How a Trade War With China Could Become a Hot War

SPEAKER_2 (0:02)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:24)

And I'm Tracy Alloway.

Joe Weisenthal (0:25)

Tracy, we recently did that episode with Andrew Bishop of Signum, sort of geopolitical forecasting, et cetera. And I don't know if you remember, but the last question we asked him like sort of sent a shiver down my spine a little bit. Do you remember that?

Tracy Alloway (0:39)

He was pretty pessimistic about the outlook for an actual conflict between China and Taiwan, one that would presumably maybe draw in other world powers, including the US.

Joe Weisenthal (0:50)

Yeah, I think what actually really chilled me about that was, you know, I asked him, I said, you know, what are the prospects for some sort of Chinese invasion of Taiwan with the next five years? What chilled me was how quickly he answered yes, right? Or it was not the fact that he considered it to be a high probability, is that he considered it to be a high probability without sort of humming and hawing about it. And I found that to be very disturbing.

Tracy Alloway (1:15)

That doesn't surprise me that much. I think I told the story about, I wrote a dissertation in college about, I thought China would invade Taiwan before the 2008 Olympics. So that turned out to be wrong. But I think lots of people have been kind of predicting this for a long time. And it brings up the question of like, what exactly is the catalyst for these tensions between the Republic of China and the PRC to actually morph into physical conflict?

Joe Weisenthal (1:45)

And then I guess the question of like, how wars come about in general, how they come about in theory, the connection between trade wars and hot wars. Of course, there was that book several years ago, trade wars are class wars, but trade wars can also become hot wars.

Tracy Alloway (2:00)

Trade wars are also actual wars.

Joe Weisenthal (2:02)

Trade wars, yeah, exactly right. Several years ago, we did an episode with Christian Parenti about Alexander Hamilton. And one of his points was that while the popular history of the Revolution, the War for Independence, people say, oh, you know, it's about taxes or we don't want to be taxed on tea or whatever. But that in his argument, it was really about British constraints on the US's inability to turn cane sugar into rum, move up the value chain, et cetera. And when you think about countries constraining other countries from moving up the technological value chain, once again, hard not to think about the tensions right now between the US and China with chip export controls and other such restrictions.

Tracy Alloway (2:43)

In general, it does seem true that a lot of history tends to, well, it kind of leaves out a lot of economics sometimes. Like there's so much you could write about international trade and the impact on foreign policy, capital flows. I know you're a big fan of Adam Tuese's Wages of Destruction, which is basically-

Joe Weisenthal (3:01)

I've mentioned that before.

Tracy Alloway (3:03)

I know. I'm sure you're going to bring it up in this conversation, but I really think it deserves more attention. It probably doesn't get that much attention because I guess historians, maybe they like to talk about sexy military history and things like that. But it definitely has relevance. I guess the question is how much relevance?

Joe Weisenthal (3:22)

Totally. Well, I'm really excited to say we're going to explore these topics further and we do have the perfect guest. We're going to be speaking with Dale Copeland, Professor of International Politics at the University of Virginia. He's also the author of a recent book, A World Safe for Commerce, American Foreign Policy from the Revolution to the Rise of China. Professor Copeland joining us now. Thank you so much for coming on.

Dale Copeland (3:44)

Great to be here.

Joe Weisenthal (3:45)

Why don't you just give us the concise version of how you think about this link between trade wars and hot wars?

Dale Copeland (3:55)

Yes. Let me start by saying that we underestimate how much impact trade has on the geopolitical military stability of any system. I've explored really 2,000 years of history, but in the last two books, both on the question of trade and conflict, I found that at least 75% of the big conflicts between great powers over the last 250 years have been directly related to the role of trade and commerce. But here's what's interesting. We have 2 big perspectives out there. The liberals believe trade always leads to peace because, hey, if US and China are trading extensively, why wouldn't they want to keep the peace going? And the realist school believes it's the opposite, that trade leads to high dependency and worries about the future, I'm going to be cut off, and therefore, trade should lead to conflict. And you see this divide in lots of debates, Mearsheimer versus some of the liberals, for example. But my position is an intermediate one, and it says, under certain circumstances, trade can be very good for peace. If states have positive expectations about the future trade environment, they expect to get the trade that helps them grow, economically and militarily, then they want to keep the peace going. Think of China since 1990 It wants the peace, it wants the trade, and it wants to keep growing through that trade, and it's been great for China. The other aspect of this, though, in history, is if expectations of future trade start to fall or become negative, then the realist kind of logic kicks in, and you have states that become pessimistic about the future. Think of Japan 1941, and they decide that they need to go to war to protect and to get access to the raw materials and markets that they need for basic domestic stability and economic success. So it could go each way, and what, of course, that means is that diplomacy matters a lot. US and China, for example, could be very peaceful over the next two decades if the expectations of future trade are positive on both sides. But if tariffs or economic sanctions kick in and both sides or one side start to believe that they're doomed to not have access to the world markets they need, then the 1941 scenario of Japan might kick in and it might lead to China, for example, going after Southeast Asia, you mentioned Taiwan. Or it might mean the US decides it needs to be more aggressive to keep access to raw materials from Africa or from Latin America, South America. So you can see that the basic point here is that trade can go either way, for my argument. And my case studies almost always show this. And I can talk about a lot of them, but the most recent book, in fact, starts with the one you mentioned, which is the American Revolution. And I have, I would say, a much more complex view, but it's rooted in commerce and how the Americans felt that they were being kept down by the British from growing and becoming the fullest kind of power they could be. And they had to fight a war to break those economic sanctions or at least the trade restrictions and the restrictions that were built into the tax code that the British imposed. And ironically, and I say that the best case for thinking about US-China today, or at least the one to avoid, is the 1750 to 1776 case, where in this case, the rising state is China, and it was back then the British North Americans. And the declining state of Britain back then and the US now is a good lesson for us. If we avoid what the British did, which is the extensive trade restrictions on the rising state, we can avoid an intense Cold War and, in fact, of course, avoid an actual hot war. So we can talk about this in a more general sense, but that's the bottom line, that's the overview about how trade leads to conflict or to peace.