Introduction
Why do states trade with their enemies during wartime? To put a finer point on the question, why do states give their domestic firms permission to legally engage in economic cooperation with the state’s military opponents during open hostilities? Conventional wisdom and common sense suggest that this should not occur. Gains from trade provide the enemy with products, funds, economic efficiency, and added productivity, all of which the enemy can channel into increasing their military capabilities. If the state pays blood and treasure to send its military to degrade the enemy’s capabilities, allowing its firms to increase those capabilities at the same time is counterproductive. With the same actor deciding whether to go to war and whether to allow trade, a rational state would choose one or the other, not both at the same time.
Yet states do trade with their enemies during war. In World War I—a global, total war where the major belligerents fought for their very survival—Britain continued to trade with its enemies until October 1, 1918, one month and eleven days before the armistice. For the first six months of the war, exports to Germany of raw materials such as hemp, flax, and tallow were allowed, and licenses were granted to merchants to import hosiery needles and aniline dyes in return. Germany, for its part, waited for two months after the start of the war before prohibiting direct payments to Britain, not ending wartime trade but making it more complicated. It waited a further month before extending the same prohibition to France; German merchants were permitted to send payments to Russia until November 19, 1914. During World War II, likewise an existential struggle for Britain and Germany, Britain allowed the importation of German dyestuffs to keep its textile industry alive. On the other side of the globe, the independent parts of China continued to trade with Japan, much to the ire of their Western supporters, even as other parts of the country were being conquered by the Japanese army. During the India-Pakistan War of 1965, India continued to export steel, iron, and coal, among other products, to Pakistan. Ukraine continued to import Russian coal through the 2014 War in the Donbas. And since 2022, Russian oil and gas has continued to flow through Ukrainian pipelines despite the mounting battlefield casualties.
Not only does legal wartime trade exist but there is tremendous variation in the patterns of wartime trade. In designing their wartime commercial policies, states determine whether to trade in the war, which products to trade, and how long to continue to trade in these products. In some wars, enemy belligerents continue their trade throughout the war: India and Pakistan in the First Kashmir War (1947–49) and Yugoslavia and Croatia in the War of Bosnian Independence (1992) are notable examples. In other wars, belligerents sever trade immediately at the start of the war: examples include England and Argentina in the Falkland Islands War (1982) and India and Pakistan in the Kargil War (1999). In still other wars, such as the Second Ogaden War (1977–78) between Ethiopia and Somalia, belligerents start off trading with their enemies, only to change course during the war.
Different products are treated differently by the belligerents in specific wars. For example, trade in wheat, necessary to feed both domestic populations and armies in the field, was prohibited by Russia but permitted by Britain in the Crimean War (1854–56). Yet Britain prohibited trade in wheat a month into World War I. Despite coal still being required to power the country’s navy, Britain permitted trade with the enemy in coal for the first year of World War I. However, in World War II, after most major belligerents had switched to oil-powered navies, Britain prohibited trade in coal with the enemy.
What explains this complex and seemingly contradictory behavior?
Argument in Brief
Formulating a wartime commercial policy requires a state to balance two opposing imperatives. On the one hand, wartime trade with the enemy helps the enemy increase its military capabilities, which it can use to alter the course of the war. On the other hand, severing trade with the enemy during war reduces the revenue available to the state. A reduction of revenue in wartime places additional strain on the state’s finances and decreases the size of the investment the state can make into its long-term security. This defines the fundamental problem of trade with the enemy. States have a security imperative to sever all trade with the enemy and, at the same time, an economic imperative to keep all trade.
The resolution to this problem stems from disaggregating the content of the commercial relationship between two enemy belligerents. By assessing each product individually, one can observe the variation in products based on how long it takes the enemy to convert them into military capabilities. Thus, the security imperative does not demand the prohibition of trade in all products—only those from which the enemy can benefit militarily in the current war. Likewise, products vary in the amount of revenue they generate for the state. In essence, the economic imperative does not require trade with the enemy to continue in all products—only those whose prohibition would irreparably injure the stream of revenue into the state’s long-term security.
Enemy’s conversion time | |||
|---|---|---|---|
Short | Long | ||
State’s loss of revenue | High | TWE To ensure long-term security of state | TWE Both reasons |
Low | No TWE | TWE Enemy cannot use gains against state on the battlefield | |
Examining the commercial relationship between enemy belligerents at the product level provides a solution to the fundamental problem of trade with the enemy. Products that take a long time to be converted into military capabilities and those that contribute greatly to the state’s gross domestic product (GDP) can be traded during the war to satisfy the economic imperative. Products that the enemy can quickly convert into military capabilities and that do not provide significant revenue for the state can be prohibited from trade to satisfy the security imperative.
While product characteristics can reveal some general patterns about what is more or less likely to be traded during a war, a state’s wartime commercial policy is not a one-size-fits-all tool. Just as military strategies are designed to fit a specific war, wartime commercial policies are tailored to the specific war a state expects to fight. In crafting wartime commercial policy, decision-makers focus on the conflict’s expected length and its expected stakes—that is, the conflict’s importance to the state. These war expectations set thresholds against which products are compared to determine if trade should be allowed or prohibited. As long as the product’s conversion time into military capabilities exceeds the expected duration of the war, a state will permit trade because the enemy will not be able to use the exchange to alter battlefield conditions. Likewise, if a product’s contribution to the economy is above the threshold the state is willing to give up to ensure its immediate survival, the state will permit trade because it cannot afford the long-term consequences of its loss. As the state’s expectations about the war shift, so does its wartime commercial policy.
Wartime Commercial Policy
The main outcome this book examines is a state’s wartime commercial policy toward an enemy. A wartime commercial policy designates which aspects of the peacetime commercial relationship with the enemy remain legal during the war. More concretely, it is the collection of decisions a state makes about which products of enemy origin are allowed to be imported and which products are permitted to be exported to the enemy during a given war. As the term suggests, a wartime commercial policy is applicable only during war. Once a war begins, the existing level of trade between the two enemy belligerents becomes governed by each country’s wartime commercial policy. Unlike peacetime, when a state can afford to include a wide range of concerns and interests in its commercial decisions, during war, every decision about the enemy has to be judged on the basis of its potential impact on the battlefield victory. The security motivations for severing trade with the enemy are highest during war, thus wartime presents the hardest conditions for trade with the enemy.
The analysis in this book focuses on the formation of wartime commercial policy, as opposed to the bilateral level of trade between enemy belligerents in a specific war. While overlap between belligerents’ wartime commercial policies is considered briefly in the theory chapter, chapter 2, the theory itself explains the monadic preferences for trade. The bilateral level of trade between belligerents represents an outcome of two separate processes that do not follow the same logic: the states’ trade policies and the process of war. Looking at a state’s wartime commercial policy, as opposed to bilateral trade, focuses the analysis on the maximum amount of trade a state allows during a war, isolating how a state resolves the dilemma between economic and security imperatives without confusing the analysis with other factors that affect the observed level of bilateral trade.
Each belligerent’s trade policy preferences set the maximum level of trade that can exist with the enemy. If the belligerent has a restrictive policy, very little trade is possible. If the belligerent has a lax policy, most of the peacetime trade is possible. After the maximum level is set, however, what actually is imported and exported from the country is influenced by the war. Certain trade routes can become unavailable because of submarine warfare or air raids or simply because the active warzone stretches across the road previously used to transfer cargo. These factors increase the cost of transportation, making trade more expensive, which might prevent certain merchants from engaging in it. Inadequate transportation logistics might further reduce the amount of trade that can be processed: railroads can be reserved for military purposes, preventing merchant access; ports might be too small to handle the trade redirected to them. During war, ships can be captured and held for long periods of time while the legality of their trade is verified, increasing the risk of trade. Combined with the lower availability of insurance, this can decrease a merchant’s willingness to trade. At the same time, war tends to make certain goods scarce and correspondingly increases their price, which can incentivize certain merchants to engage in more trade in wartime than they conducted in peacetime. Likewise, the war can open new trade routes that were prohibitively expensive in peacetime but with the war premium allow for lucrative trade to continue. The bilateral level of trade incorporates the aftereffects of all of these aspects of the process of war, in addition to the policy choices of each belligerent. It is unrealistic to assume that all these processes follow the logic of one theory.
Furthermore, the book’s analysis focuses on states, not the decisions of individual firms to trade with the enemy. While in many economies the firms decide what to trade, with whom, and how much, the state sets the limits within which these firms must operate. The extent to which firms observe these boundaries is mostly determined by their motive for profit maximization, so a firm-level decision to trade with the enemy is less surprising. The state does not have the same luxury, especially in wartime. States have to balance economic motivations with security concerns, so a state’s decision to trade with the enemy is considerably more puzzling.
There are three scope conditions for the wartime trade theory presented in this book. First, the theory explains wartime cooperation in commercial policy only. Financial, monetary, and other broader forms of economic cooperation are not examined. It stands to reason that the mechanism for commercial engagement with the enemy differs from financial and monetary cooperation. Specifically, severing trade with the enemy is a long-term policy; it does not produce an effect in the short term but progressively builds in effect after some time has passed. Financial restrictions are a short-term policy; they produce a spectacular effect in the short term that dissipates with time and produces little effect in the long term. Therefore, it makes sense to examine the different aspects of economic relations separately.
Second, some state-sanctioned trade, no matter how minimal, should exist between the two enemy belligerents before the war starts. Such trade signifies that the states have managed to overcome the relative-gains problem and view trade as either mutually beneficial or at the very least as satisfactorily beneficial compared to the next best option.1 It is not difficult to explain why no trade with the enemy exists during a war when no trade existed before the war started. While it is theoretically possible that states could start trading for the first time during a war, it is not particularly plausible. If the two belligerents could not resolve the relative-gains problem in the more permissive peace environment, they are considerably less likely to be able to do so during wartime. Methodologically, the initial peacetime level of trade reflects the previous political relationship between the two states. If the belligerents were allies before the war, their peacetime level of trade was likely higher2 than if they were longtime rivals.3 If souring political relations somewhat depressed trade to avoid supply chain shocks4 or if the anticipation of conflict increased trade to generate stockpiles,5 this would be reflected in the initial peacetime level of trade. As the political relationship between belligerents is already incorporated into the starting conditions, it should not affect the wartime commercial policy.
Finally, each belligerent must have a government with the authority to set the commercial policy for a specific territory. While I use the term state to refer to the political actor making the decisions, the theory can be applied to certain types of civil wars as well as interstate wars. However, this scope condition excludes civil wars where the intermixing of belligerents makes it difficult to distinguish who sets policy for a specific territory. In such cases, it is impossible to determine what the commercial policy for the territory is and who exactly is allowed or prohibited from trading with whom.
What We Know about Wartime Commercial Policy
Despite the ubiquity of wartime trade, surprisingly little scholarship has examined this issue. The definitive and sole article on the subject, by Jack Levy and Katherine Barbieri, explicitly claims to offer no theory, instead providing numerous factors that might influence the decision to continue trade in wartime.6 In part, the reason for this lacuna is that the conventional wisdom is rather persuasive. Why would a rational state provide assistance to the enemy in the middle of a fight? To boost its own chance of victory, a state should ensure that the enemy cannot increase its military strength. Conventional wisdom thus argues that states prohibit all trade with the enemy during a war. This view seems vindicated by the existence, in the legal codex of many countries, of an automatic prohibition on trade with the enemy that is triggered by the start of hostilities. A fair number of countries also start their wars with an official proclamation prohibiting trade with the designated enemy states. What more proof is necessary to expect that wartime trade cannot exist?
Studying wartime trade is, likewise, complicated by the absence of consistent bilateral trade data between warring states. As war is expected to end commercial relations between states, it is unsurprising that wartime trade is systematically missing from bilateral trade datasets. The conventional wisdom is so persuasive that scholars dealing with this missing data find it acceptable to simply replace the missing war years with zero trade.7 Indeed, in the rare cases when bilateral wartime trade between belligerents is recorded, it typically plummets to particularly small figures in the next temporal period after the start of the war. If it is permissible to reduce wartime trade to zero, what is left to study?
All of these assessments are muddled by the lack of clear understanding of what wartime trade with the enemy encompasses. A considerable amount of legal wartime trade can exist between enemy belligerents, if one searches for it in the right place. Direct bilateral trade between enemy states can decrease to trifling amounts during the war.8 But this does not mean that no legal trade with the enemy was permitted or has occurred. Trade could have been conducted through neutral states or with the use of neutral ships. Such trade would not be recorded as direct bilateral trade, but it does represent economic engagement between enemies at war. It is likely that a considerable amount of trade, which scholars identified as trade substitution—finding an alternate trade partner after an initial commercial relationship is severed—might actually be indirect trade with the enemy.9
Likewise, the existence of common-law prohibitions triggered by the start of hostilities does not, in effect, require a state to cease any trade with the enemy. Where such common-law prohibitions exist, they are qualified by some variation on the phrase with the exception of such trade as the government wishes to permit.10 Legal prohibitions on wartime trade issued at the start of hostilities typically have two such qualifications. The first leaves large portions of trade unregulated through clauses such as everything not expressly prohibited is allowed. The second allows states to prohibit trade with the enemy with one hand while promoting it with the other, through clauses like except such trade as the government wishes to license. Despite the legal institutions of the state, the government makes the decision to allow, prohibit, or regulate wartime trade to suit the needs of the war. Common law guarantees that flexibility.
Finally, how compelling the conventional wisdom is depends greatly on the status of neutral rights in the conflict—that is, the right of neutral states to trade with the belligerents. The existence of neutral rights functions as a condition of possibility for wartime trade. Without neutral rights, severing wartime trade with the enemy likewise severs the enemy’s trade with the world. This creates substantial military advantages and spreads the economic costs of the policy among all trading states. Without neutral rights, the conventional wisdom of no wartime trade makes much logical sense. Conversely, with neutral rights, severing wartime trade with the enemy localizes the economic costs to the state imposing the policy and substantially decreases the military effects. The adoption of neutral rights creates the fundamental problem of trade with the enemy; the economic and security imperatives pull in opposite directions, forcing states to be much more strategic with their wartime commercial policies. As chapter 1 demonstrates, the Declaration of Paris (1856) served as a coordinating equilibrium codifying initial maritime neutral rights, which were subsequently enforced by powerful neutrals across different conflicts. Avoiding neutral rights in contemporary conflicts is plausible only under the auspices of a UN mandate for universal participation in a military action—which is an unlikely scenario as the UN Security Council has been for most of its existence and is now in deadlock. Exceptions to this deadlock are examined in chapter 7. Thus, while the conventional wisdom is compelling, its logic applies under a restrictive set of conditions—namely, the absence of neutral rights. Such conditions are unlikely to recur in the foreseeable future. Instead of instinctively severing all trade with the enemy at the start of war, states have to be considerably more deliberate in making trade-offs between their economic and military power.
what can be learned from peacetime commercial policy?
Once the conventional wisdom that there should not be wartime trade between enemies is dispelled, the considerable variation in states’ wartime commercial policies becomes apparent. Here, a secondary conventional wisdom might suggest that factors used to determine commercial policy in peacetime could, likewise, be used to explain its formation in wartime. Specifically, it might indicate that the economic interests of domestic actors, filtered through domestic institutions, create the basis for commercial policy. Relying on this secondary conventional wisdom would be equally problematic. The state, or, as this approach would see it, the set of domestic institutions used to aggregate various economic interests, cannot afford economic actors the same latitude in asserting their preferences in wartime as it can in peace. During a war, the economic interests of various lobbying efforts as well as the economic interests of the state itself must be weighed against their security implications. Indeed, while the primary conventional wisdom assumes away the economic interests of the state to reach the conclusion that there should be no wartime trade, the secondary conventional wisdom assumes away the security interests of the state.11 A wartime commercial policy is a balance between both economic and security concerns.
Unlike wartime commercial policy, the formation of commercial policy in peacetime has received ample scholarly attention. Large portions of international trade are explained by differences in the comparative advantages of various countries, whereby factor endowments dictate differences in the opportunity cost of production.12 While, at the most basic level, each state engaged in international trade benefits from the exchange, opening up the economy creates domestic winners and losers. Peacetime trade policy, according to the paradigmatic open economy politics perspective, is largely a reflection of domestic political conflict.13 In interindustry trade, this conflict could play out between the interests of the owners of varying factors of production, such as labor or capital, as hypothesized by the Heckscher-Ohlin-Samuelson model. Owners of abundant factors favor liberalization, and owners of scarce factors prefer protectionism.14 Alternatively, the domestic political conflict could manifest between the interests of different industries, as per the Ricardo-Viner model, with owners of the same factor of production favoring different policies on the basis of the investments they made into varying industries.15
International trade does not only consist of interindustry trade; intraindustry trade is generally explained by consumer preference for variety.16 Yet this addition to the motivations for trade does not reduce the potential for domestic conflict over trade policy. Within the same industry, it is the largest, most productive firms that engage in international trade.17 Where firms are heterogeneous and their products are highly differentiated, more productive suppliers have greater influence over peacetime commercial policy.18 Such firms can set almost individualized trade policy to suit their specific products.19 Because of the high product differentiation, most productive exporting firms can avoid collective action problems in their lobbying efforts as they are virtual monopolists in their specific products, whereas most productive import-competing firms do not need to be concerned with substitution.20 Whether the domestic political cleavage over trade policy falls between the interests of firms, industries, or owners of the factors of production, peacetime commercial policy tends to be an aggregation of domestic interests.
Another factor greatly affecting preferences over free trade is the importance of supply chains. Global value chains spread production across at least two different countries.21 Firms involved in global supply chains tend to support free trade,22 and at the same time, the liberalization of trade tends to concentrate benefits in the hands of the most productive multinational corporations.23 The differences between multinational corporations and firms not engaged in supply chains are pronounced even in the content of trade agreements, with the former focused on protections of foreign investment and the latter interested in stronger dispute-settlement procedures.24 Indeed, firms engaged in global production for export back to the United States are less likely to file antidumping petitions.25
With different sectors, industries, and firms generating unique preferences for trade liberalization or protectionism, “no single, coherent national trade policy exists” in the formation of peacetime commercial policy, as Helen Milner succinctly observes.26 The same does not hold for wartime commercial policy. The state cannot afford to take such a laissez-faire view when commerce can actively increase the enemy’s military capabilities. For the duration of the war, the state superimposes a singular coherent policy that maintains as much of peacetime trade as is militarily sensible.
While this reduces the influence of domestic politics on wartime commercial policy, it does not suggest that the domestic interests disappear or are completely ignored by decision-makers. Lobbying efforts to affect the commercial policy continue during the war. Indeed, the war itself can even affect the economic interests of domestic actors by, for example, making specific resources scarce or changing the coalitions of actors who support free trade or protectionism. But domestic interests have a much harder time affecting how a wartime commercial policy is determined even as they continue to lobby for their preferred policies. Economic interests have to be balanced with military necessity in wartime. Nonetheless, the information provided by lobbying efforts can prove useful to decision-makers. For example, if domestic interests can clearly demonstrate that further product differentiation allows the wartime commercial policy to distinguish between items that have different conversion times or importance to the domestic economy, the decision-makers can rely on this industry knowledge to make more nuanced prohibitions. While the process of wartime commercial policy formation is largely unaffected—it still relies on products’ conversion time and impact on the domestic economy—domestic actors can occasionally promote their interests by providing relevant information to the government.
Contributions
By explaining when trade occurs between enemy belligerents, this book contributes to several consequential debates in political science and international history. First, it uncovers an important phenomenon—wartime trade—that previous work has largely overlooked. Not only is wartime trade prevalent; it displays rich variation in terms of which wars see wartime trade and which do not, which specific products are traded in some wars and prohibited from trade in others, and for how long different products are traded in the same war. These patterns of wartime trade are not mere happenstance, the result of a lack of state attention, or the failure to control industry; they represent strategic decisions made by state leaders. This book provides a theory to explain why, during war, states continue to trade with their enemies, in which products, and for how long. Furthermore, it situates wartime trade historically by relating this phenomenon to the adoption of maritime neutral rights. This important institution, continuously enforced by neutral great powers against the belligerents, fundamentally changed states’ calculations on wartime trade and more broadly on the relationship of their military and economic power.
Second, through the examination of wartime commercial decisions, this book shows how states resolve trade-offs between their economic and military power. Instead of treating these two realms as separate or prioritizing one at the expense of the other, states grapple with decisions that allow gains in one realm by imposing costs in the other. Consequently, states allow as much wartime trade to continue as is militarily sensible and prohibit as much militarily dangerous trade as is economically viable. The conceptualization of the trade-offs between economic and military power transcends the traditional divide in the literature of economics as the domain of cooperation and security as the domain of competition.27 As both theory and history have shown, cooperation and competition can be sustainable in either realm.28 Likewise, it is too simplistic to portray the security realm as focused on relative gains and the economic realm as focused on absolute gains.29 Economic power serves as the basis of military power. Economic engagement with the world, as well as the extent and speed of industrialization, affects the relative power position of a state. Being so intrinsically connected to military power, the economic realm too has to be concerned with relative gains.30 Since economic decisions affect the relative power of the state and since military capabilities both protect and derive greater economic power, when making decisions about one, states have to carefully weigh the implications for the other.31
Determining how trade-offs between economic and military power are made is of great significance to questions of contemporary economic statecraft, specifically the formation of sanctions or decoupling policies. For example, it can help explain the content of the EU and US sanctions on Russia and suggest how they will develop as the Russia-Ukraine war continues. While Europe and the US are not official belligerents in the current war, they are hardly impartial, supplying the military of Ukraine and denying military capabilities to Russia. Yet, despite mutual agreement on the regional benefits of a Ukrainian victory, neither the US nor the EU have entirely severed their economic ties with Russia. On the one hand, there is agreement that helping Ukraine in its war effort against Russia requires economic sacrifices, both in direct costs of severed trade and in relative losses with regard to states that continue to trade with Russia in sanctioned products. This is especially painful when the relative losses are to fellow North Atlantic Treaty Organization (NATO) member Turkey, which assisted Russia in circumventing EU sanctions for at least the first year of the war.32 On the other hand, the extent to which Europe can injure the Russian war effort is limited by economic realities. Decoupling from Russian energy resources severely limits Russia’s ability to engage in warfare, as energy sales are a major contributor to the Russian war chest. However, preventing Russian oil exports completely would be economically destructive as many European economies would suffer from the resultant drop in the global supply of the commodity33—leading to compromises such as the oil price cap.34 EU’s policy has to manage the trade-offs between the economic and military realms in a way that imposes the greatest military costs on Russia while preventing the most economic harm to Europe.
Third, the logic behind wartime trade suggests that economically interdependent states have strategic reasons to continue to reap the economic benefits of trade even as they enter periods of hostility and conflict with one another. Put differently, economic interdependence—one of the hallmark characteristics of contemporary world politics and one of the most often-cited theoretical concepts to explain peace between modern powers35—may be insufficient to keep states from war. Economic interdependence theory argues that the cost of losing trade during a war acts as a deterrent to that conflict.36 This book shows that decision-makers can adjust trade levels during war, thereby reducing the opportunity cost of lost trade to all but the most militarily dangerous products. While the possibility of wartime trade may improve economic prosperity, it may also undercut the expected deterrent effect of economic interdependence between major powers.
Furthermore, wartime trade theory demonstrates that different types of wars may result in laxer or more restrictive wartime commercial policies, suggesting that the opportunity cost of lost trade should likewise vary among different types of wars. At the same time, the more interdependent two states are—the more they require each other as a market for their goods or as a unique source of inputs into their value-added manufacturing—the more likely they are to trade with each other during war. A variant of the economic interdependence theory points specifically to greater integration of military production as more likely to prevent states from adopting goals such as the conquest of other states involved in the military supply chains.37 The wartime trade theory, on the other hand, suggests that such deep military integration, where it exists, is likely to continue during a war, especially if the war is expected to be short. As the second age of globalization increases the interconnectedness of states and thickens the economic ties between them, wartime trade becomes more likely.
This contribution is particularly important in light of the growing competition between the United States and China. Unlike the last episode of bipolarity during the Cold War, where the Soviet Union and the United States shared few economic ties, China and the United States are highly interconnected. Optimistic projections predict that the possibility of losing these significant economic ties, and thus the prospect of undermining domestic prosperity, will deter both sides from escalating potential conflicts to war.38 Yet the findings of this book suggest several conditions under which the United States and China would continue trade despite initiating military hostilities, indicating that interdependence may be insufficient to stave off war. Trade is most likely to deter a long and existentially threatening war. This type of war, however, is not very likely to occur since both the United States and China have secure second-strike nuclear capabilities. In the nuclear age, states refrain from existentially threatening opponents capable of nuclear retaliation.39 If, on the other hand, the potential war between these states is peripheral and short, wartime trade becomes highly likely; thus, trade is unlikely to be a lever to prevent such a conflict.
Finally, the interplay of conversion time and war length in wartime trade contributes to a greater understanding of temporal effects in economic statecraft. Temporal dynamics are perhaps the most understudied yet ubiquitous aspect of politics.40 Explicitly, temporality is typically studied on the basis of how the passage of time affects specific outcomes such as the development of ideas, technology, or institutions41 or on the basis of leaders’ time horizons for specific actions.42 Implicitly, time appears in the study of politics in the question of timing: when specific events are likely to occur.43 This book suggests a novel use for temporal dynamics: differentiating the uses of policies with varying temporal effects. Severing trade in war or imposing economic sanctions in peacetime are examples of long-term policy tools;44 they take a while to produce an effect, yet this effect strengthens over time.45 On the other hand, financial sanctions, such as freezing assets held in a foreign bank, are short-term policy tools; they are one-shot implements whose effects are felt immediately but then once weathered produce no additional effect.46 Policy tools with different temporal effects are best suited for different situations. Short-term policy tools serve better as deterrent threats; most of the pressure on the rival is derived from the uncertainty about the rival’s ability to withstand the punishment. Long-term policy tools require long-term domestic and international support, and they are less effective when such support is known to be waning.
Case Selection
The arguments of the book are tested by examining crucial cases where wartime trade should have been least likely. The conventional wisdom of severing all trade with the enemy during war, as chapter 1 shows, is most compelling in cases where neutral rights are not respected. The development and adoption of maritime neutral rights required states to make much more strategic decisions about their wartime commercial policies. The Crimean War (1854–56) is the crucial test of this argument. The war began, and initial wartime commercial policies were set, in a world without neutral rights. A few months into the war, Britain and France adopted maritime neutral rights, and by reciprocity, Russia committed to follow those principles. The change in the belligerents’ wartime commercial policies at this crucial juncture demonstrates the extent to which the institution of neutral rights affected states’ decision-making process about wartime trade.
After neutral rights were codified in the Declaration of Paris (1856), powerful neutrals ensured the survival of the institution by militarily defending neutral commerce while other states fought their wars. This suggests that the return to the wartime commercial policy of conventional wisdom should be most likely where there are no powerful neutrals—in a global war where all powerful states are involved as belligerents. The two world wars, as global, total, prolonged wars fought for the survival of the major belligerents, present the most difficult conditions for wartime trade. The presence of commercial cooperation between belligerents makes it much more likely that wartime trade exists in wars where conditions are not as hostile.
British and German wartime commercial policies from World War I are examined to observe how each individually created policy left room for overlap in wartime trade between the two belligerents. Both cases exhibit rich variation in the assessments of the expected length and the expected stakes of the war, demonstrating how changes in war expectations affect the formation of a state’s wartime commercial policy. Additionally, British policy from World War I is contrasted with its policy in World War II to examine how fundamentally different initial expectations of war—short and distant for World War I, long and existential for World War II—affect the formation of wartime commercial policy, while holding as many other country-specific factors constant as possible.
In addition to global wars creating unfavorable conditions for maintaining neutral rights, neutral rights can be removed by mandate of international organizations, such as the UN Security Council, requiring all states to take belligerent status in a conflict. When all states are belligerents, the conventional wisdom of severing all trade with the enemy in war is once again highly compelling. As the UN Security Council has been deadlocked for most of its existence, the brief window of unipolarity presents the most opportune moment to examine arguments about wartime trade. To this end, this book examines the United States’ policy in its military engagements after the Cold War: the Gulf War (1990–91); Operation Uphold Democracy in Haiti (1994–95); NATO’s bombing of Yugoslavia (1999); the Afghanistan War (2001); the Iraq War (2003); Libya (2011); and Syria (2014). The wartime commercial policy with regards to Haiti and Iraq contained aspects of UN Security Council resolutions, which created conditions resembling a world without neutrals, whereas the conflicts in Yugoslavia and Libya did not. Additionally, this case extends the analysis to asymmetric conflict, where one state is significantly stronger than the opponent. It likewise shows the wartime commercial policies of a state engaged in less conventional military operations. Finally, the case is significant for policy consideration as it allows us to speculate how the United States will behave in future military engagements.
Plan of the Book
The first chapter explores how the development and enforcement of the institution of maritime neutral rights changed states’ calculus on wartime trade. Before the widespread adoption of neutral rights, severing all trade with the enemy at the start of conflict was the best one-size-fits-all strategy. The military advantages of economic blockade were high, and the economic costs could be dispersed among all trading states. The development of commerce-related neutral rights had the inadvertent consequence of decreasing the pressure of economic blockades while localizing the costs to the state imposing the policy. This change created the fundamental problem of trade with the enemy, incentivizing states to be much more strategic in their wartime commercial policies. Given the utility of this institution and the great powers’ willingness to enforce it, neutral rights, and consequently strategic wartime commercial policy, are likely to be persistent features of international relations. The chapter also briefly discusses the logistics of how wartime trade is carried out and the instruments states have to interfere with it.
Chapter 2 lays out the theory of wartime trade between enemies. It explains that states make wartime commercial decisions at the product level and tailor them to the specific war they expect to fight. The expectations about the type of war set thresholds against which products are compared to determine if trade should be allowed or prohibited. If a product’s conversion time into military capabilities is longer than the expected length of war, trade will be permitted because the enemy will not have time to use the gains from trade to affect battlefield outcomes in the current war. If a product’s contribution to the state’s GDP is greater than what the state is willing to lose in the current war, trade will be permitted because the state cannot afford to interrupt the stream of revenue into the long-term security of the state. As the expectations of the war change, so does the wartime commercial policy.
Chapter 3 focuses on France, Britain, and Russia in the Crimean War, as the first belligerents to seriously grapple with the fundamental problem of trade with the enemy. One of the opening decisions of the war was the adoption of the Declaration on the Rights of Neutrals. This was done for completely idiosyncratic reasons: the ice in the Baltic Sea was late to melt in 1854, leaving a large amount of produce, which France had already paid for, stuck in Russian ports. Thus, France ultimately convinced all three belligerents to respect neutral rights to safely carry products of enemy origin. This chapter shows how the introduction of neutral rights changed belligerents’ initial policies of severing all trade with the enemy to much more nuanced, product-level considerations.
Chapter 4 looks at the changes in Britain’s wartime commercial policy in World War I. It shows the logic of the wartime trade theory as states formulate their initial wartime commercial policies and update them to match the changing expectations of war. Given the expectations of a short war that would not be existentially threatening, Britain initially designed a lax wartime commercial policy. Products with incredibly short conversion times were prohibited from trade; the rest were permitted. However, after the first six months of the war, such rosy expectations were proved wrong. Britain responded to the changing situation on the battlefield by updating its wartime commercial policy to deny the enemy the products most necessary for the war effort. As the expectations of war changed, so did the wartime commercial policy. Ultimately, only products whose circulation in the British economy contributed significantly to the GDP were allowed to be traded with the enemy.
Chapter 5 examines the German wartime commercial policy in World War I. Planning to fight a European war blockaded on all sides and severed from world trade, German leaders made no plan to resolve the fundamental problem of trade with the enemy since they expected there to be no neutrals. When these initial expectations were proved wrong at the outbreak of hostilities, German leaders had to quickly formulate a more strategic wartime commercial policy. As the wartime trade theory predicts, this policy shifted according to battlefield realities. The failure of the Schlieffen Plan to remove the western front from the war led to restrictions of trade with England. When German leaders realized that France would not be defeated in one campaign season, trade with France was limited. The German case also shows how a wartime commercial policy can change when a state fighting a long, intense war suddenly experiences a period of short war expectations. When faced with such conditions in 1917, German leaders approved a scheme to sell militarily significant products directly to the enemy to extract huge profits, which were used to help conduct the current war.
Chapter 6 focuses on Britain’s wartime commercial policy in World War II. Differing from its expectations in World War I, Britain started this war with an expectation of a long and painful struggle for its very survival. Learning from the lessons of its previous encounter with Germany, Britain spent the interwar years preparing the most comprehensive economic war machinery imaginable—one capable of severing not just British trade with the enemy but also most neutral trade with the enemy. However, in keeping with the wartime trade theory, this policy was never intended as a one-size-fits-all approach. Britain set standards for the types of wars in which this economic war machinery would be used to full effect, as well as the types of wars where none of its measures would be necessary and wartime trade could be permitted. Unfortunately, the coming war with Germany was expected to be long and intense. Britain designed a restrictive wartime commercial policy to match.
Chapter 7 extends the analysis to contemporary conflicts by focusing on the United States’ wartime commercial policy in its military engagements after the Cold War. For about a decade, the United States could use the budding consensus in the UN Security Council to pass comprehensive trade embargoes against target states, thereby simulating a world without neutral rights. When the United States severed trade with Iraq and Haiti, it did so along with all other UN members, substantially increasing the military benefits of the policy at a reduced economic cost. But the UN consensus did not last long, and without the UN’s comprehensive trade embargoes, US commercial policy returned to a strategic balance between the military and economic consequences of wartime trade. Both the bombing campaign of Kosovo and the intervention in Libya started with a lax wartime commercial policy due to the US expectation of a short conflict. When these expectations changed in the Kosovo case, US wartime commercial policy became considerably more restrictive. The US wartime commercial policy toward Russia in the current Russia-Ukraine war, likewise, fits with the expectations of the wartime trade theory.
The conclusion briefly summarizes the main theoretical and empirical findings of the book before proceeding to stress test the scope conditions of the wartime trade theory. First, it examines the recent global economic changes to show that they do not affect how states formulate their wartime commercial policies. Second, it considers how the theory can be extended to address security competition short of war, focusing on implications for the current US-China relationship. Finally, it presents implications for international relations scholarship as well as policy-makers and analysts.