Implications of the Argument
THIS BOOK has sought to demonstrate the significant deductive and explanatory power that can be realized through building a theory that accepts the insights of liberalism and realism but corrects for their limitations. Liberals are right to argue that trade can sometimes provide an important constraint on actors who might otherwise be inclined to aggressive and competitive actions. Yet liberals as a group assume that states are propelled into expansionist behavior by underlying unit-level drives such as greed, glory, and the pursuit of ideological or religious dominance. To borrow from Plato, economic interdependence for liberals is not a force for action, only a restraint on the black horse of domestic politics and leader pathology.1 Yet as we saw in previous chapters, there are few cases where war could be explained as the unleashing of unitlevel pathologies after a significant drop in trade and commerce. The Korean War and World War II in Europe and the Pacific are the three cases that come the closest, but even they do not work terribly well on closer inspection.
Economic realists correctly contend that trade and commerce can be forces for conflict as dependent actors, worried that others might cut them off from access to vital raw materials, investments, and markets, seek to reduce their vulnerability through the extension of military power abroad and direct occupation of crucial trading partners. Yet such realists, because they underplay the risks of overly hard-line policies while overplaying the risks of trading in the first place, cannot explain why great powers might exist within a cooperative economic relationship for years without falling into war. Moreover, although the stress on actors’ opportunistic grabs for more economic control occasionally explains shifts to new and more aggressive policies (most notably, Japan against China 1894 and Britain over Venezuela 1895), in the broad swath of cases, states typically make those shifts only after threats to their established trade relations have emerged.
Trade expectations theory resolves the problems for established liberal and realist theories in three main ways. For one, it offers a new variable—a dependent state’s expectations of the future economic environment—as a way to link liberal theory’s emphasis on the benefits from trade and investment with realism’s concern for the potentially significant costs of adjustment that a state would face were it to be cut off after becoming dependent on such commerce. This variable, depending on its value, will determine a state’s assessment of its future. If the state remains optimistic about the economic environment, it will not only want the trade to continue but also will be aware of the opportunity costs of disrupting it through overly hard-line behavior. If the state’s evaluations of the trading environment turn pessimistic, however, vulnerability to the costs of adjustment will kick in, causing leaders to fear long-term decline unless more assertive policies are undertaken. The expectations variable thus helps establish the conditions under which liberal and realist predictions are likely to hold. Yet by starting with the assumption that states are primarily interested in maximizing their security, trade expectations theory avoids the liberal problem of having to dip down to the unit level to explain why wars may actually break out. States in trade expectations theory are seeking trade to build their long-term power positions, and accordingly will see restrictions in access to trade and investment as direct threats to their future security. The case studies show that security concerns more than unit-level drives were determinative in the key great power crises and wars over the last two centuries.
Yet to fully transcend the limits of economic realism, a second new dimension—the notion of a trade-security dilemma—must be incorporated into the theory. Economic realism, given its offensive realist roots, is a theory of opportunism. Dependent states, always on the lookout for ways to reduce their vulnerability to cutoffs, will grab any and all opportunities to increase their control over valuable markets and sources of vital goods, at least as long as the costs of doing so are low. Yet one of the key potential “costs” that economic realists ignore is the possibility that hard-line behavior designed to protect economic access will end up leading to hostile counterbalancing behavior by other great powers, including those that provide markets and help to supply vital goods either directly or indirectly. Economic containment by these great powers can feed back into the original state’s assessment of its future trade environment, creating a pessimism that then leads to even more hard-line behavior. A spiral of economic restrictions and increasingly aggressive behavior can result that pushes the system into crisis as well as war, with the lead-up to the Pacific War providing the most dramatic example.
The notion of a trade-security dilemma builds on the defensive realist insight that hard-line actions can create positive feedback loops of mistrust and hostility. Unfortunately, the security dilemma within defensive realism has always remained a purely military concept, focusing on the impact of military buildups and alliance behavior that create direct threats to a state’s existence. The trade-security dilemma brings in the economic side of a great power’s security calculation. Dependent states that seek to protect their access to raw materials, investments, and markets can inadvertently hurt this access if they cause less dependent states to impose economic restrictions and carve out spheres for themselves. This simple fact, when actors are aware of it, goes a long way to explaining why great powers are often so cautious in their behaviors toward one another. Both sides want to avoid sparking a trade-security spiral that might lead to crisis and war. Moreover, both will have an incentive to project a character of reasonableness and moderation in order to solidify positive expectations in the adversary: for the dependent state, an expectation that the other is committed to the long-term economic openness; for the less dependent state, an expectation that the other will restrain the desire to act like an offensive-realist state—that is, to use its military power to enhance its control of its economic future.
Once we realize that rational actors will be aware of the trade-security dilemma and thus inclined toward moderation, the puzzle of conflict and war becomes this: Why would states ever switch to hard-line policies that undermine the confidence of others in their overall “reasonableness”? This is where the third contribution of the theory comes in: the specification of exogenous factors that shift actor calculations of the cost, benefits, and risks of staying with past moderate behavior versus shifting to more assertive policies. Within any bargaining situation between two great powers, there is an incentive to find a peace that provides benefits to both sides while avoiding the costs and risks of war. The fact that great powers can be trading peacefully for many years is prime facie evidence that they have found a bargain that is better than war for both sides. Hence to explain the shift to hard-line policies, we must look for changes in certain key exogenous factors that lie “outside” the bargaining relationship—changes that alter the actors’ view of its value. The most important of these, as we have seen confirmed in the historical chapters, are the role of third parties and the level of growth of the dependent state. When third-party actors threaten a dependent state’s ability to access raw materials, investments, and markets, this can cause the state to increase its military commitment to a region or simply occupy the territory of value. Such third-party concerns come in a variety of forms: small states undergoing revolts that endanger present trade or encourage other great powers to absorb them into their spheres (e.g., Turkey in 1852–53, Egypt in 1882, or Western Europe in 1945); domestic political factors in a third party that give it an incentive to attack a territory of significance to both state X and state Y (e.g., Italy toward Tunisia in 1881 or Egypt toward the Ottoman Empire in 1833–39); the role of a third party in reshaping the economic parameters of the X-Y relationship (e.g., Russia for Japan and the United States in 1939–41); and so forth.
Yet state X’s willingness to continue to trade with the more dependent state, state Y, will also crucially depend on the growing size of state Y and threat it might pose in the future, simply because of its power. The most obvious case of this is the early Cold War, where the United States practiced severe economic containment against the Soviet Union in order to prevent the Soviets from making economic gains that would increase their long-term power base. But as a result, the Soviets felt pushed into a more assertive policy toward the third world than they might otherwise have thought prudent. Concerns about Germany’s growing preponderance in Europe led to increasing economic restrictions by Britain and France after 1895—actions that fueled German fears that over the long term, Germany would decline relative to new economic powers such as Russia and the United States.
The economic environment can also be undermined by domestic forces that operate independently of the executive branches of the two main states. We saw this most clearly with the destruction of Nixon and Kissinger’s carefully constructed détente of the early 1970s. The Soviets began to act with notable caution in 1972–73 once they believed that trade and technology benefits from the United States would be forthcoming. Yet when the US Congress after Watergate pulled the economic rug out from under the administration’s linkage strategy, the Soviets quickly reverted to more assertive policies around the world. Domestic factors within Russia may have also played a role in hurting Japan’s expectations of future trade over Manchuria and Korea in 1903. To be sure, there were good strategic reasons for the Russians to want to maintain a strong forward position in Manchuria in order to penetrate the emerging Chinese market. From the Japanese perspective, however, domestic pressure groups were steering the czar’s policy toward the hard line, preventing the negotiation of a reasonable agreement that could define economic spheres of influence in the area and thus keep the peace.
The empirical chapters of this book, in covering pretty well every important case period since 1790 involving two or more great powers, show just how powerful an expectations approach to interdependence can be. Falling expectations of future trade and commerce played a prominent or decisive causal role in explaining the shift to crisis and war or peace in almost two-thirds of the case periods (twenty-six out of forty, or 65 percent). And when we consider just the cases where economic interdependence was directly implicated in the conflict, the trade expectations argument explained close to nine out of ten cases (twenty-six of thirty, or 87 percent). Economic realism scored a number of successes, but it did considerably less well than the trade expectations argument. The economic realism logic played an important or decisive role in a quarter of all the cases (eleven of forty, or 28 percent), or over a third of the cases involving economic interdependence (37 percent). Liberal economic explanations rooted in the unleashing of domestic pathologies as trade levels fall performed poorly overall. The liberal logic played a decisive role in none of the forty cases.2 In conjunction with trade expectations or economic realist factors, it covered only three cases: Russia’s moderation in the 1839–41 eastern crisis, some reinforcing aspects of Bismarck’s decision to turn to imperialism in 1883–84, and Japan’s relative restraint over Manchuria in the late 1920s. These three amount to just 7 percent of the total number of cases, or 10 percent of those involving economic interdependence.3 Even for what should have proven to be its “best cases”—Germany and Japan leading up to World War II, the Berlin Crisis of 1948, and the outbreak of the Korean War in 1950—the liberal argument could not explain the primary drives for conflict.
The rest of this chapter will be taken up with two main tasks. I will first consider the implications of the argument for international relations theory. The focus will be on its broader importance for thinking about liberal and realist theories that are not focused on economic interdependence per se. I will then turn to an examination of the contemporary US-China relationship. I contend that China’s growing dependence on external raw materials and markets along with its expectations for the future are critical to predicting the likely shape of the relationship over the next two or three decades. No issue aside from perhaps Taiwan obsesses the Chinese leadership like the economic dependence question. Yet there are strong reasons to believe that China will stay peacefully engaged in the system over the long term, at least as long as the United States proves willing to maintain an open and free-flowing global economic system.
BROADER IMPLICATIONS OF THE THEORY
The empirical chapters have shown, both through quantitative and qualitative methods, the superior explanatory power of trade expectation theory over its rivals. Chapter 2 demonstrated that the new variable, leader expectations of the future economic environment, supplies a simple but powerful explanation for a wide variety of quantitative large-N results over the last two decades. It explains, among other things, why authoritarian states might become more hostile as trade levels increase (such actors generally have less of a commitment to open commerce) and why states with contract-intense legal structures tend toward greater levels of peace (their leaders have greater confidence in the stability of current trade). In addition, the trade expectations logic explains the recent discovery in the quantitative literature of a “capitalistic peace”: the possibility that it is the capitalist nature of states rather than their trade levels per se that helps reduce the likelihood of militarized conflicts and war. Capitalist states are generally more committed to long-term trade openness and unrestricted financial flows. From the perspective of this book, then, it is not surprising that such states are correlated with lower levels of militarized conflicts, given that such actors, at least with each other, are likely to have positive expectations about the future. Furthermore, as McDonald’s (2009) statistical work confirms, even when trade levels are currently low, falling levels of protectionism are associated with lower risks of conflict. This result is consistent with the view that positive expectations of future trade can help keep the peace even when current trade is essentially nonexistent, given actors’ anticipation of future benefits if they stay peaceful.
The review in chapter 2 of the quantitative literature only provided correlational support for trade expectations theory. The qualitative historical chapters went further, confirming that it is indeed the expectations variable that is doing the causal heavy lifting in the vast majority of case periods where economic interdependence is implicated in the outbreak of war or peace. Now that we can see how powerful commercial expectations are in world history, we can go beyond economics as such, and explore trade expectations theory’s implications for liberalism and realism as general approaches to international relations.4 Liberals as a group assert that international institutions and the presence of democratic dyads should also enhance the probability of peace: the former by reducing actor uncertainty about others’ probability of cheating on agreements, and the latter largely through normative and legislative constraints on leaders who might contemplate war with another democracy.5
The trade expectations logic offers some straightforward insights regarding the value of institutional and democratic peace arguments. To the extent that institutions between actors have been designed to enhance positive expectations and reduce leader uncertainty about being cut off from valuable trade and investments, liberals are exactly right to maintain that institutions can help keep the peace. In correlational terms, we have already seen this effect in the role that preferential trade agreements and regularized high-level meetings have had in moderating the likelihood of a militarized interstate dispute since 1945 (chapter 2). Yet the historical case studies show that institutions are neither a necessary nor sufficient condition for peace between actors. For the vast majority of great power cases, peace was maintained for many years without any formalized institutions or even agreement on regular meetings between top officials. And when crises and war did break out, it was rarely because of the deterioration of preexisting institutional mechanisms. Hence, while international institutions can certainly help bolster positive trade expectations, they typically operate only as supporting or reinforcing factors within the larger context of great power politics. A more powerful set of forces is found historically in the judicious use of diplomacy by rational actors aware of the deleterious effects of overly assertive behavior and in the ability of these actors to show that they are committed to open trade into the future, even when institutional mechanisms are weak or nonexistent. US leaders did this effectively in 1972 and again in the late 1980s, signaling to the Soviets that the United States would be a more reliable trade partner as long as Moscow moderated its foreign policies. To be sure, institutionalizing any diplomatic deals can help to reinforce each side’s commitment to open trade and reasonable military behavior. But trade expectations can be improved prior to such institutionalization, and institutionalization itself will probably not become entrenched without these prior diplomatic efforts.
The trade expectations approach also helps us understand exactly what is at stake in the ongoing debate about the democratic peace. As we saw in chapter 2, it may well be the case that the correlation between mutual democracy and peace is really reflective of an economic peace as opposed to a political one. Democracies are unlikely to fight each other, in other words, not because they respect each other’s normative values or because their legislatures pull illiberal leaders back from the brink, but rather because democracies generally have open liberal economic foundations and thus are able to signal their commitment to open-door economic policies into the future. This does not mean, of course, that democracies are not often prone to raise tariffs and restrict monetary flows, especially during economic downturns (as we saw in the early 1930s). Nevertheless, leaders of democracies should expect other democracies to want to return to freer trade once their economies lift themselves out of recession. The longer-term outlook of democracies toward each other should be quite positive then—a fact that should make them more sanguine about their ability to access vital goods and markets, and so support their future security.
Yet what our case studies have clearly revealed is that democracies can be just as aggressive as authoritarian states when they believe they are facing actors who are not committed to open trade and commerce in the future. Britain in the nineteenth century is our most obvious example. British leaders regularly initiated crises or wars when they believed other great powers were trying to restrict Britain’s access to raw materials, investments, and markets, as we saw in the struggles with France and Russia over the Near East in the 1830s, the initiation of the First Opium War in 1839, the response to Russian moves against Turkey in 1853 and 1878, and the worries over Africa in the 1880s and again in the Boer Crisis of 1895–99. We also saw the US state become much more hard line in 1945 when confronted with the economic challenges of global Communism. The US-British standoff over Venezuela in 1895 also suggests that even two democracies can get close to war when one of the sides starts to feel the other encroaching into its economic sphere.
The biggest challenge to the overall liberal perspective, however, comes from the new understanding of why authoritarian states might launch themselves into costly wars. The liberal argument for the outbreak of war is rooted in the view that external pressures alone are not enough, that unit-level pathologies must be at work. The presumption of liberalism—indeed, the thing that most differentiates it from the realist perspective—is that a state’s systemic situation cannot be the primary driving force for war. In almost all our cases, even those seemingly domestically driven ones such as World War II in Europe and Asia, we nonetheless find that the initiators of war felt strong systemic pressures to resort to war to uphold their security. These systemic pressures were not always the direct result of falling expectations of trade. Yet in cases such as Berlin 1948 and Korea 1950 where we might expect domestic variables to have the most salience, we still see fears of long-term decline due to the economic rise of the other to be a critical component of the initiator’s reasons for war.
If these case studies show anything, it is that unit-level forces are not nearly as powerful a cause of war in world history as liberal theory believes them to be. Domestic variables can still be important, of course. But their main role is typically in the shaping of an actor’s expectations of its adversaries’ future willingness to keep commerce open, and if the actor is declining, its estimates of the adversaries’ desire to attack later once they are more powerful. In other words, if unit-level variables play any role in the outbreak of crisis and war, it is usually the unit-level characteristics of the other—not the unit-level characteristics of the initiating state—that best explains why the latter might change its policy and initiate conflict. The empirical evidence of this book thus forces a fundamental reorientation of liberal thinking. Liberals must move away from the perspective that the crises and wars of history are generally started by pathological states toward a view that shows how the domestic politics of state X shape the security calculations and behavior of state Y, the state whose hard-line behavior we are trying to explain.
This discussion also indicates where realism in its various strands needs to be reformulated. Offensive realism can do a good job explaining the universal desire of great powers for more control over future events, but by ignoring the downsides of hard-line politics, economic or military, it does a less than satisfactory job of understanding their behavior. Once we bring in the defensive realist point regarding variations in the intensity of the security dilemma, we can see why most great powers for the most of their histories are relatively cautious in their policies. Nevertheless, defensive realism’s understanding of the security dilemma ignores the economic side of the equation. Incorporating the trade-security dilemma and tying it to varying expectations of future trade allows us to see why actors may be both more cautious and more aggressive than defensive realism allows. They will be more cautious when expectations are positive, given fears that a turn to hard-line behavior will cause not just increased arms spending and alliance buildups by other states (the counterbalancing of the traditional security dilemma) but also the imposition of economic restrictions and even cutoffs that could greatly damage long-term economic power as well as security. Yet when exogenous factors, including domestic factors in other states, push either dependent or less dependent states toward policies to protect their economic access and restrict the access of other powers, a spiral of mistrust and hostility can occur more quickly and intensely than defensive realism would otherwise predict. Moreover, the offensive realist insight that actors do have a desire to hedge against future problems can easily be kicked in under such circumstances, leading both sides to start scrambling for control of third-party resources, investments, and markets.
PRACTICAL IMPLICATIONS: THE UNITED STATES AND THE RISE OF CHINA
The argument of this book has important practical implications for one of the most, if not the most, pressing issues of our time: the future of US-Chinese relations in the face of China’s phenomenal rise in economic and technological power. China’s GDP growth over the last three decades has been nothing short of spectacular, rising an average of at least 7–9 percent per annum (with many years in the double digits). This has led to a steady doubling in China’s absolute size every eight to ten years, and a quadrupling every sixteen to twenty years. Given the much lower growth rates of the Western states and Japan, China has now passed Japan as the world’s second-largest economy and is poised to overtake the US economy in total GDP in fifteen to twenty-five years, if it can sustain these trends.6 The rise of China in economic terms has led to ongoing debate over whether there is a growing “China threat,” and if so, what the United States can and should do about it. This section will use the trade expectations argument to show that China’s increasing economic dependence is the one factor, other than perhaps Taiwan, that is likely to lead to a deterioration of Sino-American relations and yet, paradoxically, also the factor that is most likely to keep the peace. Over the next two decades, everything will depend on how the two sides play their cards and the impact of their policies on their respective views of the future economic environment.
The biggest problem China faces is the same one that plagued the United States after World War II: the very speed of its economic growth has greatly increased the raw material demands of its economy, particularly in energy. For the sake of space, I will focus on China’s burgeoning dependence on foreign oil, given oil’s vital importance to almost every sector of a modern economy. In 1993, China went from being a net exporter of oil to being a net importer. Over the next decade and a half, even as domestic production increased by a third, China’s demand for oil increased almost more than two and a half times, to the point where China now relies on outsiders for more than 55 percent of its oil needs. Domestic production is expected to soon peak, even as consumption races ahead. By 2025 to 2030, according to most estimates, China will have to import over 75 percent of its consumed oil from abroad.7 We saw in chapter 6 that growing US oil dependence after 1943 greatly increased US willingness to project military power around the world and occasionally use hard-line measures to maintain access to it. One of the key questions that must be addressed is whether China’s growing dependence will force it over the two decades to follow a similar route—that is, switch to a power projection strategy that could only be seen in Washington as a challenge to US military dominance around the world.
The problem of increasing dependence has been the focus of the Chinese leaders for more than a decade. Their main concern boils down to this: Would the US government ever use its vast superiority in naval and conventional power to block China’s access to its historically most important oil suppliers—the states in the Middle East and Africa? China faces what its leadership calls “the Malacca problem.” More than four-fifths of China’s foreign oil comes through the narrow Malacca Strait between Malaysia and Indonesia. The US navy, ostensibly to deter pirates, has overseen the protection of this critical sea lane of communication for the last half century. From the Chinese perspective, however, the strait constitutes a potential choke point that Washington could use as leverage to deter China from adequately addressing its foreign policy concerns (e.g., Taiwanese talk of independence) or to contain or even reverse China’s overall industrial and technological growth.8
The United States has shied away from using China’s oil dependence as a direct tool in the two states’ diplomatic relations. As an economic realist might point out, though, this has not stopped Chinese leaders from becoming obsessed with their growing dependence on oil-rich states and reliance on the United States for continued access to them. Where economic realism goes wrong is in its insistence that dependence on vital raw materials necessarily leads actors to adopt hard-line aggressive policies to maintain their access. Over the past two decades, China has been remarkably unwilling to seriously challenge the naval status quo in the Indian Ocean and Malacca Strait (see Collins et al. 2008). This cooperative attitude can be traced directly to one overarching fact: the US willingness to avoid practicing any form of economic containment against China reminiscent of the old Cold War days. There are a number of reasons for this US reticence, as I discuss below, but the effect has been a straightforward one. Chinese leaders have maintained a positive view of the long-term global economic environment, and given this, have had a strong incentive to avoid the kinds of actions that might set off a trade-security spiral with highly dangerous consequences. Both sides seem to have learned from the spiraling US-Japanese conflict of the 1930s and have no wish to repeat that experience. China has in fact gone to great lengths to demonstrate that it is committed to an open door in Asia—that it is not in any way trying to re-create a restrictive coprosperity sphere for its own benefit—and that it is more than willing to bind itself to institutional arrangements that demonstrate its peaceful intentions.
Both actors can be seen to be behaving in highly rational ways given the economic realities they both face. The United States is now highly dependent on Chinese investments in American treasury bills to cover the ongoing deficits of the US government. China need the continued US purchase of Chinese goods to keep growth going and supply the foreign currency reserves that give China financial leverage on the world stage. In fact, China’s strategy over the last three decades can be seen as nothing short of brilliant. Deng Xiao-ping noted in his famous “24-character” internal policy statement in the early 1990s that China should bide its time, hide its capabilities, and not appear to be seeking to assert a leadership position in international politics.9 By not rocking the diplomatic boat, China could build its economic power in peace, using its growing ability to produce inexpensive quality products to beat others at their own game. That strategy had a downside: it would necessarily increase China’s dependence on others for raw materials, investments, and markets. But like Japan after 1870, this was a trade-off that China was more than willing to make in order to catch up to the established industrial powers. Joining hundreds of international institutions, participating in world forums and G20 summits, and demonstrating a willingness to cooperate on trade and finance issues of global significance has proved a great way to ease US and neighboring states’ fears that China’s growth would ever constitute a threat in the Asian theater, let alone around the world (Johnston 2003, 2004, 2007, 2013).
The situation as it now stands is significantly different from the one that arose in the aftermath of World War II. As we saw in chapter 6, US leaders by 1945 were very worried about the postwar rise of the Soviet Union, despite seeing Stalin as a largely moderate and reasonable geopolitician. Their concerns, aside from the fear of long-term Soviet growth and changing intentions of future Soviet leaders, were twofold: first, that small states on the periphery would have Communist revolutions that would make them fall into the Soviet economic and political sphere; and second, that the Soviet ideology of the time called for closed economic spheres, meaning that the United States would not have access to the resources and markets of these peripheral states after their revolutions. In the last three decades, however, China has gone to great lengths to show that it is a different fish from the old Soviet Union. China is not seeking to support revolutions or ideological dominance abroad; instead, it is a highly pragmatic state, wanting only sound economic deals that enhance the penetration of Chinese products and Chinese access to raw materials. Moreover, by adopting the Western approach to trade relations, including the joining of the World Trade Organization and pursuit of most-favored nation status with its trade partners, it is demonstrating that any smaller states that do gravitate toward China for straightforward economic reasons will not in any way be closed off from trade or investment with the Western powers.10
This all means a muting of American worries that China will cut the United States off from access to resources, investments, and markets once China catches up to the United States in total GDP.11 Given that intentions can change, of course, there will always be a concern that once China is on top, it will switch to a more closed economic strategy that serves to exacerbate US decline. Yet in the short term, the downside risks of sparking a destabilizing trade-security spiral will likely continue to overshadow any long-term fears of the future for all but the most extreme US government officials and analysts. Neither party in the United States is thus likely to switch to a CoCom-like economic containment policy against China to reduce its growth rate.
Still, China’s strategy of economic engagement with the world also contains a subtle hedging dimension—one that may be understandable within the anarchic context of international politics, but that could have destabilizing consequences for long-term US-Chinese relations. For one thing, China is trying its best to diversify its energy imports away from its primary reliance on Middle East and African oil. Over the last decade, China has built oil and gas pipelines to Kazakhstan, Turkmenistan, and Russia, and increased oil exploration in the East and South China seas. A pipeline that would go from Iran into Pakistan and over the Karakorum mountains into western China has been actively discussed, too.12 Such pipelines not only give China more control over its access to oil; over the long term they would reduce US leverage over Chinese foreign policy as well. Beijing is also implementing plans to build up a three-month strategic reserve of oil to lessen any shock caused by a cutoff, and give suppliers and the United States less of an incentive to implement oil sanctions. Finally, China has solidified relations with Pakistan and Burma, and is helping both nations construct deepwater harbors that once the necessary pipelines are constructed, would allow China to bring Middle Eastern and African oil into the country without having to go through the Malacca Strait.13
All this makes good strategic sense, notwithstanding the up-front economic cost. With oil consumption expected to rise from eight to fifteen million barrels a day over the next two decades, the pipelines from Central Asia, Russia, and Iran will give China additional suppliers to help fill any supply shortfalls.14 The proposed pipelines from harbors in Pakistan and Burma can provide China with alternative routes that would undercut any US threats to refuse passage of oil tankers bound for China through the Malacca Strait. Yet the question that hovers over US-China relations is this: Just how long can China maintain such a strategy without having to build up a power projection capability needed to protect the pipelines and trade routes (not to mention its allies and oil suppliers) from emerging threats? The United States found itself after 1943 having to actively project its naval and conventional power into the Middle East in order to deter threats, and from Eisenhower onward, respond to them by occasionally putting boots on the ground. Will Chinese leaders eventually be forced to project significant naval power into the Indian Ocean, or perhaps intervene in the affairs of Central Asian states, just to maintain their sense of secure access to energy?
The theory of this book would predict that Chinese leaders will continue to be cautious about turning to such strong power projection options, at least as long as they remain confident that the United States is willing to sustain the free flow of oil. To build a large navy and start sending it into the Indian Ocean might seem to make sense from an economic realist perspective. But this is not the multipolar environment of the 1880s and 1890s when new powers such as Italy, Japan, and Germany could build up their naval forces to protect their trade without automatically provoking the dominant naval power (Britain) into a hard-line reaction.15 In the current situation of clear US naval and conventional hegemony, no American administration would take kindly to a significant change in Chinese naval policy. Officials in Beijing understand this. They know that a new Chinese power projection policy would almost certainly set off a trade-security spiral, with US economic sanctioning and alliance efforts likely forcing China to pressure neighbors to become part of a Chinese economic sphere. The undermining of three decades of economic progress—not to mention a rise in the risk of actual war—would follow as a result. Until trade expectations take a downturn, then, Chinese leaders will probably play it smart, and continue Deng’s policy of building economic power and not rocking the geopolitical boat.
What all this depends on, of course, is a US willingness not to change its policy—that is, not to initiate a turn toward the economic or political containment of China. Rising states have obvious incentives to avoid rocking the boat to keep the economic benefits of engagement flowing. For relatively declining states such as the United States, however, there is an incentive to initiate a switch to hard-line policies to slow the other’s economic growth before it is too late (see Copeland 2000b, 35–53, 240–46). Fortunately for world peace, there are three good reasons for Chinese leaders to believe that the United States, even under future Republican administrations, will not return to the kind of tight economic sanctions regime imposed on the Soviet Union (and China) during the Cold War. The first and probably the weakest of the three is the ideological orientation of the United States as a liberal free trade state. US leaders who find themselves inclined to raise economic restrictions will likely also find themselves pressured by legislators and multinationals to maintain generally open policies with Beijing as long as Beijing reciprocates. Still, Chinese officials cannot count on ideology alone to keep trade and investment flowing in the decades ahead as their country starts to overtake the United States in total GDP. After all, during the Cold War a “liberal” United States proved able to implement one of the most severe peacetime sanctioning regimes in world history in the face of another rising great power threat.
The second reason for Chinese optimism is more powerful: US leaders of both parties have shown that they understand well that a containment policy would not only cost the United States absolutely (in lost loans and less trade) but also would lead to a risky trade-security spiral that could, in turn, lead to a new Cold War or worse. Before George W. Bush came into office in 2001, for example, he denied any strategic partnership with China and instead spoke of a new Sino-US strategic competition. Yet through his eight years in power, he maintained the economic engagement policies established by his predecessors. Future hard-line leaders from either party will likely also find themselves sobered by the implications of a CoCom-like trade-sanctioning regime for the stability of US-Chinese relations.
If in another two decades China does indeed seem on the verge of overtaking the United States in total GDP, there may be great domestic pressure to switch to at least a moderate economic containment policy to keep the United States on top. This is where a third reason for optimism comes in—one that is frequently overlooked by analysts. China has been doing such a good job in establishing strong commercial connections with Japan, the European Union, and its Asian neighbors that the United States will have an increasingly hard time over the coming decades implementing a new CoCom program—at least if China continues to appear fully committed to an open global economic system. In the early Cold War era, the Europeans, Japanese, and other US allies went along with the US-led CoCom program because they agreed on the reality of the Soviet threat, and had economies that were highly dependent on the US market and American capital. Such is not the case today. These states have strong and growing economic ties with China that they would be loath to break just because some hard-line US administration argued that it was time to contain the rising Chinese colossus. Moreover, they would likely disagree that China was enough of a future threat to warrant strong—and economically costly—sanctions now, especially with the populations of these countries clamoring for more jobs and low-cost products. If even by the 1950s the Europeans were pressing for a relaxation of CoCom in the face of Khrushchev’s peaceful coexistence campaign, it is close to certain that American allies across the board would reject a renewal of a CoCom-like sanctions regime against China or would skirt its provisions in order to make individual gains. And if a sanctions regime had significant leakage, it would end up hurting the United States even more than continued engagement. China could make up for lost US-China trade through trade with other states, and such trade diversion would lead the United States to decline even more steeply in relative terms.
For all these reasons, the Chinese leadership should have continued confidence in the American willingness to sustain a policy of free trade and open investment flows into the foreseeable future. Given the downside risks of provoking a trade-security spiral, Beijing will therefore be likely to maintain its low-profile posture for some time to come. If there is one major caveat to this rosy picture, it lies with that pervasive bugbear of great power politics: the role of third parties. We have seen in previous chapters just how often third parties can interrupt a great power peace by forcing one or both sides to take a hard-line position in a crisis that they are otherwise loath to adopt. If Taiwan, for example, made a major push for full independence, China might have to turn to military options that might in turn lead to US economic sanctions as a first-cut response. If Chinese leaders believed these sanctions were part of a long-term economic containment program, they might have to move to harder-line policies in the region, and a trade-security spiral to a Cold War would not be out of the question. US leaders might also find themselves under great pressure to move toward sanctions if they found that China’s economic allies in Africa, Asia, and Latin America were adopting highly repressive policies with Beijing’s support, or simply aligning so tightly with China that the United States’ “open access” to these countries seemed questionable. What might appear to be China’s increasingly closed sphere might trigger a shift to sanctions that could set a new Cold War in motion, especially if growing US and China resource needs seem to foreshadow a scramble for nonrenewable raw materials in developing nations.
Overall, though, the reasons for optimistic economic expectations in both China and the United States should outweigh the reasons for pessimism for at least a couple more decades. Both countries not only do well absolutely from the current trade and investment relationship, but leaders on both sides are highly inclined to avoid a repeat of either the disastrous 1930–41 period or the dangerous Cold War era. Peace is never a certainty, of course, and triggers caused by third parties or overly fearful estimates of the future could lead to an action-reaction cycle of sanctioning and military buildups that ends up undermining the decades-long cooperative relationship between Beijing and Washington. Still, in the nuclear age, the risks of spiraling between great powers are self-evidently high. If actors can learn from history (and perhaps international relations theory?), they should be able to take steps to solidify each other’s positive expectations as well as avoid the missteps that can lead to crisis and war.
EPILOGUE: THE PATH FORWARD
This book has demonstrated the explanatory and predictive value of approaching the question of economic interdependence and war from a dynamic perspective. By incorporating into its deductive causal logic a sense of how leaders think about future dependency and future commercial access, the theory of trade expectations is able to explain significantly more of the diplomatic-historical evidence and quantitative scholarship than its two main competitors, liberalism and economic realism along with their subsidiary theories. This suggests that the new research agenda on commerce and conflict should be guided by three main priorities. First, any deductive theories that rely on liberal and realist assumptions should move away from comparative-static models based on snapshots of current levels of interstate trade and investment. Since leaders are driven more by their expectations of the future commercial environment than by whether current trade and investment flows are low or high, deductive theories need to be built on this foundation. With this change in place, empirical analysis will adjust accordingly.
Second and related, there is still theoretical work to be done specifying the conditions under which states will likely believe that the future commercial environment will be stable and open, rather than unstable and restrictive. Chapter 1 laid out a number of exogenous factors that should determine a leader’s sense of optimism or pessimism regarding the future, including third parties, power trends, raw material reserves, and internal constraints on an adversary’s executive branch. We saw these factors play important roles in the shifting levels of great power conflict from 1790 to 1991. Yet more theoretical study is needed on the ways such factors interact with one another and the conditions under which some factors are likely to be more causally salient than others.
Third and finally, research must delve more deeply into the nature of trade-security dilemmas as well as the forces that set off destabilizing trade-security spirals of mistrust and increasingly hard-line behavior. This book has examined some of the most obvious factors that drive intense trade-security dilemmas, including concerns for the other’s internal stability and future type, the degree to which geography and industrialization lead actors to project military power to protect access routes, and the types of vital goods that third parties possess (e.g., oil) that may force great powers to get involved in regional disputes. Yet our understanding of trade-security dilemmas and how they differ from more traditional military-security dilemmas is still at an early stage. The problem of making credible commitments to peaceful behavior in environments of uncertainty has been widely explored over the last two decades, for example. But we still know little about how states build reputations for economic openness and for being disinclined to set trade-security spirals into motion.
I end this book with a call for the proper integration of realist and liberal insights into the development of sound theories. The realist concern for economic power along with the security implications of being cut off from vital goods and markets has provided the foundation of the alternative theory of this study. And once we bring in the fears leaders have regarding their economic environments and long-term relative power, we can see why so much of world history is the tragic result of intense security competitions that all sides seem incapable of ending. Yet unit-level variables can still play important subsidiary roles in the outbreak of historical conflicts, if not necessarily for the reasons liberals argue. We have seen that domestic factors in “the other” often drove security-seeking actors to pursue hard-line policies by increasing these actors’ pessimism about their ability to sustain access to trade and investments over time. So while unit-level factors may rarely be the primary propelling reasons for great power conflict, they can still serve as parameters shaping the likelihood that security-seeking states will pursue aggressive policies against states they believe are hostile to their economic interests. In this way, we can maintain a focus on the security fears that drive so much of great power behavior in history, and yet also recognize that unit-level factors external to our primary actors can sometimes lead them into wars and destabilizing conflicts that they would otherwise want to avoid.
_____________
1 See Plato’s Phaedrus, in Hamilton and Cairns 1961.
2 Domestic and psychological factors independent of commerce but part of the larger liberal paradigm, on the other hand, were important in cases such as the Sino-Japanese War of 1937–45 and wars of Italian reunification.
3 These statistics are drawn from table 2.7 in chapter 2.
4 I am again using the labels liberalism and realism as shorthand for groups of theories with common sets of assumptions regarding actor ends and the salience of certain variables.
5 For summaries and references, see especially Doyle 1986b; Owen 1994; Oneal and Russett 2001; Maoz and Russett 1993; Russett 1993; Keohane 1984, 1990.
6 The above statistics are on the conservative side and reflect the broad consensus opinions of China scholars. See especially the following edited volumes: Shambaugh 2005; Womack 2010; Ross and Feng 2008; Collins et al. 2008; see also Kang 2007; Jacques 2009; Friedberg 2011. A scholar’s particular predictions will depend on which Chinese historical government statistics are employed and the way the undervalued Chinese yuan is adjusted to capture the true size of China’s economic output. Many have argued that to sustain its phenomenal growth, China will have to reduce its reliance on exports while building domestic markets through increased consumption and lower overall savings rate (after the 2008 financial crisis, Chinese leaders seemed to take this advice to heart). This section assumes that China will continue its strong growth, even if at somewhat-lower levels than in the past. Of course, if China should start to stagnate due to environmental degradation and traditional S-curve determinants (Gilpin 1981), we should expect Beijing to be less inclined to moderation and more likely to initiate hard-line policies to prop up its waning regional position (see Copeland 2000b, 15–27, 240–45).
7 These figures are drawn from the Washington Post, September 18, 2011, A1 (based on the International Energy Agency’s World Energy Outlook report, 2010); People’s Online Daily, February 5, 2013, english.peopledaily.com.cn/90778/8122545.html; Pietz 2008; Downs 2010; Freeman 2008.
8 See Collins and Murray 2008; Kaplan 2010; Pollack 2008; Holmes and Yoshihara 2008; Collins, Erickson, and Goldstein 2008.
9 Sutter 2005, 293; Jacques 2009, 348; Jiang 2008, 31–32.
10 See Copeland 2003; Johnston 2007, 2013; Goldstein 2003, 2005; Rotberg 2008.
11 Nuclear weapons and satellite reconnaissance, furthermore, make it highly unlikely that China would ever think of launching a surprise attack on the US homeland or against major US allies.
12 Lo 2008; Kozyrev 2008; Kaplan 2010. Recently there has been much talk about China’s increased “assertiveness” in defending, for example, its territorial claims in the East China Sea as well as its energy exploration and access rights in the South China Sea. Yet in such disputes, Beijing has been acting largely reactively, seeking to counter claims to sovereignty over islands in these seas by Japan, the Philippines, Vietnam, and other states. Moreover, it has been willing to moderate its posture when other powers object, and has continued its broader policy of cooperation across almost every other policy issue. (For a incisive analysis showing that China’s new assertiveness is neither new nor terribly assertive, see Johnston 2013.) Overall, it must be said that US analysts often judge China by standards they do not apply to either recent US behavior (e.g., in the Middle East) or the United States’ own history as a rising power (e.g., over twenty military interventions in Latin America and the Caribbean from 1898 to 1930).
13 Western analysts have dubbed this policy as China’s “string of pearls” strategy for the Indian Ocean. See Holmes and Yoshihara 2008; Collins, Erickson, and Goldstein 2008; Kaplan 2010; Myint-U 2011.
14 Washington Post, September 18, 2011, A1; Downs 2010, 186.
15 Britain of course did participate in a major naval race with Germany after 1897 (see chapters 3 and 8). Up to that point, however, its focus had been on the naval growth of its traditional rivals, France and Russia.