Trade and Asymmetric Alliances

Abstract

Alliances are usually understood as a way for states to aggregate military capabilities in the face of a common threat. From this perspective, the willingness of relatively powerful states to form alliances with much weaker partners is puzzling. The weaker ally often adds little to the stronger state's security and may increase its chance of military entanglement. This paper presents evidence that international trade helps explain these alliances. Just as fear of losing a valuable trading relationship deters bilateral conflict between trading partners, so it also gives states that have the power to do so a motive to defend their trading partners from external threats that might disrupt commerce. This argument contrasts with most other research on trade and alliances, which reverses the causal arrow and suggests instead that alliances increase trade. Empirical analysis employing several different datasets on bilateral trade indicates that trade makes the formation of alliances more likely in major power-minor power dyads, and reduces the probability that these alliances will dissolve. By contrast, there is no evidence that alliances increase trade between these pairs of states.