The international community is in anarchy
As Helen Milner says, “the concept of anarchy has been placed at the center of international politics”. This is the logical starting point of all the international relations theories basically.
The anarchy of the international community means that in an international system dominated by sovereign states, there is no legal authority or power to prevent the use of force by any country. In this situation, untrustworthy is another consequence of an international system under anarchy. There is always the possibility of violent clashes and even wars as there is no power to stop it, and the war will also break out because of the loss of trust. While trade can ease the consequences of these unregulated and untrustworthy status between countries, which will be the lubricant when conflicts arise.
2. The state is rational.
In the concept of economics, it assumes that the state is an “economic people” and all countries are acting rational. Any activity taken by the state is based on rational decisions. In other words, the state wants to get the most benefit from the least cost of action. For example, Trump and Kim Jong-un recently held historic meeting in Singapore, as they believed the meeting will benefit more than a war in the current situation, the decision of which comes from rational thinking. As the “economic man”, a rational country will choose to maximize its own interests. So, if in case a country believes that the war can lead to maximized benefits, there is a high chance a war breaks out, and vice versa.
3. Trade strengthens the links between countries, deepens understanding and cooperation between countries, that will reduce the information asymmetry.
Information asymmetry comes from the non-disclosure of information, under such circumstances, it is difficult for the country to distinguish whether the other party is a friend or a hungry wolf in sheep’s clothing, so it is easy to break out of war for security reason. Economic cooperation can also provide more choice mechanisms for conflict resolution between the two countries, and strengthen the dialogue between the two countries to a certain extent. The reality of the belt and road initiative route in war is particularly evident in Europe, where this trend has been around for hundreds of years. From an average of 30 wars per decade in the 15th century to about 10 per decade in the last century. For a long time, European sovereign states have turned away from conflict and tend to resolve their differences in a non-violent manner.
4. War will lead to the interruption of trade between countries.
Because conflicts and wars are the last resorts that two rational countries can take when dealing with international issues, after the outbreak of war, the volume of trade will be greatly reduced or even completely interrupted. There is nothing like war that has such frustrating effects on international trade. From the economic point, cross-border trade brings more benefits to the choice of peace, thus increasing the cost of war. If there is a war, it is possible that all the previous investments by a country will be destroyed. Similar situation for the countries that being invested, which brings more employment and promotes economic growth and national welfare. In the event of a war, the cost will increase greatly. Not only will the money invested in other countries be lost, but the decline in the welfare of citizens due to unemployment will also be included in the cost of war.
One statistic evidence of trade peace theory is, in 1980, Solomon Polachek used microeconomic theory to interpret the relationship between international trade and conflict. He used international trade to measure the degree of economic interdependence and found that the conflicts between countries with the most trade contacts are also the least. On average, every doubling of trade between two countries will simultaneously reduce the hostile behavior by 2%.
For example, in 2017, China and South Korea were politically conflicted because of the THAAD issue. For those of you are not familiar, THAAD is short for “Terminal High Altitude Area Defense”, which is an American anti-ballistic missile defense system. A large number of Chinese residents boycotted Korean goods, causing economic pressure on South Korea, which in turn forced South Korea reconsider whether or not to continue the decision of the THAAD process.
While the modern state can no longer benefit from plundering, trades between the richest countries can ensure that powerful nations have incentives to prevent other countries from participating in conflicts, because fighting will jeopardize the trade ecology, not just the countries that participate in the war, but also the other countries that benefit from the trade.
Of course, the trade peace theory also has its problems. For example, the economic interests of the two sides are not always equal, or one party in the trade relationship is over-reliant on the other side’s economy, these may also lead to some level of chaos and disorder.