US exports by value shipped by air rose from around 12 per cent to nearly 60 per cent.
Easier air travel affected trade along some routes much more dramatically than others. Whereas the effective distance between Lithuania and Iraq fell by almost 80 per cent, the already easy trip between Germany and Norway was barely affected. As effective distance fell, trade increased. By comparing partners who were more and less affected, the economists could tease out whether trade affected their chances of a tiff.
They found that yes, trade did seem to be soothing, lowering the chances that force would be threatened or applied. The overall effect looked minuscule, but that’s mostly because conflict was so rare, on average occurring between two countries in less than 0.5 per cent of the years between 1962 and 2014. A doubling of trade cut the chances of a spat by around 30 per cent.
So economists are still siding with Angell — at least based on the data they have now. But with some caveats. The type of trade encouraged by air travel may have been calming, but other types may not. Very unbalanced trade of the sort that breeds suspicion could fall into a different category. And perhaps trade was pacifying, under a particular regime with a global hegemon to bully others into submission. But in today’s multipolar world, such dynamics could shift.
If that hedge feels unsatisfying, sorry. I need to protect myself against a future folk tale of algebra-fuelled naivety.
Soumaya’s book ‘How to Win a Trade War’ is out next month
