Summary: Trade does more than increase economic prosperity—it also fosters peace. By strengthening economic interdependence and aligning material incentives, trade reduces the likelihood of both interstate and civil conflict. A growing body of empirical research shows that open markets and cross-border exchange act as powerful constraints on violence, complementing or even surpassing the effects of democratic institutions.
In earlier essays, I argued that trade makes us richer, more trusting, more honest, more fair, and more tolerant. In this final essay, I will show that trade also promotes peace and mitigates the outbreak of war. Distrust, corruption, unfairness, and intolerance can often erupt into violence. By undermining these less-than-desirable attitudes and behaviors, trade can help reduce violence as well. But it may be even more straightforward than that: it’s simply not a good idea to maim or kill your customers or suppliers. War is bad for business. When you rely on others to buy your product or supply your needs, rocking the relational boat seems suboptimal. As economist Christopher Blattman wrote in his book Why We Fight,
Interdependence doesn’t eliminate the risk of war. There could still be a commitment problem, uncertainty, or unchecked leaders that push our two groups to fight. But because of entwined material interests, these forces must now overcome even more powerful incentives for compromise than usual. The gravitational pull of peace has grown stronger.
In The Better Angels of Our Nature, Harvard’s psychology professor Steven Pinker documented the worldwide decline in violence throughout history. One major contender for the driver of this more peaceful trend is known among international relations scholars as the democratic peace theory. As explained by Pinker, “Democratic government is designed to resolve conflicts among citizens by consensual rule of law, and so democracies should externalize this ethic in dealing with other states.” Trust in the procedures of democracy consequently builds trust between democratic governments. “Finally,” Pinker notes, “since democratic leaders are accountable to their people, they should be less likely to initiate stupid wars that enhance their glory at the expense of their citizenries’ blood and treasure.”
While the liberal peace theory remains influential, a growing wave of empirical research over the last three decades suggests that markets may play a bigger role than the ballot box. This shift in consensus toward what’s known as the capitalist peace theory posits that trade openness and economic interdependence are among the primary forces that mitigate war. Of course, scholars continue to debate over how much trade and economic freedom contribute to peace. But liberal peace theorists now include economic interdependence as an essential element within the broader liberal peace project. Economic interdependence is “part of the glue that cements the ‘liberal peace’ together.” As trade has grown worldwide, so has peace (see Figures 1 and 2).
Figure 1. Growth in Global Trade
Figure 2. The Rate of Wars Worldwide
French economist Frédéric Bastiat wrote that trade barriers “create isolation, isolation gives rise to hatred, hatred to war, war to invasion.” And an abundance—and I do mean abundance—of empirical studies have shown Bastiat to be correct: trade indeed reduces interstate military conflict (see Figure 3). Other studies further solidify the adversarial relationship between trade and international violence: while trade reduces conflict, international conflict in turn reduces trade. One pair of scholars put it succinctly: “The positive relationship between economic interdependence and peaceful relationships is so well established that research now focuses on the conditions that cause variations.”
Figure 3. Trade and the Reduction of Conflict
Of course, these conditions and variations matter. For example, one study in the Journal of Conflict Resolution found that trade overall reduces conflict, but the pacifying effects vary by industry: trade in manufactured goods has a stronger pacifying effect than agricultural trade or trade in raw materials. Thus, trade in some industries yields more peace than others. Also, mere membership in the General Agreement on Tariffs and Trade or the World Trade Organization does not appear to reduce conflict. Countries must actually trade.
Civil war is also less likely to break out where trade is present. A 2012 study controlled for a number of variables, including income per capita, growth rates, total population, ethnic fractionalization, and oil exportation. It found that higher levels of economic globalization—including foreign direct investment, portfolio investment, import barriers, tariff rates, and the overall extent of trade—reduce the risk of civil war. A 2016 study demonstrated that secure property rights, high-quality legal institutions, sound money, and free trade lower the probability of civil war. Covering the period between 1970 and 1999, political scientists Katherine Barbieri and Rafael Reuveny found that international trade, foreign direct investment, and foreign portfolio investment reduce the risk of civil war in all states observed.
As is well known, civil wars are more likely to take place between different ethnic groups. In many cases, ethnic groups silo themselves off from one another, escalating distrust and hostility toward out-groups. Trade barriers play a role in this siloing. It turns out that barriers to trade entry can produce what economist Saumitra Jha has labeled as ethnic cronyism: a set of “ethnic trading networks” often “based upon personal and community ties.” Jha’s analysis of South Asian medieval ports demonstrated that trade and low barriers to trade entry made these areas five times less prone to religious rioting between Hindus and Muslims in the period from 1850 to 1950. During the same period, these areas were 25 percentage points less likely to experience any religious rioting. Between 1950 and 1995, these areas were still less than half as likely to experience ethnic rioting.
Violence does not mean traditional interstate or civil wars alone; it often begins with how states treat their citizens. The closing and centralization of the economy is, to borrow from economist Don Lavoie, the militarization of the economy. Militarized central planners tend to wage war on their own citizens. Crucially, trade openness acts as a check on this central power, keeping potentially violent governments at bay.
Barbara Harff, a leading expert in the study of genocide and political mass killings, examined incidences of genocide between 1955 and 1997. One factor that decreases the risk of political mass murder, she found, is economic interdependence. Political scientist Clair Apodaca has also shown trade to be “advantageous to guaranteeing human rights,” with foreign direct investment being “favorable for human rights.” Emilie M. Hafner-Burton of UC San Diego summarized the state of the scholarship well: “One of the key discoveries of the past few decades is that it is possible to promote human rights by encouraging economic openness and growth through trade and investment…Market-oriented economic development…is correlated with better protections for human rights.”
Over two centuries ago, German philosopher Immanuel Kant wrote, “The spirit of trade cannot coexist with war, and sooner or later this spirit dominates every people. For among all those powers (or means) that belong to a nation, financial power may be the most reliable in forcing nations to pursue the noble cause of peace[.]” Others echoed this sentiment. “PEACE,” Montesquieu argued, “is the natural effect of trade.” In Rights of Man, American revolutionary Thomas Paine described commerce as “a pacific system, operating to unite mankind, by rendering nations, as well as individuals, useful to each other…If commerce were permitted to act to the universal extent it is capable of, it would extirpate the system of war, and produce a revolution in the uncivilized state of governments.”
These philosophers and revolutionaries were correct. In the end, trade steers us away from war and brutality and toward peaceful cooperation. If we care about a future that is richer, freer, and more humane, then keeping markets open and people connected through trade is one of the surest paths to a more peaceful world.
