Question: Is a country heavily dependent on global trade more or less likely to go to war with its trading partners?

1. Less likely
2. More likely
3. The correct answer may depend on the goods being traded

At least when it comes to China, the conventional wisdom today seems to clearly favor answer no. 1—a pax mercatoria or peace that comes from trade. Indeed, from Wall Street and Main Street to the “liberal school”1 of international relations, a loud chorus continues to assert that war is far less likely with China because the costs in lost trade to everyone would be far higher than any benefits that might be gained from war. As the French political philosopher Montesquieu put it long ago:

Peace is the natural effect of trade. Two nations who differ with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and thus, their union is founded on their mutual necessities.²

Of course, those in the competing “realist school” quickly reject the notion that “trade will always trump invade.”³ To support their view, they just as quickly jump to history's most glaring pax mercatoria failure—World War I—along with one of history's worst prognostications. Consider that just months before the start of the “Great War,” Stanford University president David Starr Jordan, in all his liberal glory, piously made this prediction:

What shall we say of the Great War of Europe, ever threatening, ever impending, and which never comes? We shall say that it will never come. Humanly speaking, it is impossible.

Of course, within months, the “impossible” morphed into an all-too-real conflict that would all but destroy the global economy while killing millions of soldiers and millions more civilians. In explaining why a pax mercatoria failed in this particular case, the realist school offers a far more nuanced view of the power—or lack thereof—of economic interdependence to keep the peace.

In this more nuanced view, if a country is heavily dependent on global trade for goods vital to national security such as food, energy, or other natural resources for manufacturing, that country may actually be more likely to go to war. In fact, it is precisely this more pernicious variation of economic interdependence that leads us right back to World War I—and a very interesting set of parallels that may be drawn between pre–World War I Kaiser Germany and the China of today.

As a first parallel, consider Kaiser Germany and its own variation on China's modern “Malacca Dilemma.” In the decades leading up to the Great War, a rapidly rising Germany was becoming increasingly dependent on oil imports to fuel its growing manufacturing capabilities. So it was that Kaiser Wilhelm and his advisors watched with mounting alarm—and considerable anger—as the British Empire conspired with both Imperial Russia and a quasi-imperialist United States to effectively lock Germany out of the Middle East and its vast oil reserves.

As to whether China believes there is a similar conspiracy against it today, there is this troubling fact: When Chinese president Hu Jintao originally coined the term “Malacca Dilemma” in a 2003 speech, he did indeed warn that “certain major powers” might seek to control oil flow through the Malacca Strait.4

As a second parallel between Kaiser Germany and today's China, there is also their shared status as rapidly rising powers heavily dependent on the importation of other natural resources to feed their growing industrial bases. As realist-school professor Dale Copeland tells the German story, when a protectionist French government stepped in to limit ore exports to Germany, it wasn't long before German industrialists began to speak openly “of the need to lay their hands on the iron ore basin of French Lorraine; [and] war seemed to them a matter for industry.”5

As to whether China's numerous state-owned enterprises of today might similarly seek to “lay their lands” on foreign resources through war, that is at least one reasonable interpretation of Chinese expansionism—recall our discussion of the Madisonian “mischief of factions” that may be helping to propel Beijing's revanchist agenda. Indeed, in both the East and South China Seas, China's usurpation of natural resource rights is a common theme and thread in the emerging conflicts, and it is not uncommon to see the massive oil rigs of Chinese corporations like the China National Offshore Oil Corporation ringed by Chinese warships leading the revanchist charge.⁶

Such spectacles notwithstanding, it is the third parallel between Kaiser Wilhelm's pre–World War I Germany and today's China that is perhaps the most interesting. This parallel is their shared fear of a naval blockade.

In Germany's case, in the twenty years leading up to World War I, its food imports began to grow even faster than its rapidly growing population. The grim result was an arms race between Germany and Great Britain that, according to Professor Copeland “reflected fears on each side that the other might blockade imports to starve the adversary into submission.”⁷

Nor was this any paranoia on Kaiser Germany's part. As Copeland notes: “British plans for such a blockade were well-advanced in the last decade before [World War I],” and “the shared fear [within Germany] was that German industry, increasingly dependent on outsiders for vital goods, would be strangled by the growing economic restrictions imposed by adversaries.”⁸

Of course, it is an open question as to whether China's business and government will eventually succumb to the same kind of “shared fear” that brought the world to its knees at the turn of the last century—that was then, this is now. But when one compares the “economic strangulation” rhetoric of modern blockade supporters to the German experience, any such shared fear in China would be quite legitimate, indeed quite prudent.⁹

The broader point of these historical parallels is to simply underscore the realist conclusion that countries like pre–World War I Germany or today's China that are heavily dependent on trade for goods vital to national security may indeed lash out. That said, there is a much more modern history that provides additional support for the idea that economic interdependence is no absolute guarantee of peace.

This thoroughly modern history involves Russia's expansionist activities in Crimea and the Ukraine and, more broadly, across Eastern Europe. Here, we have an authoritarian Russian nation that is heavily dependent on trade with Europe and on the financial system of the West, particularly the United States. Yet this interdependence has done little to stop a revanchist Russia from its repeated attempts to regain territory lost with the dissolution of the old Union of Soviet Socialist Republics.

Of course, the obvious parallel to draw here is that, like Russia, a revanchist China might also use its military might to right what it perceives to be historical wrongs. What is perhaps most interesting, however, has been the Western response—watched very closely by China—to Russian aggression.

In particular, rather than send in arms and troops to support the Ukraine or try to push Russia out of the Crimea, the United States and a coalition of European nations simply chose to fight this undeclared war solely with economic sanctions. Here, however, is the rub:

To the extent that sanctions may have had some mild deterrent effect on Russian aggression—that is certainly open to debate—they have only worked because America and its allies are far less dependent on trade with Russia than Russia is on America and its allies. If, however, China has its own “Crimea moment” and for whatever reason, it decides to take disputed territory such as the Senkaku Islands or Taiwan or Second Thomas Shoal or Arunachal Pradesh by force, economic sanctions by the United States and its Asian allies are likely to fail miserably.

Just why is this so? Because, unlike in the Russian case, any such sanctions regime would do as much or more damage to the economies of the American alliance as they would do to China. Moreover, because this is so, it is unlikely economic sanctions against China would even be attempted.

What all this means within the context of our “will there be war” question is this: At least with China, the nonkinetic tools of economic and financial sanctions are largely taken off the table. This is because China has as much power to harm the economies of the American alliance as the alliance does of harming China's economy. Of course, once nonkinetic economic sanctions are taken off the peacekeeping table, the probability of kinetic warfare in the face of a Chinese Crimea moment must rise.

In light of this both old and new history, perhaps the best we can say about economic interdependence is that it is a double-edged sword. Under some circumstances such as symmetrical trade of goods not vital to national security, economic interdependence may well help keep the peace—the fruits of trade will indeed trump the costs of invade. However, under other circumstances such as an overreliance on tradable goods vital to national security by a fearful combatant, economic interdependence might actually help escalate conflict.

This suggests that counting on economic interdependence to keep the peace in Asia is a strategy that may be based more on hope than upon any sober analysis of either past history or present circumstances. As Princeton's Aaron Friedberg notes: “Look at the relations between China and Japan right now. These are two countries that have extremely important trade and investment relations, but that hasn't prevented the Chinese from taking steps to raise the risk of conflict with Japan.”10

Because this is so, and because there are also other less rational elements that can lead to war, it may be appropriate to give Professor Toshi Yoshihara of the US Naval War College and Princeton's Friedberg the last words in this chapter. Says Yoshihara:

I'd like to think that economic interdependence would create this rational cost-and-benefit analysis that would tend to have a self-deterring effect on both sides since a war would obviously destroy that interdependence and lead to enormous economic costs on both sides; but we've seen in history that there are other factors that lead countries to go to war—things like fear and honor. These are two major drivers in terms of how states determine whether they need to use force to defend what they consider to be their vital national interests. And so I think if you include these more intangible elements of why states go to war, it would be prudent for us not to rule out the possibility of a crisis and maybe even conflict between China and the United States.¹¹

To this Friedberg adds:

People have believed for a long time that trade is a source of stability and peace and, I think, in a large sense, that's true and on average, historically, that's been true. Unfortunately, it's not a guarantee. Countries that have intense trading relationships do not necessarily have good strategic or political relationships; and, historically, countries with intense trading relationships have sometimes gone to war with one another.12