Probably you have heard from those advocating for trade liberalization that world peace can be achieved and is actually achieved by trade among nations. This statement may sound a bit exaggerated and it would be difficult to claim that world peace is actually possible through world trade without taking into account other factors. Nevertheless, it is to be recognized that the current trade system does contribute to international peace, and I will tell you how.
History is always a good start point. In 1930, the US enacted the Smoot-Hawley Tariff Act raising tariffs on over 20,000 imported goods. This non-precedential protectionist policy brought several complaints and retaliatory measures by US trading partners, a global trade war. Economists still agree that this measure was highly counterproductive and contributed to the depth and length of the global Depression which eventually played an important part in the outbreak of WWII.
In rebuilding the international economic system after WWII, two developments took place that particularly aimed at preventing such killing and destruction ever happening again and the promotion of world peace in the coming years and decades. On one hand, the General Agreement on Tariffs and Trade (GATT) was created, in the multilateral arena; and on the other hand, the international cooperation development in coal, iron and steel, was established in West Europe. The former became the World Trade Organization (WTO), and the latter the European Union.
But how does actually trade promote peace? Here are the arguments:
- Trade makes countries more commercially interdependent benefiting from each other and therefore have a lot to lose if war breaks out.
- Free trade and bargaining is the most cost effective way of resolving disputes and obtaining resources, while war is a costly way of achieving the same objective.
- Trade brings more goods and culture into a country promoting tolerance and understanding.
- Trade agreements promote international confidence and cooperation by creating a set of binding rules consented by the parties.
- Trade agreements avoid unilateral protectionism that can easily lead to retaliation from other countries.
This conception is not new nor it became known only after WWII. Immanuel Kant in his essay Perpetual Peace of 1795 argued, “the spirit of commerce sooner or later takes hold of every nation, and is incompatible with war”.
Do you agree with this idea of “capitalist peace”?
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