Book Studies What Pits Nations Against Each Other in Trade Wars

FAYETTEVILLE, Ark. - Imposed trade sanctions can strike fear in the hearts of government officials and industry leaders alike, as seen by the response to the European Union’s recent sanctions imposed on U.S. goods from jewelry to textiles. In other contexts, however, trade sanctions can be a welcome way to increase market access.

A book by University of Arkansas professor Ka Zeng examines domestic trade politics and how they determine responses to the threat of trade sanctions. "Trade Threats, Trade Wars," published by the University of Michigan Press, explores the driving forces behind trade disputes, the reasons U.S. coercive trade diplomacy has been more successful in opening markets in some of its trading partners rather than others, and the reasons trade wars more often take place between two democratic trading partners rather than between a democratic partner and an authoritarian one.

"One of the theories in international relations posits that democracies are more likely to be at peace with one another — that’s called the democratic peace argument," Zeng said. "Actually they are more likely to be involved in trade wars. That challenges the democratic peace argument."

Zeng began her research by looking at domestic trade politics. She studied trade structures between the United States and each of its trade partners, dividing them into two types of relationships — competitive and complementary.

Competitive trade partners, she explained, produce a similar range of commodities. An example of a competitive trade relationship would be the United States exporting high-technology products to Japan while also importing such products from that country.

In a complementary trade relationship, however, each partner produces a different set of commodities, such as when the U.S. exports technology-intensive products to China, while importing labor-intensive products such as footwear or textiles from the country.

Zeng found that when the U.S. threatens sanctions on a trade partner, support from domestic interests influences the outcome of the situation. The degree of support is determined by whether the relationship is competitive or complementary.

In the case of a competitive trade relationship, both export-seeking and import-competing interests are likely to support trade sanctions. If sanction threats succeed in opening the target market, then export-seeking interests win by gaining increased market access to the target country. If threats fail and sanctions have to be imposed, then import-competing interests win by capturing the rents generated by trade protection.

The unified support of both export-seeking and import-competing interests, coupled with executive and legislative support, makes the threat of sanctions by the U.S. more credible and effective. At the same time, it produces stronger pressure for brinksmanship and higher risks of trade retaliation in disputes with America’s competitive trading partners. Since competitive partners are mostly democracies, the anomaly of democratic trade war results.

In a complementary trade relationship, however, domestic support comes only from the export-seeking interests. The import-using constituency, such as the retail industry, relies heavily on supplies and materials from the partner, so it argues against trade barriers and restrictions that would restrict access to those imported goods. The retailer would have to find an alternate way to get its products, which would likely result in considerable cost increases.

"Without sufficient domestic support, U.S. attempts to open the market via aggressive market-opening tactics would be less effective and less credible with America’s complementary trade partners," Zeng said. "This would result in fewer retaliations against these countries."