Trading with the Enemy during Wartime

Jack S. Levy
Department of Political Science, Rutgers University

April 28, 1999

There has recently been a revival of the age-old controversy over the question of whether economic interdependence promotes peace or contributes to international conflict. The debate is often framed in terms of the battle between liberal and realist theory, and it has now shifted to the empirical level. In spite of their differences, most liberal and realist theories of interdependence and war agree that trade and other forms of economic interchange between societies will cease once states are engaged in war with each other. Liberal theories generally assume that the anticipation that war will disrupt or eliminate trade or adversely affect the terms of trade deters political leaders from actions that are likely to lead to war. Realist theories suggest that the concern over relative gains will lead at least one of the belligerents to terminate trade in order to prevent its adversary from using the gains from trade to increase its relative military power.

There are numerous historical examples, however, of states that trade with their wartime adversaries. This is an interesting phenomenon in itself and one that has important implications for liberal and realist theories of interdependence and war. In this study, I argue that standard applications of liberal and realist theories to the question of interdependence and war have been too narrowly construed, and that a proper specification of each theory leads to propositions that help explain the trading-with-the-enemy phenomenon. In particular, liberal theories of interdependence and conflict need to be reformulated to incorporate state-society relations and other domestic level phenomena, and the realist emphasis on relative gains needs to be shifted from the dyadic to the systemic level.

I develop the argument through intensive case studies of trade and other forms of economic cooperation with the adversary in the Seven Years’ War, the War of 1812, and the Crimean War. I describe the extent of the trade, its significance for the war effort, the extent to which the government was involved, and how political leaders tried to balance strategic imperatives with domestic political and economic pressures for or against trade. These cases studies demonstrate that there are a number of different causal paths that lead states to trade with the enemy. A complete explanation of this phenomenon must combine realist concerns for security, power, and reactions of neutral states and other third parties with a state-society perspective that incorporates political leaders’ concerns for the stability of the overall economy and for their own hold on political power, their responses to pressures from parochial economic interests, their reliance on revenues from trade, and the needs of political leaders to bargain with firms for their support for the war effort.

JACK S. LEVY, Board of Governors' Professor, Rutgers University, received his B.S. in Physics from Harvey Mudd College and his Ph.D. in Political Science from the University of Wisconsin. He previously taught at Tulane University, the University of Texas at Austin, Stanford University, and the University of Minnesota. His research interests concern the causes of war and foreign policy decision-making, and his current research projects include economic interdependence and war, the militarization of commercial rivalries, diversionary theory and politically-motivated opposition to war, power transition theory and preventive war, the role of power balancing in general wars, applications of prospect theory to foreign policy and international relations, and the relationship between international relations theory and diplomatic history.

Rapporteur: Benjamin Valentino

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