Trade Creates Peace
By David Henderson
“Germany Vexed by Ties to Russia.”
So reads the headline of a front-page article in the Saturday/Sunday Wall Street Journal by Anton Troianovski. Mr. Troianovski goes on to point out the tension between German Chancellor Angela Merkel’s desire to be pro-U.S. government in its stand against Russia and her desire to not mess up trade relations with Russia. [The headline above is the print headline. The electronic article’s headline is “Germany’s Trade Ties to Russia Bind.”]
U.S. politicians have voiced frustrations in recent weeks about Germany’s reluctance to take a more confrontational stand against Russia. But for Germans, the risk in pursuing a hard line is unmistakable. Places like Mecklenburg-Western Pomerania–a region of 1.6 million with the country’s lowest average income–have much to lose.
For years, economists have noted that all other things equal, the more trade there is between countries, the more peaceful they are with each other. I pointed this out in an article in 2010. I wrote:
But there is another gain from trade that is especially relevant in a discussion of foreign policy: More trade leads to more peace between the countries that trade. The reason is that war reduces trade and, therefore, those in both countries that would otherwise gain from trade lose because of the trade that doesn’t take place. Many scholars who study war and trade have been aware of this connection. In 1750, Baron de Montesquieu stated that “peace is the natural effect of trade.” This was confirmed in a 2006 study, “An Analysis of Dyadic Dispute,” by Solomon W. Polachek of the State University of New York at Binghamton and IZA Bonn and Carlos Seiglie of Rutgers University. Polachek and Seiglie show that the higher the gains from trade between two trading partners, the lower is the level of conflict between them. A doubling of trade leads to a 20-percent decrease in belligerence. In short, trading nations cooperate more and fight less.