Gowa: Allies, Adversaries, and International Trade

Gowa, J., 1994. Allies, Adversaries, and International Trade, Princeton University Press.

“In this book, I develop what I hope is an intuitively appealing and analytically rigorous explanation of the impact of power politics on inter-state trade. In order to do so, I construct a very simple game-theoretic model to address the question of substantive importance.. That question is whether free trade is more likely within than across alliances. More precisely, I address this question: Under what, if any, conditions does it make sense for states to trad3e more freely with their allies than with their adversaries?” (5-6).

“…I analyze the impact of the anarchic structure of international politics on the exchange of goods and services among states. Prior to doing so, I argue that hegemonic stability theory, the preeminent system-level theory of the relationship between power politics and free trade, does not resolve the question of the political correlates of open international markets…Here, I* summarize the core argument of this book. I contend that the play of power politics is an inexorable element of any agreement to open international markets, because of the security externalities that trade produces. These externalities arise because the source of gains from trade is the increased efficiency with which domestic resources can be employed. As a consequence, trade frees economic resources for military uses. Thus, trade enhances the potential military power of any country that engages in it. The anarchic structure of the international system…compels its constitute states to attend closely to the military power and potential of both prospective and actual allies and adversaries. It does so because the absence of any supranational authority in the international system enables a state either to threaten or to actually resort to force at any time to achieve its goals. The probability that a state will do so depends in part upon its power. The latter, in turn, depends partially upon its real income. As a consequence, the real-income gains that motivate free trade are also the source of the security externalities that can either impede or facilitate trade: Trade with an adversary produces a security diseconomy; trade with an ally produces a positive externality. In either case, agreements to open international markets create a divergence between the private and social costs of trade…In other words, because trade generates security externalities adherence to a policy of free and non-discriminatory trade may not be optimal for states in an anarchic international system…I consider these external effects explicitly. Doing so leads me to two conclusions: (1) free trade is more likely within than across political-0miliitary alliances; and (2) the evolutionary prospects of alliances vary: those that are the products of bipolar systems are more likely to evolve into free-trade coalitions than are their mutipolar counterparts” (6-7).

Kindleberger is seen as the father of hegemonic stability theory, though he preferred to use the word “leader” to “hegemon”, as the later connoted control and coercion. The argument went something like this: international trade is a public good, and in order to have this public good be freely available, there had to be a hegemon to support its diffusion. Public goods are non-rival and non-excludable (the examples given by Gowa are nuclear deterrence and clean air). With public goods, there is obviously the problem of free riders in rationalist models.

Gowa then explores alliances from a rationalist perspective. He defines an alliance as, following Holsti, Hopmann and Sullivan, “a formal agreement between two or more nations to collaborate on national security issues” (32). Gowa points out three kinds of alliances: defense pacts, nonaggression pacts and ententes mandating cooperation in war (32). Alliances can make sense from a realist perspective when they successfully balance.

“Trade with an ally produces a positive externality; trade with an adversary creates a security diseconomy. A s a result, ceteris paribus, free trade is more likely within than across political-military alliances” (120).