Wars and trade

Published: January 30, 2013

The writer is a senior journalist and has held several editorial positions including most recently at The Friday Times. He is currently senior adviser, outreach, at the Sustainable Development Policy Institute

One of the fears in the wake of the minor skirmishes at the Line of Control (LoC), which was deliberately hyped in India, was that it can negatively affect the normalisation process between Pakistan and India and, by extension, the movement towards trade and investment.

The Indian prime minister’s statement, under pressure from the opposition right-wing Bharatiya Janata Party as well as a large section of the Indian media, that “this is not business as usual”, followed by partial suspension of the relaxed visa regime, stoppage of the bus service across the LoC, refusing to play Pakistani players in the Hockey India League and returning Pakistani showbiz people enhanced fears that trade agreements effected late last year might next be axed if the situation continued to slide.

While India’s actions boosted the realist argument that ‘relative gains concerns’ will always determine a state’s response and militarised disputes, even short of war, will badly impact trade between them, the liberals fretted over the LoC moment and hoped that it will not become another bad episode in the history of Pakistan and India whose relations have traditionally been fraught.

Better sense has begun to prevail in India. Not unexpected, given the gradual fading of histrionics on Indian TV screens. But fears that trade between the two countries remains hostage to realist assumptions grounded in security as the primary determinant of a state’s response to external stimuli, have again increased.

In other words, while realists are being smug over the fact that the moment proves the realist theory right, liberals, arguing that trade and investment will increase interdependence and thus reduce the chances of conflict, have gone into a trepidation mode. They ask the usual question: how can Pakistan and India be brought to the point where realist assumptions are defeated. To put it another way, the liberals argue that all will be well when Pakistan and India resume full trade but don’t know how to get the two sides there! In sum, they ‘accept’ the realist position implicitly in the first instance, but argue nonetheless that once trade is given a chance, a different causality will kick into play, trumping the realist assumptions. To rub it in, realists further argue that even if trade ties were not to snap because of security concerns and trade in fact increased, high interdependence will increase rather than decrease the chances of conflict. They point to the well-known fact that the European powers had very high levels of trade and high interdependence in the run-up to both world wars. Going by the liberal argument, those levels of trade and interdependence should have prevented war. But war happened, not once, but twice and mutual dependence actually increased vulnerability rather than decrease it.

So, how does one explain that through the interdependence argument? The realist correlation seems to be right but, as David Copeland argues in his International Security article (Vol 20, no 4; Spring 1996), “trade levels had been high for the previous 30 years [in the run-up to WWI]; hence, even if interdependence was a necessary condition for the war, it was not sufficient.”

Copeland offers a different approach and calls it a theory of trade expectations:

“Trade expectations theory introduces a new causal variable, the expectations of future trade, examining its impact on the overall expected value of the trading option if a state decides to forgo war. This supplements the static consideration in liberalism and realism of the levels of interdependence at any point in time, with the importance of leaders’ dynamic expectations into the future.

“Levels of interdependence and expectations of future trade, considered simultaneously, lead to new predictions. Interdependence can foster peace, as liberals argue, but this will only be so when states expect that trade levels will be high into the foreseeable future. If highly interdependent states expect that trade will be severely restricted — that is, if their expectations for future trade are low — realists are likely to be right: the most highly dependent states will be the ones most likely to initiate war, for fear of losing the economic wealth that supports their long-term security. In short, high interdependence can be either peace-inducing or war-inducing, depending on the expectations of future trade.”

The good news, however, is that trade is inevitable. To put it simply, until there is a seller and a buyer, trade will happen. There is empirical data to support this, compiled by Katherine Barbieri. Barbieri also co-authored with Jack Levy an article in the Journal of Peace Research (Vol 36, no 4, 1999), captioned, “Sleeping with the Enemy: The Impact of War on Trade”. Barbieri and Levy maintain that “there are numerous historical cases of trading with the enemy during wartime, including trade in strategic goods that directly affect the ability of a state to prosecute the war.”

Trade will continue even when states are at war. While dyadic trade will be negatively impacted, trade through third parties and circuitously will continue. This is not to say that states must fight or that trade through third parties in such circumstances is preferable to dyadic trade. The point is that empirical data does not support the central tenet of the liberal theory that trade promotes peace or the realist assumption that states, because of vulnerability, will snap those ties. If there’s a demand for item X made by state Y in state Z, X will get to Z, regardless of the conditions of war and peace. This is also borne out by informal trade linkages between Pakistan and India, especially trade through third parties.

But precisely for the reason of the inevitability of trade, and leaving aside the issues of war and peace, it should be clear that sleeping with the enemy is not all that bad. If something is going to happen, it should rather happen in an environment of peace than war. Equally, however, there’s a need to look at certain assumptions, especially the more optimistic “give trade a chance to bring peace” chants, with a more critical eye than the effusive, liberal enclave of Pakistan is prepared to do.

Published in The Express Tribune, January 30th, 2013.

Reader Comments (26)

  • John B
    Jan 30, 2013 - 1:33AM

    Only protectionists go to war for trade or trade while prosecuting war.

    PAK region settlement has happened time immemoroal as a contiguous land mass with present day India and not with Iran or middle east or ce trail Asia. Over sixty years of experiment to reverse the traditional trade flow did not profit anyone in PAK. Modern times require modern thinking. If only PAK can come out of blinkers, the industrious people of the region will lift themselves out of poverty.

    Of course PAK land lords want agricultural products restricted from India for high domestic price and consumers want it relaxed for cheaper price. And small scale incendiary wars ( or protests) are always financed by merchants who gain from wars.

    Now who gains if the tensions on the LoC is alive and who loses?

    Recommend

  • Something Clever
    Jan 30, 2013 - 1:57AM

    If the conflict is about a red line issue, yes, trade won’t matter. The trade argument is, or at least should be used only in a situation where it’s a minor conflict (by comparison). It gives rise to arguments against conflict from people who see it as “not worth it” and countries usually want as much support as possible before going into a war. But, if you pick the right topic to poke with a sharp stick then yes, none of it will matter even a little bit because the emotional side will take over.

    Recommend

  • Atyachaar
    Jan 30, 2013 - 2:26AM

    One of the fears in the wake of the minor skirmishes at the Line of Control (LoC), which was deliberately hyped in India

    Really, you may not think twice about the death of your soldiers, stop expecting others countries not to have empathy towards their soldiers! Especially if they were beheaded. The outrage is justified!

    Recommend

  • gp65 .
    Jan 30, 2013 - 2:31AM

    “The Indian prime minister’s statement, under pressure from the opposition right-wing Bharatiya Janata Party as well as a large section of the Indian media,”

    There are any number of issues where the government ignored opposition e.g. nuclear deal, FDI in retail etc. IF it chose to change its stance, it is because it realized that media and opposition are articulating vox populi. In a democracy, it is not a negative thing but a positive thing for the government to be responsive to the people who elect it.

    Most Indians that I know are not interested in war. But presenting war or capitulation to Pakistan’s aggression as the only 2 options is a false dichotomy. There are a range of policy options in between that are available to the Indian government and should be explored.

    “The entire planning and execution was done in a cavalier manner, in total disregard of military convention. In justification, to say that our assessment was not wrong, but there was, ‘unreasonably escalated Indian response’ is a sorry excuse for not being able to assess Indian reaction”. This is not my opinion about what happened on Jan 8 2013 but Gen Shahid Aziz’s opinion about Kargill which was published in The Nation. Pakistan repeatedly underestimates Indian response to Pakistani aggression. When will it learn?

    Recommend

  • ashok
    Jan 30, 2013 - 2:51AM

    paralysis by over analysis.

    Recommend

  • Dr. Mohamned Qureshi
    Jan 30, 2013 - 3:35AM

    After Mumbai, attack on Indian parliament and terrorist incidents here in Pakistan I have given up on the possibility of free trade or anything normal in relations with India

    Recommend

  • sabi
    Jan 30, 2013 - 3:38AM

    I didn’t understand this article may be i’m too naive!

    Recommend

  • Anjaan
    Jan 30, 2013 - 4:40AM

    The author is right when he argues :

    1. Trade happens naturally when there is a buyer and a seller. But it is not necessarily an instrument that can ensure peace

    - True ….trade is not a magic wand that can bring peace between Pakistan and India. But it can certainly help in allowing the natural to happen, when there is a buyer and a seller, some thing the Pakistani military establisment artificially restricted from happening for over 60 years. In case of Pakistan, it makes even more sense to trade with India directly, than buying Indian goods from a third party like Dubai.

    2. Trade can happen, even between two nations at war

    - example , India and Pakistan. These two nations are at a low intensity war since 1989, thanks to Pakistan’s ingenious policy of using “terrorism as instrument of foreign policy” against India. Nearly 25 years after its implementation, the people of Pakistan may now determine how effective it was in bending India to Pakistan’s wishes, and how far it benefitted Pakistan.

    However, the author uses the term “realists” for those in Pakistan, that are opposed to the “liberals” that argue in favour of peace. As a reader, I wonder what kind of realism is that, which has been practiced by the Pakistani Army and its supporters in Pakistan for over 60 years, that only promoted outright hatred against India, a big and relatively powerful neighbour …… ?Recommend

  • MilesToGo
    Jan 30, 2013 - 4:50AM

    Good writing – once again – consistency is amazing….

    Recommend

  • MilesToGo
    Jan 30, 2013 - 4:51AM

    Empirical data can be really enlightening.

    Recommend

  • Babloo
    Jan 30, 2013 - 4:52AM

    Pointless article and a waste of time and space.

    Recommend

  • Raja
    Jan 30, 2013 - 5:42AM

    I fully endorse the views of author that trade volume can not assure peace and avoid war. War and peace are dependent on vital national interests. Conflicting territorial claims are one such issue which can trigger war irrespective of high volumes of trade. More than the trade, its the control on trade routes which can be a cause of major conflict. As far as I can see, Pakistan’s wars with India so far are mostly ideological ( out come of two nation theory). India on the contrary will be focused on trade and energy routes which pass through Pakistan. Sooner or later India will have strong incentive to intervene in Pakistan if energy and trade routes are kept blocked. The answer to Indo-Pak peace lay in the possibilities of Indo-Pak collaborations and not in bilateral trade. At present I can not think of anything on which India and Pakistan can sit together and have common strategy. Can we collaborate in Afghanistan? No. Can we collaborate on common energy corridors? Only for namesake, but in reality no. Trade, sports, culture etc are trivial issues and alone can never be an insurance for good relations. Recent Asean-China, Japan-China disputes are a good example that trade volumes can not avoid conflicts.

    Recommend

  • observer
    Jan 30, 2013 - 9:32AM

    They point to the well-known fact that the European powers had very high levels of trade and high interdependence in the run-up to both world wars.

    I would certainly like to see a sample those ‘well known facts’

    Far as I can make out the European powers were ‘imperialist’ powers. They used to exploit the raw resources of the colonies and sell the finished product back to these very colonies. Taking cotton from the then united India and selling mill made cloth to Indians is a case in point. And the ‘Tea’ for the Boston Tea Party also came not from England but one of the colonies.

    The wars were fueled by the desire to have more colonies as source of raw materials and markets of finished goods.

    Can we have some data on Intra European trade, excluding tade in goods acquired from the colonies, please.

    Recommend

  • Allah Ditta
    Jan 30, 2013 - 9:43AM

    Basically, Trade and MNF status so far has proved nothing but a way-out for elite and rich Pakistanis to invest in India and get Indian visa. India just showed that it can snap and end relationship in a second. Hockey team was thrown out of India like a garbage bag and those Pakistani players when they landed in Pakistan still wanted to go India. What happened to Pakistan Gairat? Every Pakistani worth a name wants to have access to India. India is a Hindu county. Pakistanis can’t hate Hindus when in Pakistan and love them when in India. Just as Taliban’s are loved and are mujahid if they are in Afghanistan but hated when they are Pakistan. A confused nation

    Recommend

  • Realist
    Jan 30, 2013 - 9:50AM

    Nicely researched article.

    Recommend

  • zoro
    Jan 30, 2013 - 11:04AM

    So as Zafar haillay says … keep ur powder dry … and do anything u want …
    So basic purpose of trading goes to doldrums … wow what a theory …

    Recommend

  • Gratgy
    Jan 30, 2013 - 11:22AM

    Trade will continue even when states are at war.

    But didn’t Pakistan stop trucks from crossing the border during the tension at LoC?

    Recommend

  • jagjit sidhoo.
    Jan 30, 2013 - 12:21PM

    There are vested interests who would like to keep the pot boiling a lobby that benefits from trade be it the trader , consumer or the employee would be useful as a counter to the vested interests .

    Recommend

  • Feroz
    Jan 30, 2013 - 2:03PM

    A very long winded essay that does not say much. The prospects of trade liberalization will not alter the Indo/Pak dynamics significantly. However investments by Foreign entities into India through FII and FDI route are close to $ 500 billion with strong upward momentum. There is therefore little appetite from the global community to see India destabilized and Pakistan is likely to be arm twisted and even sanctioned if it continues its adventures beyond acceptable tolerance levels. Pakistan needs wake up from and see reality to overcome the challenges it faces or else it risks being torn apart from the contradictions it is currently embroiled in.

    Recommend

  • Tas
    Jan 30, 2013 - 2:37PM

    How pathetic it is to see that the smallest incident at the LoC or any unfortunate terrorist attack immediately jeopardises the so-called ‘normalisation’ relationship between India and Pakistan. Consequently, there is an immediate statement of the type: ‘business no longer as husual, any more’.What it basically means is that there is not much of a desire neither in India nor in Pakistan to go forward on the peace process under the pressure of extremist elements.
    This is immature leadership.

    Recommend

  • Khawar
    Jan 30, 2013 - 3:43PM

    @zoro:
    Hilailey, as in Bailey. The poor guy was named Hilaly when born, as in Mali.

    Recommend

  • Eye
    Jan 30, 2013 - 4:22PM

    Trade with India is good for the people of Pakistan. It brings much needed CASH into the country. Warmongering and covert adventurism is bad for the people of Pakistan, it takes money out of the Pakistani people’s pocket and that money is spent on useless things like strategic depth which makes no improvement to the Pakistani people’s standard of living. You’d rather squander the Pakistani peoples money on fighting over Kashmir when the reality is that gaining or losing Kashmir brings no real material benefit the to Pakistani people, the opposite is true as this endless investment towards harming India and our other neighbours is squeezing the life out of us Pakistanis.

    Why cant you so-called right-wing “realists” understand these simple facts. Stop wallowing in identity politics and false national pride. Work towards something constructive for once in your life. If you want war then spend your own goddamn money for it. Im sick of you people using my tax money for your useless right-wing Tom Clancy military fantasies. I got a family to feed and I got no patience for you and your patron’s BS.

    Recommend

  • Yuri Kondratyuk
    Jan 30, 2013 - 6:17PM

    I understand that one of the the basics reason for WWI was that European powers were fighting over colonization of the world and were eager to invent a ruse to start a war. And WWI led to WWII. But, post-WWII, Europe was pretty well integrated (cold war politics aside) in large part due to trade ecology.

    Recommend

  • Pradeep
    Jan 30, 2013 - 7:40PM

    A well written article. However have to disagree with the author for the following reasons.

    WWI – The reasons for WWI have more to do with the imperialistic ambitions of the various countries involved rather than direct conflict of their local policies or direct policy relations. Hence it was trade competitiveness that caused the war. This eclipsed trade interdependence and set the nations on a course of war. I agree that I don’t have direct references to back this up but I invite others to refute me with contrary data.

    WWII – WWI was IMO a very direct cause of WWII. The reparations burden on Germany was something that it simply could not cope with and hence again it was the “economy” which was one of the major reasons for the rise of Nazism there (other than of course deep buried anti-Semitism all over Europe).

    So both the above instances do indicate that trade has a serious impact on whether war gets started or not but in the above cases they caused war rather than prevent them.

    That said, here is the conclusion I would like to make. While trade competition can lead to war, mutual trade benefits both nations and tends to reduce chances of war. The need for increased trade between the nations is so that small incidents do not flare up to become major hostilities. Hence while trade may not directly stop war and is not the single overarching factor, it is definitely a item that reduces the changes of major conflict between nations.

    Recommend

  • Murali
    Jan 30, 2013 - 7:59PM

    @Tas:
    Sir ,

    Do you really mean that front line of Pakistan defense force employs militants.
    Even for debate stake this policy is a puzzle to imagine.
    Expecting us to give up everything so that you could win by bulldozing is of high ambition sir.

    Recommend

  • Tas
    Jan 31, 2013 - 1:01AM

    @Murali: All I mean is that the peace process should continue and should not be deterred by any incident simply because the priority should be the normalisation of relationships between these two countries. There is no other alternative, if you really think about it. It should be the utmost priority.

    Recommend

More in Opinion