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Trade and Conflict: Uncertainty, Strategic Signaling, and Interstate Disputes Arthur A. Stein Arguments in Search of Data, Findings in Search of a Logic That trade reduces con›ict between states has been a tenet of liberal thought since its articulation in the late eighteenth and early nineteenth centuries. Classical liberals provided several lines of reasoning, however, and the historical record of the last two centuries undercuts some of their assertions, even as it provides a great deal of data with which to assess their central claim and their competing antecedent links. To this day, the relationship between trade and con›ict remains mired in a host of con›icting logics and empirical results, and scholars have turned to arguing about data and speci‹cation rather than dealing with core analytic problems.1 This chapter delineates some truths about trade and con›ict that pose problems for many arguments made in the literature. Typically, trade is treated as an independent variable that reduces the incidence of con›ict. Yet trade is itself endogenous to political calculations and decisions. That is, interstate cooperation and con›ict affect trade. Second, most formulations presume trade to facilitate con›ict avoidance. Yet we know that trade generates con›ict and that states use trade as an instrument of coercion. Thus, blithe assertions that trade reduces con›ict ignore both the cooperative bases of trade and the tensions and con›icts created by it. They also ignore that trade is a tool of statecraft, used both as carrot and stick. This chapter then constructs an alternative argument about trade and con›ict, one that both incorporates what is known about trade and roots it in 111 a broader theory of con›ict. In contrast, most extant logics linking trade and con›ict depend simply on a presumption of relative cost, arguing implicitly that trade increases the costs associated with con›ict and thus should reduce its incidence at the margins.2 The line of reasoning developed here embeds the impact of trade in a broader theory of the causes of con›ict and the conditions for cooperation. Yet the chapter suggests remaining ›ies in the ointment for this argument, as well, and discusses why ‹nding any relationship between trade and con›ict is inherently problematic. The reasoning developed here is that the coercive potential of trade is the basis of any empirical ‹nding that it reduces con›ict. Trade reduces the escalation of political disputes and thus the incidence of militarized disputes because trade both increases the costs of con›ict and gives states a set of coercive instruments with which to signal their commitment in any political dispute. It thus reduces both the occurrence of political crises and the need for militarized actions once they arise. The chapter begins by delineating the endogeneity of trade by laying out its cooperative bases. Next, the chapter explains that linking trade with reduced con›ict is problematic because trade both generates disputes and is used as a coercive instrument of statecraft. Third, the chapter develops a signaling argument that is consistent with these realities of trade and with a general theory of con›ict. This section also discusses the problems in developing a strategicinteraction argument linking trade and con›ict. Fourth, the chapter discusses the different units of analysis in trade and con›ict and the need for an analytic link between society and state in order to have a complete theory. Cooperative Bases of Trade The ‹rst problem with the argument that trade reduces con›ict is that trade is not exogenous. Rather, trade itself re›ects interstate cooperation and con›ict. Intergovernmental agreement is a prerequisite for trade. Moreover, governments sometimes encourage trade with speci‹c countries for political purposes and use a variety of levers to affect trade levels. Finally, private traders incorporate political considerations into their decisions. For all these reasons, trade levels already re›ect and embody cooperative relations between states, and this must affect any assessment of the independent effect of trade upon cooperation and con›ict. Trade Agreements Trade presupposes cooperation between countries. Excepting smuggling, trade between countries requires some minimal degree of interstate cooperation— 112 Economic Interdependence and International Con›ict that of trade agreements between countries. In the last two centuries, little trade has developed without such agreements, which resulted from political decisions of governments. Classical bilateral trade agreements allowed trade in speci‹c goods at some nonprohibitory tariff rate. This made possible some trade in a mercantilist world...


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