Guns, Butter, and Openness: On the Relationship Between Security and Trade

Abstract

Sovereign states arm to defend real or hypothetical interests, presumably because they cannot engage in complete, long-term contracting that would prevent such arming. International trade, therefore, takes place within an essentially anarchic context, and we can expect trade regimes and security policies to be related. Indeed, many embargoes, sanctions, and various other forms of trade restrictions that have been used throughout history and continue to be used today can be considered extensions of security policies, whereas some security policies can be attributed to trade policy. The relationship between trade and security, however, has been barely explored within economics.' We could fairly characterize the prevailing view within the discipline as the classical liberal view, according to which the expansion of international trade does not just increase the welfare of the trading partners, but can also patch up any differences they might have over other contentious issues. (Solomon Polachek [1980] represents a rare articulation of this widely held perspective.) More boldly, it could be argued that the expansion of trade always alleviates conflict by forcing the adoption of measures that manage conflict. Nevertheless, one does not need to dig much into history to show that, while trade and economic interdependence can contribute to the peaceful resolution of disputes, they are not sufficient by themselves to guarantee the absence of war and the reduction of arming. Many observers before World War I, for example, considered that the hitherto unprecedented expansion of trade and interdependence between Britain and Germany made war unthinkable and impossible, yet war occurred and with much ferocity and destruction. Furthermore, as Donald Kagan (1995 pp. 373-80) has argued, the British policy of appeasement toward Germany during the 1930's was based on similar arguments about the use of economic calTots to avoid war. What can inter