Does Trade Promote Peace?


Since the days of Adam Smith, many economists
have argued that free trade benefits all nations by increasing their standards of living and
wealth. Yet, there is another very important but commonly overlooked benefit of free trade,
which is its ability to promote international peace.
The Capitalist Peace Theory argues that free trade makes countries more commercially interdependent.
This interdependence gives countries a strong incentive to keep hostilities low. Think about
it: Countries that trade a lot with each other have a lot to lose if a war breaks out.
Economists also argue that free trade and bargaining is a lot more cost-effective way
of resolving international disputes and obtaining resources. War is a very costly way of going
about doing the same thing. If we look at countries that trade a lot with each other,
these are some of the countries that import many ideas from the rest of the world. So
free trade comes with not just goods that you import from other countries, but it also
comes with exchange of ideas and culture, making countries more tolerant of each other’s
differences and more understanding. Several empirical studies show that countries
that trade a lot with each other are also less likely to go to war with each other.
Yet, critics point out that World War I broke out after an increase in trade flows. However,
research shows that trade flows rose before World War I as a result of lower transportation
costs. Ships became faster and bigger, transportation costs became lower, trade increased as a result.
At the same time, however, nations like France, Germany, and Russia increased their trade
barriers. They became more isolationist and less interdependent. The result is World War
I. As if predicting this outcome, Frédéric
Bastiat once wrote, “If goods can’t cross borders, armies will.” And we see this in
the empirical evidence. The Global Peace Index measures internal and external peacefulness
and ranks countries like Ireland, New Zealand, and Netherlands as being some of the most
peaceful nations in the world. These are some of the most heavily trading nations in the
world as well. In summary, economists argue that free trade
not only makes nations more prosperous but also promotes world peace.

97 thoughts on “Does Trade Promote Peace?

  1. I like how the only response to this argument is a single example that doesn't even turn out to be accurate.

  2. An interesting piece that makes a lot of sense, and is backed up by the leverage that trade embargos can bring to bear on a nation. However, I question the comment that WW1 was "the result" of increased trade barriers. Of course, with the Industrial military complex, some western countries have a lot to gain by war, or its threat, so perhaps that results in needless sabre rattling to maintain the illusion of ever-present threat..

  3. @PrecisePuncher Fair point – the problem is that the financial interests of the people who run countries have become so interwoven with the running of government, that it's hard to discern the difference any more.
    When it costs a billion dollars to run for president, it's hardly a surprise when the office becomes corrupted by money men.

  4. @thegreatapologist Feel free to contribute something more meaningful

  5. @PrecisePuncher Thinking about it, when the economy of entire regions is based upon weapons supply or manufacture, I would argue that parts of a country DO benefit from war

  6. Politicians talk about sanctions and trade wars as a good thing. I'm afraid I disagree wholeheartedly.

  7. Free trade, also helps people to loss their jobs to oversea's and also undercut there local product do to imported products, which again effects jobs in this country. Therefore free or fair trade is just another propaganda tool. In translation this spells a slow and painful death to a nation and it's people. Examples can be seen already all over the world along with the U.S. going into a 3rd world status soon enough.

  8. I'm learning something new everyday. Free Trade does have a huge impact.

  9. I don't know if you can say that. With US Republicans, it seems the more money they accumulate, the more controlling they get, which is what leads to all the wars.
    It will be interesting to see how things unfold with China, as the US seeks to continue its appealing trade with China and its unappealing domination of China through increased military spending and show of force in the Asian seas.

  10. @PrecisePuncher I'm insufficiently well-informed to disagree with you, so thank you for your opinion.

  11. Governments don't want peace. They need conflict to justify their existence. They are the disease masquerading as the cure.

  12. @MrConservative608 Agreed. Libertarianism as an ideology is just as idealistic as Marxism. It's predicated on the fallacious assumption that people act rationally and if they were to simply embrace Libertarianism wholeheartedly they'd never want to go back. This is completely untrue and such assumptions display a extreme level of naivety. There are bad people in this world that don't care about free trade or global peace. "Some men, just want to watch the world burn." -Alfred Pennyworth

  13. @PrecisePuncher Which wars, exactly? Commander-in-chief of the military doesn't mean ability to declare war.

  14. Yes, I think trade definitely maintains peace but there are other factors that could effect peace. Cuba is an example where trade didnt matter.

  15. @PrecisePuncher Clearly someone slept through English class. First, do I have to explain to you what idealistic means or are you capable of using a dictionary? Second, I asserted that Libertarianism's viability as a socioeconomic system is largely predicated on the same fallacious assumptions about mankind that Marxism is. If people are not interested in cooperating with each other; instead preferring chaos, a system with more state power is necessary. Also please don't assume I'm a statist.

  16. @PrecisePuncher Those aren't wars. If they are, then we're at war with most of the world. Yes, the troops were placed there for combat, but that is not war.

  17. After WW1, part of the treaty for peace was more trade, specially for Germany. And even with this increase in trade, a war broke out. Another example, the US and the world needs more oil; Iran is willing to supply; US imposes an embargo.

    Yes, trade decreases the risk of war, but do not prevent them. Wars are not about resources, they are about control.

  18. @LasNoches86 The so called "trade" with germany after WWI was more like a plundering of german gold and goods to repay war reparations, also the Weimar hyperinflation didnt help to promote peace internally in germany.

    Also in relative terms, the USA trades more oil from Mexico and latin america than the middle east, why isn´t there a war againts Mexico, Venezuela, Brazil and other latin american nations?. The oil embargo is to Iran as the embargo is to Cuba, it serves more the regimes in place.

  19. @TWSceptic You honestly believe that promoted free trade and redued sanctions will discourage Islamic extremists from commiting attrocities to countries that dont acknowledge their twisted philosophy?

    Iran's leadership is a threat, if not dealt with, they will likely be the reason of the next great conflict.

    This video assumes that you're dealing with rational leadership in other countries. Radical Islam, is not rational to the majority of the world's views, therefore bears no relevance here.

  20. @PrecisePuncher Your lack of sanity is going to get you thrown into one. Be careful out there, it's a scary world.

  21. Is "peace" the most desirable relationship with every country? This youtube account is called LearnLiberty, but it seems whether or not a people is free under their government is not even addressed. But who cares, as long as we can trade with them and we can both gain wealth, right?

    I want to know the best ways to spread The Rights of Man, liberal democracy, education for all, and freedom for all. How do we do that?

    And that's a very simplistic view of WWI's motivations…

  22. @TWSceptic
    "It's not the job of the US to 'police' and 'govern' the whole world my friend. "

    True, but I'm not above putting a stop to viscious acts of violence when they occur, such as the Rwanda Genocide, or the Bosnian exterminations.

    Nation building we don't have to bother with, unless we're responsible for the tear down to begin with.

  23. @jake
    "but it seems whether or not a people is free is not even addressed"

    Because there is also such a thing called "the free trade efffect", where if a free nation trades with a non-free nation, the result is that the other becomes more free over time.

    This has happened with China, and Vietnam, whom have considerably peeled back restrictions, drastically improving lives for their citizens. They're still regimes, but they're not as brutal as say, the Taliban, and they're getting better.

  24. @woulfe42 Fire your incompetent fact checker. Free trade has resulted in MORE and HIGHER PAYING jobs being INsourced into the US than are outsourced while, at the same time, makes goods and services available more efficiently in the US which creates even more jobs. Therefore the complaints about the harm of free trade are based entirely on factual inaccuracies and economic ignorance.

  25. @MrConservative608 To the contrary, 100 times out of 100 trade promotes world peace by, at the very least, improving the lives of people who object to such actions. It doesn't GUARANTEE world peace, certainly, but that isn;t the argument. And nothing about the point being made (or economics in general) requires that ANYONE be informed and rational for the process to work.

  26. @PkayerZxz2 Again, before the Batman reference, all you described was your own ignorance of economics and libertarianism. The oft repeated slur that it requires people to act rationally remains baseless and nonsensical. To the contrary, no such assumption is even considered. That in the aggregate human beings act in what they perceive to be their own interests usually results in such results but that is not the same thing.

  27. @PkayerZxz2 If you are arguing that state power is necessary but that you are not a statist, then Precise is not the one despeartely in need of a dictionary. And your assertion remains no less ridiculous. Were it true then you would be correct that libertarianism is not viable, but it is not even close to being true.

  28. @EveofConflict Whether he is stating that or not, the premise is absolutely correct and we have real world evidence to support it. Over and over again, free trade has improved the lives of those in countries that, while having generally repressive regimes, have suffered. The result has been more trade, less repression and greater prosperity (which makes recruiting those willing to kill themselves a lot more difficult).

  29. @jakethewoz What you want is easy. The best way to spread the Rights of Man and individual liberty is economic liberty (capitalism) which has the additional benefit of being directly and solely responsible for improving the compensation, working conditions and living standards for the poor and working classes steadily since the beginning of the Industrial Revolution.

  30. @DMAN123223 Meanwhile in switzerland, they have no idea what's going on. Bring your money, do your thing. We'll see what happens.

  31. @hybridmcgee The point I tried to make (sorry for the vagueness, I wanted you to do the research for yourself.) is the Switzerland has free trade of guns and a lot of them, yet they have one of the lowest crime rates in the world and were excluded from many many wars, ergo the phrase "as neutral as the Swiss."

  32. @DMAN123223 Context certainly makes a difference, and I suppose I was rather vague as well. I did not mean just any weapons because I believe in gun rights to greater degree than not. There are good things about Switzerland, and I am not really trying to rip on them… that much. You actually bring up some of their better traits, plus they have decent education and healthcare.

  33. I am inclined to accept the conclusion of this video. However, I'd like to know more about how this applies to civil war. Surely countries with out internal trade barriers are strongly interconnected and trade will always be greatly damaged by a civil war. Why do they still happen then? How does economics factor in?

  34. That's right, but, unfortunately free trade also insreases vulnerability to economic sanctions, when one gegemonic party tries to dictate the smaller nation what (not) to do… That's why you see more trade between nations who have close political views. Free trade therefore stands as outcome, rather than cause, of cross national friendship.

  35. Free Trade also enslaves developing nations, because countries like the United States and Great Britain for example can produce crops at a much lower rate than the farmers that live in these developing nations, mostly due to government subsidies and cheap labor. Therefore the farmers in the developing nations are not able to compete with that price wise so you see many imported crops from America in developing nations, instead of crops that are produced in their home countries.

  36. That is what I was getting at. BTW the actions of Iran are very similar to the ones of Japan before the sanctions……

  37. Also, if you think about it putting sanctions is probally the worst way to prevent war, think of it this way, cage a man with all the possetions in his home and don't give a guy food or water for weeks. During this time he plans and rations his supplies. Well it just so happen this man is extremly well prepared. The only problem is that he is caught in a catch 22. Stay and run out of resources or attack and get what he needs. This man has weapons, I'd advise to keep him happy.

  38. Then why have trade barriers came down exponentially since World War II, and why hasn't there been a major global conflict since then?

  39. does trade cause more peace or does peace cause more trade? there are many things at play. why countries choose war and peace is based off many factors. but even if trade leads to peace 100% of the time it does not mean that your view on how the world should be is right, because countries can trade in almost any system.

  40. In general, trading makes it less likely that the two trading partners will kill each other. Yet, there are some violations of humanity that are so egregious that we cannot indulge in the fantasy that trade can reverse the violation. Think about the US civil war. As an alternative to armed combat, would you have supported the notion that trade alone would be sufficient to end slavery? Would you have counseled enslaved blacks to wait patiently until trade caused slave owners to see the light?

  41. The video doesn't claim that peace encourages trade, but that trade encourages peace. That make Switzerland's legendary neutrality irrelevant to the point the video makes.

  42. According to your hypothesis, if trade had taken place between the Confederacy and England, then the Confederacy may have prevailed, or at least fought the Union to a draw. Then the traditions of the Confederacy, including slavery, would have remained. So, it is just as likely that trade would have caused the continuation of slavery.

  43. Haven't even started the video and I can say of course trade promotes peace! If two parties are mutually benefiting from each other, than it is in their best interests to maintain a good relationship! Common sense

  44. This is ridiculous. The distinction of trade or war is a matter of ideology and personal politics. Take, for example, World War II, prior to the start of Operation Barbarossa, trade between the Soviet Union and Nazi Germany had multiplied several times over. Russia was feeding a significant portion of the Nazi War Machine through the Fall of France, and only started scaling back a month or two beforehand.

  45. Yet, Operation Barbarossa happens, and leads to the single bloodiest conflict in Human history. Both powers hated each other, were willing to trade with each other in the 30s, but both nations knew it would come to war. It is ridiculous to posit that trade is anything but a tool of foreign policy.

  46. To say it had nothing to do with slavery would be incorrect. You have to remember what war really is, it's old men sending young men to battle to protect the old man's property. if that's not slavery, I don't know what is.

  47. Jesus is war,,,,,,,, He stands in judgement over an earth that turns away
    from it's creator and then worships money or nature instead of Him.
    You want peace, turn to God, seek His Kingdom first and all the created
    things will be added to you.
    Keep worshiping the worldly things and Jesus will visit you with war.

  48. They are funded by the government, not trade. The military-industrial complex benefits only from the government.

  49. That's only part of the picture. The reason that public anger was strong enough to let the nazis rise was because of the strict economic sanctions place on Germany.

  50. Reparations are not sanctions. Its literally a debt that you owe another nation, for having survived the conflict with your sovereignity. Believe it or not, beyond the military, there were really no actual sanctions or regulations placed upon Germany…there was a massive war debt. But there was no restriction on who they could trade with, or what they traded in. As noted by the Nazi-Soviet Pacts.

    But I will agree, the Nazis came into power because of the massive war debt and the economy.

  51. That being said, and while in agreement with your premise given proper definition, the fact still remains that trade itself is a tool of politics.

  52. Trade occurs naturally, it is the embargo and the tarrif, the interupptions of trade, that are the tools of leaders attempting to benefit a minority of their own nation at the expense of the rest, or hurt someone else's economy.

  53. Most trade occurs naturally. Otherwise, geographic monopolies could not possibly exist. Look into Hansa and Medieval History, in the far past, Merchant houses had to collectively form something that was a combination of corporation and nation-state in order to successfully trade over the Baltic (a relatively small body of water).

    If it is left to a state entity to ensure the trade, in the case of many overseas trade routes and other cases, then the state can and will use it as a tool.

  54. So that proves that the state can and does play the same role that 'middle-men' do in what you would define a 'freer' conventions. I would offer that, in the case of international trade and international relations, trade itself is used as a tool of policy, rather than a tool of international enrichment. And in the case of circumvention, there was a policy in place, and that was using corporations and 3rd party neutral states (Sweden, Switzerland, and Ireland, etc).

  55. But still, I think the original thesis is that trade promotes peace. Which it doesn't. It doesn't promote war either. It is sort of neutral, depending upon its circumstances and environment.

  56. There is no side. I recognize the need for government intervention in market failure, or other non-market failure.

    Free trade ends under five certain conditions:
    -Limited Producers/Consumers (Monopoly, Monopsony)
    -Limited Information
    -Lack Product Homogeneity leads to inefficiency (this is the weakest argument of the bunch. As its acceptable in publishing, but not in capital manufacture, etc)
    -Significant barriers to entry/exit
    -Externalities

  57. This is of course assuming sufficient property rights, which are, in truth, usually enforced by the state. That being said, when the market breaks in one of these five ways the government intervenes. Most Austrian economists would agree with at least two, maybe three, of those being reasons for government intervention.

    You take a simplistic one-sided view. Free Trade is Good. Government is bad. When its really not so simplistic, nor one-sided.

  58. I think you may be confusing the term free trade (although you do know what you are talking about) with markets in general. While these are all reasonable situations to call for government information, only the problem of externalities is at all address by restricting foreign trade, and tariffs don't address it very well.

  59. Which brings me back to my point. Not all international trade is 'natural'. As technology increased, it becomes easier, especially where land borders are concerned. But there are times, especially when there are cultural/language/geographic barriers, where the Government or local state-like entity has instituted policies to create trade. If this was not the case, then you could argue that there is no such thing as a geographic monopoly.

  60. Free trade being good really IS that one sided. The system as a whole benefits from free trade. In the long run, those who try to 'cheat' in a free-trade system only end up cutting their own throats.

    Government being bad; there are cases where it is necessary, but it is like medicine: the least amount should be used as is absolutely necessary, largely in a procession of special cases where an immediate result must be obtained, without time for the aggregate free-market system to function.

  61. Soviet Russia and Nazi Germany were socialist/communist nations, so yes ideology matters but that is the entire point of the video…

  62. What's insidious about the government meddling in markets is the temptation they have to impose ideological values on markets in their sphere of influence. Fascist states are socially conservative (for the era) and impose economic laws accordingly. Here in the states the conservatives have imposed laws creating the drug war. The armies surrounding drugs in the US are the private militaries of drug kingpins and gangs.

  63. Capitalist peace theory applies to war between nation states. The conflict in Northern Ireland is domestic terrorism, so is more civil unrest than war. As there are no two trading factions involved, that example is irrelevant to capitalist peace theory.

  64. Yes, which another argument for small government capitalism as a force for peace. The encouragement of war by the military-industrial complex is a result of government pandering to special interests and arbitrary government spending, both of which the level playing field of the free market (in which special interests are ignored), and low government spending in general (which includes defence spending).

  65. Switzlerland has the perfect combination for peace: strong armed forces, little foreign intervention and a lot of other countries depending on it for trade (especially in financial services).

  66. Using Ireland as a candidate for your list of countries with higher levels of peace may have been a mistake.

  67. If trading didn't promote world peace I garentee we would be at war with both China and Russia

  68. It's just sad to see people nowdays attack capitalism and move towards socialistic values in the name of humanism and human rights. I remember milton friedman saying: The nations who strive for equity end up with no equity and no freedom. The nations who strive for freedom end up with great mesures of both.

  69. I completely stand for free trade and for peace. 

    However, historically trade has proven to be much less relevant in conflict resolution than we might hope it would be, wars are typically faught between trade partners. War is complex and irrational. 

    I support both free trade and peace.  If we wanted to stop war we would need to decide that other's have as much of a right to life and liberty as we you or I do. We would have to support thier choices even when they are against what we feel is morally right.

  70. It was David Henderson that said "When Goods Don't Cross Borders, Armies Will" not Bastiat http://econlog.econlib.org/archives/2013/08/when_goods_dont.html

  71. I have him for Microeconomics next semester and I am so excited after listening to him speak.

  72. Where did Bastiat say ¨When good doesn't cross borders, armies will¨ ?

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