While many have debated the relationship between interstate war and economics, what about the impact of a freeze in relations on interstate trade? This deserves more attention.
Politics plays a role in economics, especially in cases where mutual distrust and the possibility of conflict is high. US political scientist Brian Pollins’ 1989 paper used - to demonstrate the role that politics plays in affecting trade relations - the USA-Egyptian trade after Camp David peace treaty with Israel, and East Germany’s Willy Brandt’s Ostpolitik, which normalised relations between the Federal Republic of Germany and the German Democratic Republic in 1969.
But while interstate wars in the post Cold-war era have been few, rivalries and tensions persist even among states that are generally perceived as allies. From a business perspective, nationalistic fervour is generally sidelined when commercial interests are at hand.
Despite political tensions arising from the Gaza flotilla crisis in May 2010 – in which an Israeli commando raid on a Turkish aid flotilla bound for Gaza led to the loss of nine lives – businesses both countries continued to trade with each other.
Tensions between France which was anti-Iraq war, and the US, which was pro-war, arose following the States’ invasion of Iraq in 2003. There were calls for trade boycotts and in the US this manifested itself in calls for a ban on French wine.
However, trade between both France and the US continued to flourish with an increase in trade of US$979 million in 2003 and US$2.39 billion the following year. Because it was highly unlikely that prolonged crises in either of these cases would have lead to an all-out war, businesses on both sides saw no reason to cut commercial ties.
But what of the relationship between Japan and China? This is different from the French/US and Turkey/Israel cases. There is well-documented animosity between Japan and China, with hostility going back hundreds of years, leading to many disputes, including the Sino-Japanese war of 1894 when Japan began to emerge as a global power.
Japan’s refusal to acknowledge its war crimes during the Second World War led to further strained ties with China, while China’s declarations of sovereignty in the East and South China Seas over territories that Japan – and other countries – lay claim to, have been regarded by many in the international community as violations of international law.
Violent skirmishes at sea between Japan and China are not uncommon and leaders from both countries have hinted that the crisis could escalate from political posturing. It is often stated that the relationship between Japan and China is an example of political tensions having little affected economic relations.
However, this is not the case. This prolonged crisis has affected trade on both sides. Japanese direct investment with China went down dramatically in 2013-2014 (by about a fifth in 2013 and a further 40% in the first quarter of 2014).
Such is the consternation from both nations about the huge decline in trade volumes that they are signalling their intentions to resume high- level talks to try to ease their political tensions.
Although the Japanese are worried about China’s slowing growth, as well as the hurdles placed by China’s environmental legislation, a thaw in relations can do nothing but help both states economically.
So, what can we learn from these examples? It’s that politics does play a major role in shaping economics in instances where the crises are prolonged or mutual trust is minimal - or both.
By Guylain Gustave Moke
World Affairs Expert
Photo-Credit: Lecturer- Guylain Gustave Moke