Trading with the Enemy: Security and Relative Economic Gains

Abstract: Security-motivated relative-gains concerns will not hinder economic cooperation in the post-Cold-War world. Multipolarity diminishes the dangers of gaps in economic gains, in part because alliance fluidity makes it unlikely that a state can bolster its security by reducing economic cooperation. Also, relative gains from trade are likely to be low among those countries who pose the greatest threat to each other, and states must also take into account the extent to which economic conflict exacerbates potential threats. Prior studies purporting to show relative-gains seeking have failed to distinguish between security-motivated and prosperity-motivated policies, and as a result have drawn exaggerated inferences. In contrast, case studies of pre-World-War-I Britain’s trade with Germany and pre-World-War-II United States’ trade with Japan suggest that relative economic gains are not very important under multipolarity.