Will trade prevent war in the Asia Pacific?1
Abstract
Some believe a war between the US and China is inevitable. Others believe that due to strong economic
links, war between the US and China will be mutually destructive. One view in this school of thought is
that trade will promote peace and extinguish appetites for conflict. Other theories place trade under the
rise and fall of nation-states while yet others assume trade is a product of hidden materialist imperatives.
All of these theories originated in the West and were by-products partly to rationalise and justify violent
empires. The nature of trade and its dynamic nature were both sanitised, marginalised or simply hidden
under nationalist exuberance. Trade is, when fully realised, rapacious and unforgiving. Sometimes it leads
to great wealth for some but always at the expense of others. Its effects and consequences are
unpredictable and unstable. Trade is more likely to lead to conflict. Peace reigns only when participants
consent to the prevailing arrangements and are satisfied with the international division of wealth. Trade
is unreliable as an instrument for peace unless that peace is a code or euphemism for imperial expansion.
The problem of trade, the problem of trade theory and the problem of trade history are examined with
reference to the opening up of Japan, the Opium Wars, the Pacific War, the rise of the American trade
system (ATS), the GATT, and finally the TPP.
Michael Sutton, PhD, Visiting Fellow to the WTO Research Center, Aoyama Gakuin University, Tokyo,
Japan. The author can be contacted at [email protected].
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“We are all convinced that we desire the truth above all. Nothing strange about this…But what we actually
desire is not ‘the truth’ so much as ‘to be in the right’…What we seek is not the pure truth, but the partial
truth that justifies our prejudices, our limitations, our selfishness. This is not ‘the truth’. It is only an
argument strong enough to prove us ‘right.’ And usually our desire to be right is correlative to our conviction
that somebody else (perhaps everybody else) is wrong. Why do we want to prove them wrong? Because we
need them to be wrong. For if they are wrong and we are right, then our untruth becomes truth, our
selfishness becomes justice and virtue; our cruelty and lust cannot be fairly condemned…No wonder we hate.
No wonder we are violent. No wonder we exhaust ourselves in preparing for war!” 2
Thomas Merton.
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Thomas Merton, Conjectures of a Guilty Bystander, (New York: Image Books, 1968), 78.
Introduction:
The Illusion of Peace and Lust for Trade
One of the most pressing contemporary issues in the Asia Pacific is whether there
will be an outbreak of war between the U.S. and China. If any conflict erupts in the region,
China or the U.S. will be involved due to various alliances and allegiances. This hypothesis
is based on the presumption that a strong China is by definition a threat to the region and in
some way a threat to U.S. interests. Whether conflict is triggered by Taiwan, North Korea
or over a disputed territory few believe overtures for peace would be a sufficient deterrent.
Therefore, the region is searching for concrete mechanisms or arrangements which might
mitigate or prevent conflict.
There are three trends. The first is the enthusiastic but naïve build-up of military
force with the expectation of overcoming any future war.3 The second is to question the
utility and wisdom of the US Alliance and to suggest alternatives.4 The third is to use trade
policy as a way to isolate China and to use the fear of China to strengthen support for the
US. This is seen in the so-called Trans-Pacific Partnership (T.P.P.).
These paths to war are certainly not what was envisaged by an earlier generation of
scholars, corporations and commentators.5 This vision for the Pacific was strengthened by
groups such as the Pacific Basin Economic Conference, (PBEC), Pacific Trade and
Development Conference (PAFTAD) and even the Pacific Economic Cooperation Council
(PECC). They promoted a view of the world where trade is mutually beneficial and
possessing sufficient potency to extinguish any appetite for conflict. Trade was viewed as a
benign pillar underpinning peace and stability in the Asia Pacific. The argument flows like
this: the more countries trade with one another, the more national economies become
integrated with one another, a new dynamic of interdependence emerges. This has a
cumulative dynamic such that it is a ‘win-win’ scenario for all participants, with some
The classic case of this naïve position is the Australian government’s $45 billion (Aus.) investment in 12
submarines to replace the outdated and discredited previous fleet of Collins Class submarines. Australian
policymakers are increasingly convinced that Australia can go it alone.
4 See for example Malcolm Fraser, Dangerous Allies, (Carlton: Melbourne University Press, 2014) or Hugh
White, Power Shift: Australia’s future between Washington and Beijing, Quarterly Essay, Issue 39, 2010.
5 See for example Esme Marris and Malcolm Overland, The History of the Pacific Basin Economic Council, 19671997: Bridging the Pacific (Wellington and Honolulu: PBEC, 1997), Ross Garnaut, Australia and the Northeast
Asian Ascendancy, (Canberra: Australian Government Publishing Service, 1989), Peter Drysdale, International
Economic Pluralism: Economic Policy in East Asia and the Pacific, (Canberra: Allen and Unwin, 1988).
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adjustments costs of course, as countries rid themselves of uncompetitive practices and
adopt a policy of free trade. 6
This expectation that trade would form the basis for peace and prosperity in the
region was at the heart of the idea of the ‘Pacific Community’, then the ‘Asia Pacific
Community’ and the ideals of the Asia Pacific Economic Cooperation (APEC) forum,
established in 1989. These experiments were based on a mixture of some elements of
abstract neoclassical trade theory and political idealism.7 This benign understanding of
trade in the Asia Pacific continued until the global financial crisis and unsettling rumors of
the real potential for China to challenge the US. But absence of conflict is no proof of peace.
It is now clear that such expectations for a Pacific or Asia Pacific Community based on
benign and mutually-beneficial trade dynamics, were profoundly naïve if not well
intentioned. These arrangements and institutions continue on paper and in some
organizational form. They were all carefully crafted, created and maintained and invested
with such profound hope and anticipation for the future. But these groups and their
assumptions concerning trade are no recipe for peace in the region.
But this is not a realist paper. Certainly the rise of China poses many problems for
the well-established and comfortable alliances with the US. Many might be attracted to this
vision of the world, aware of past prophecies concerning the rise and fall of nations. But
prophecy is an uncertain science and the politics of realism or neo-realism are simply byproducts of more important realities. The heart of the Asia Pacific is wealth creation and
this is largely due to trade growth and investment and this in turn is driven by consumer
demand which is a volatile dynamic, both creative and yet destructive.8 Countries may go to
war over pieces of rock in the Pacific, but what really transforms societies are individual
lusts and cravings. When combined with the possibility of realizing these lusts, populations
with sufficient disposable income produce a force no army can resist and no military or
government can control. Whether this is even capitalism is an interesting question, for not
even Marx could anticipate the sheer size of population involved in the US, China and India
combined. The world is rapidly approaching an era of consumption that will redefine
everything.
See for example Ross Garnaut, Open Regionalism and Trade Liberalization, An Asia Pacific Contribution to the
World Trade System, (Sydney: Allen and Unwin, 1996).
7 See Sylvia Ostry, Authority and Academic Scribblers: The Role of Research in East Asian Policy Reform, (San
Francisco: ICS Press, 1991).
8 As Alfred Marshall remarked on the first page of Principles of Economics, “Political Economy or Economics is a
study of mankind in the ordinary business of life; it examines that part of individual and social action which is
most closely connected with the attainment and with the use of the material requisites of wellbeing. Thus, it is
on the one side a study of wealth, and on the other, and more important side, a part of the study of man.” Alfred
Marshall, Principles of Economics, 8th Edition, (London: MacMillan, 1920), 1.
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One popular avenue to the question of whether war might occur in the Asia Pacific is
to engage in strategic projection or planning. This avenue is entirely one of conjecture and
of little practical value. The same could be said for military spending. If expenditure is to
occur, then it would be reasonable to assume that spending has some direct tangible benefit
for the community and the military are employed in some productive fashion. Wars are
notoriously difficult to predict.9 Not only are wars difficult to predict, they are often never
resolved and their consequences linger for generations.10 Other wars are conveniently
forgotten. 11
This paper asks serious questions about the future of the Asia Pacific. Far from being
an instrument of peace, trade is more often than not, tied inseparably to conflict. It will be
shown that not only is a rethink on trade necessary, but there are serious questions over the
nature of ‘trade.’ While trade can contribute to peace it does little for stability. Few truly
understand this. At its heart, trade is a dynamic force. In reconsidering trade, three aspects
are examined. First, the problem of trade. Second, the problem of the theory of trade. Third,
the problem of trade in history.
The Problem of Trade
The rise of post-war Japan did much to unsettle the US, particularly from the 1970s
to the end of the 1990s. Various terms and ideas reflected this state of affairs such as
‘strategic trade policy’, ‘managed trade’ and ‘specific reciprocity.’ The basic premise of this
critique of Japan was that Japan would not have naturally carved out a competitive position
so it must have been behaving nefariously. The reality was that Japan did and still does use
‘industry’ policy, as do most countries. What was at issue was the character of such policies
and their claims to legitimacy. The problem wasn’t Japan. Instead, the problem was the
trading system designed by the aggrieved party – the U.S. This was the world of trade in a
contained system where all participants accept for the time being that certain rules exist.
What caused angst was simply that these rules were created by the U.S., rules that all
countries in that system, even Japan, affirmed.
The classic scenario was the Great War, which few predicted and from which few were exempt. A complicated
and moribund treaty system paved the way to the death of millions.
10 Such as the war in Korea and the war between Chinese Nationalists and the Communists. The Pacific War
also left a number of unresolved and complicated territorial disputes over various islands and territories.
11 For example the Vietnam War and the Korean War as well as involvement in wars to prevent the
independence of various colonies in the region.
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The problem with this debate and the current debate concerning the rise of China is
one that is usually ignored. It is quite possible to prove that Japan was able to secure market
access to the U.S. market and that Japanese exports were successfully marketed abroad. But
market access is irrelevant in a competitive system provided that access is available to
others. Japan was able to secure foreign markets but keeping them is another matter
entirely. Japan was subject to the same competitive market pressures which afflicted the
position of the U.S. Corporations regularly shift investments in search of lower profits, and
more relaxed working conditions. Trade cannot be managed. Trade has a life of its own.
Trade dynamics are among the most powerful creative and destructive influences in the
world. Protectionism in the U.S. and elsewhere isn’t some predisposition against economic
theory but an awareness of the disruptive nature of competition, that trade has a dynamism
that can build and ruin communities, that it can create wealth and take it away. Politicians
who weigh the advantages and disadvantages when considering freer trade do hold the
future of entire communities in their hands.
This is seen no more clearly in the fall of mercantilism and the rise of the first
industrial nations, starting with England. Mercantilism is widely regarded as a term to
describe a period in European history from the mid-1500s to mid-1800s.12 Its demise is
associated with the rise of the disciple of political economy, or ‘classical’ economics and
Adam Smith’s ‘Wealth of Nations.’13 It was a period of trade covering the great Empires of
Spain, Portugal and the exploratory adventures of the Dutch.
The irony with capitalism is that with the reorganization of production, trade would
transform the world that was only superficially affected by even the most extensive foreign
trade networks in the period of mercantilism. Britain was the first to industrialize and used
its Empire to explicitly reinforce its economic power and position in the world. It
accomplished this by constantly being in a state of war with others, by invasion, acquisition,
exploitation and control. Without overseas markets, there could be no ‘wealth of nations’
but for the English the wealth of only one nation mattered. It was a purely discriminatory
and selfish system that favored one nation over all others. The British Empire was based on
a racial and political agenda of patronage and exclusion. These policies in particular make it
one of the most poorly conceived Empires in history. World war ended the dream and the
Empire continues under the oxymoron that is the ‘Commonwealth.’
The U.S. created a new system from the ashes of the old. At the height of its economic
supremacy, the U.S. needed a system that would foster and strengthen its competitive
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John Kenneth Galbraith, A History of Economics: the past as the present (London: Penguin, 1987), 31.
Galbraith, A History of Economics, 31.
position. The U.S. devised and wrote the General Agreement on Tariffs and Trade
(G.A.T.T.) but there was greater ambition and this was in the form of the International
Trade Organization (I.T.O.). The ITO was too much for a fledgling global economy in the
context of widespread social and economic destruction and so it vanished. What was left
was the G.A.T.T. but the U.S. effectively ignored it for years since its principles broadly
reflected its ambitions. Whereas the British system centered on the wealth of Britain at the
expense of everyone else, the U.S. system offered the most remarkable benevolence – the
possibility of trade for any country willing to abide by certain rules.
Trade moved from Empire to Law. In Empire, it only mattered if it had an English
face, but in Law it mattered only in terms of statutes and rules.14 Thus both the English and
the U.S. sanitized, marginalized and subjugated trade as an object of study. At the heart of
this American trade system (ATS) was the principle of reciprocity and a respectable method
of negotiation, complete with a plethora of complicated rules and regulations designed to
placate a number of anxieties over the dynamism of international trade. 15
The mid-1990s is important because this period marks the end of the multilateral
trading regime under the auspices of the W.T.O. The 1994/5 conclusion of the Uruguay
Round was bitterly resisted by many developing countries and developed countries alike. As
soon as the W.T.O was created, it became irrelevant. From 1996-2016, there has been no
major multilateral trade agreement in the W.T.O.
There are several reasons for the twenty-year silence at the WTO and they all stem
from the contradictions within the American trade system devised by the US following the
end of the Second World War. The ATS is not a global system and is certainly not
European in origin. It is explicitly American and remains so. This was a system of
reciprocity, a general negotiated ‘give and take’ which made perfect sense when the US had
no major economic competitors.16
Unlike the British Empire which guaranteed economic power by destroying
competitors on a regular basis, the ATS began to unravel almost immediately, first with the
rise of the E.E.C. and then Japan. Other members needed to agree to changes in trade law
and this forced the U.S. into the incredibly long Uruguay Round of trade negotiations
Hence there is a bizarre debate over the efficacy of unbound or voluntary trade policy and policies that are
bound or enforced. This created the notion that countries only engage in trade if they are forced to, that is if
they are compelled to obey certain rules. For an example of this argument see John Ravenhill, APEC and the
Construction of Pacific Rim Regionalism, (Cambridge: Cambridge University Press, 2001).
15 This section draws from two earlier papers: Michael Sutton, “The American Trade System”, Social System
Studies, No. 14, March 2007 and Michael Sutton, “The WTO, Border Security and National Prosperity”, Social
System Studies, No. 15, September, 2007.
16 Reciprocity and MFN status were not American ideas, they had existed long before 1945, but the way the
original multilateral trading system was formed, was exclusively US.
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(1986-1994), which actually began in the late 1970s. The Uruguay Round settled a number
of important issues such as bring trade in services and agriculture into the realm of this
system of trade law.
The ATS did not however prevent other countries from taking advantage of the
freedom to trade. The ATS gave considerable economic support for the emergence of China
as a manufacturing powerhouse. Chinese membership to the W.T.O. meant equal
membership and the right to withhold and refrain from further liberalization. With America
unable to compete on very low tariffs in manufacturing, it seems unlikely that any future
U.S. President will go to the polls agreeing to another trade round that will hasten the
decline of the American economy. The ATS has reached its end-point, originally designed
to accommodate US power. Ironically, the ATS, accidentally facilitated the rise of America’s
major competitors.
There is already a well-established critique against the W.T.O. Much of the antiWTO critique is simply a form of anti-Americanism or the idea that Marxists make better
politicians than conservatives.17 Much of it is anti-trade, the idea that all communities
should return to self-sufficiency and harmony and live in communes, but this vision is naïve,
counterproductive and rather quaint. All countries are driven by consumer demand which is
in turn lit by the fires of lust for trade and goods and commodities.18 It would be nearly
impossible to halt this dynamic, but to do so would most likely result in something akin to
genocide. None of these beautiful visions for a wonderful future ever end well.
The ATS is not the WTO, but it is the system of accepted rules and ideas which have
informed U.S. trade policy since the 1940s.19 The ATS will not last forever. The WTO has
been moribund for twenty years, the longest gap between trade rounds in the entire history
of the GATT/WTO. It may well be that the existing rules provide sufficient flexibility for
countries to trade. More likely, it reflects an inability to negotiate, or more importantly an
unwillingness. The end of the ATS began in the late 1990s not with the protests against
globalization but with the proliferation of ‘Plan B’ which are the dozens of free trade
agreements springing up all over the world. But like the Commonwealth and other bizarre
For example, Tariq Ali, The Clash of Fundamentalisms: Crusades, Jihads and Modernity, (London: Verso, 2003).
Visions of this new world order devoid of anything nefarious or negative can be found in books such as Lori
Wallach and Patrick Woodall, Whose Trade Organization: A Comprehensive Guide to the WTO, (New York: The
New Press, 2004), John Cavanagh and Jerry Mander, Editors, Alternatives to Economic Globalization: A Better
World Is Possible, (San Francisco: Berrett Koehler, 2004).
19 The ATS is not ‘globalization’ either since this term refers to more recent developments in global commerce
especially in investment and new trade areas. The term often reflects a particular ideology sometimes called
‘neo-liberalism.’ See Joseph E. Stigliz, Globalization and Its Discontents, (W.W. Norton and Company: New York,
2002), Jagdish Bhagwati, In Defence of Globalization, (Oxford: Oxford University Press, 2004).
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institutions such as the OECD, the ATS may linger well into the century as a relic of the
past.
The Problem of Trade in Theory
Not only is there a problem with trade and its place in the world, but thinking about
trade, especially in the last generation has become problematic. Take the definition. Trade
used to consist entirely of commodities. This is merchandise trade. It also includes
services.20 It wasn’t until 1995 that trade in services was legally bound in the WTO. Does a
definition of trade include investment? What about financial systems? 21 What about the
role of intra-corporate trade? There is no agreement, nor will there be for some time.
Trade is often defined incorrectly in the context of liberalization and the theory of
comparative advantage.22 It is a nice theory and makes intuitive sense as much as it did back
in the 1770s before the ravages of the industrial revolution. But ironically, it has become a
theory not of individuals for whom neoclassical economists are to exalt but nations. How
the most important economic idea left the realm of individual choice and became part of
foreign relations is a fascinating question. How can neoclassical economics be comfortable
with the notion of a nation, let alone the idea of society?
Comparative advantage suggests quite innocently that the reason for trade is a
cooperative and mutually beneficial natural mechanism between countries provided they
accept that a nation give up what it cannot make and acquiesce to another. It was certainly a
good theory when England had an Empire, for the one expecting acquiescence was Britain
and the purpose of trade flows in the Empire was to strengthen the center.
Marx too had appeal especially his Labor Theory of Value. Marx’s distinction
between the use or exchange value of labor and labor power in Volume 1 of Capital is a
remarkable reflection.23 It was more use as a commentary on the horrors of the industrial
revolution in England and might have had some relevance while labor was forced into the
factories under appalling traditions to work for a pittance. It was a world of exploitation and
The 1972 Penguin Dictionary on Economics terms international trade as ‘the exchange of goods and services
between one country and another.” G. Bannock, R. E. Baxter and R. Rees, The Penguin Dictionary of Economics
(Middlesex: Penguin Books, 1972), 228.
21 Where ‘trade’ begins and ends is a matter that has caused great confusion in the GATT and WTO since the
1940s and mid-1990s respectively.
22 See for example Bernard Hoekman and Michel Kostecki, The Political Economy of the World Trading System,
From GATT to WTO, (Oxford: Oxford University Press, 1995), 21-2.
23 Karl Marx, Capital: A Critical Analysis of Capitalist Production, Volume 1, Translated from the 3rd German Edition
by Samuel Moore and Edward Aveling and edited by Frederick Engels, (London: Swan Sonnenschien, Lowrey
and Co.: 1887).
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alienation. Marx’s theory still lingers in the realm of relevance whenever such
appalling conditions prevail around the world. These conditions were the basis for
the British Empire. But with technological change and innovation, production
processes changed and the Labor Theory of Value had little room to move.24
Most theories in international studies have failed to accommodate the significance of
international trade since 1945.25 Trade has offered little surprises to existing robust
theoretical frameworks. First, trade flows and their consequences in transforming societies
are either engaged in a circumspect or tangential manner. The literature abounds on
interpretations of trade in terms of legal implications, trade law and regulations on one
hand or the viability and character of trade regimes on the other.26
Second, trade is encountered in terms of national perspective. Most trade
scholars cannot disengage from their national bias and so trade is interpreted almost
entirely nationalistically.27 Fascinating as these studies are, the focus really isn’t
trade or its real impacts but on how nations engage with trade flows. Most studies
on ‘trade policy’ are in this category, often providing interesting titbits on subtleties
on contemporary trade politics.
Third, trade is relegated to a broader theoretical structure such as ‘international
political economy’ which usually means trade then fits into one of the long-established
western theories in international relations. Thus, trade is marginal or irrelevant to
contemporary theorizing.28
The radical critique of trade is equally dissatisfying. While the problems of the West
are certainly compelling, protesting that Marx was never really interpreted correctly is a
poor excuse for the horrors of Eastern Europe and Russia and wherever Marx was
institutionalized and reinterpreted. The reality is that while protesters condemn ‘neoliberalism’ their solutions are all inspired by versions of other western theories or ideas. It is
24 How
can one deduce labour power from a process that is entirely mechanised? None of the post-Marx Marxists
have been particularly convincing.
25 The same could be said for the role of financial markets.
26 See Sylvia Ostry, The Post-Cold War Trading System: Who’s on first? (Chicago: University of Chicago Press,
1997), Ernest H. Preeg, Bernard Hoekman and Michel Kostecki, The Political Economy of the World Trading
System, From GATT to WTO, (Oxford: Oxford University Press, 1995); Stephen D. Krasner, Editor, International
Regimes, (Ithaca: Cornell University Press, 1983).
27 See for example Ann Capling, Australia and the Global Trading System: From Havana to Seattle, (Cambridge:
Cambridge University Press, 2001)., Christina L. David, Food Fights over Free Trade, How International
Institutions Promote Agricultural Trade Liberalization, (Princeton: Princeton University Press, 2003), I.M. Destler,
American Trade Politics, 3rd Edition, (Washington D.C.: Institute for International Economics, 1995), Beyond
Bilateralism: Us-Japan Relations in the New Asia Pacific, Edited by Ellis S. Kraus and T.J. Pempel, (Stanford:
Stanford University Press, 2004).
28 Neoclassical economists are perhaps the guiltiest in this respect with any deviation from pure theory as
unbelievable heresy. See for example Ann O. Krueger, American Trade Policy: A Tragedy in the Making,
(Washington D.C.: AEI Press, 1995).
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a fact that all theories in the social sciences have their origins in the West, often devised by
wealthy white European men. Be it Marxism, developed by Marx, Liberalism, devised by
Englishmen and Realism, developed by Americans, the dominant theories of International
Relations are by-products of the dominant political and economic force at the time.29 Most
of those who wrote theories on international relations came from within these societies at a
time of momentous change and dynamism.
None wrote impartially, all were affected by their own bias presuppositions, but
usually they had something interesting and useful to say for that point in time. They were
not prophets. Their theories were designed to interpret key relationships of significance to
them at that point in time. Their theories helped to shape an understanding of these
relationships and contributed to the social sciences. But they could not see into the future
and it is doubtful that any of them expected their theories would still be followed so far into
the future. Unfortunately, in a world of growing atheism and agnosticism, many students of
international relations latch upon such theories and presuppositions as articles of faith,
follow them with religious devotion and denounce as heretics, any who dare to question
their version of the truth. It is a sober warning to anyone who relies upon theories written
in the nineteenth century British context to help explain what is happening in China, Japan
or the Asia Pacific.
It was once remarked that mercantilism as a system of thought could be rejected
because instead of relying upon proper principles, it reflected the politics of the time. In
other words, mercantilist theories were constructed to justify political and economic
ambitions.30 It didn’t stop with mercantilism. Adam Smith’s wealth of nations depended
upon an international division of labor that only the British Empire and its imperial
investments could provide. This efficient system, to realize comparative advantage needed
the subjugation of entire continents and the economic reorganization of competitors. The
nature of trade and the creation of wealth was sanitized, marginalized or hidden under
nationalistic exuberance.
The realist alternative is equally disappointing. It was useful to justify the politics of
the Cold War between the old U.S.S.R. and the U.S. as well as to white-wash a host of
morally dubious activities who took place beyond national borders. New forms of realism
The theory of open markets and free trade, in the form of the ‘invisible hand’ of the market is implacably,
irresistibly opposed to virtually every philosophical system in the history of humanity. That individuals even
exist is questionable, but that by acting selfishly the common good is advanced is a most remarkable assertion
and obedience to this precept falls nothing short of a cult, with unquestioned assumptions, disregard for context,
no exceptions to the rule, no mercy and no compassion.
30 See Eric Roll, A History of Economic Thought, 3rd Edition, (London: Faber and Faber, 1973).
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brought back into vogue by the growth of China are equally disappointing. The assumption
is that states are in constant conflict - it is the rise and fall of nations. The implication is
clear – war between the U.S. and China is inevitable. ‘History’ is presented as proof of the
inevitability of conflict between powers.31 The central problem with this school of thought
is the trigger for war. There is also the obvious reality of nuclear weapons, their use and
restraint.
Lastly, the final reason why trade is often ignored as an object of study is due to the
work of John Maynard Keynes and his legacy Keynesian economics. It is fully elaborated in
his masterpiece, The General Theory of Employment, Interest and Money (1936). Unlike
Adam Smith or Karl Marx, no other economist in history has been so widely adopted or
emulated or misapplied and misunderstood as Keynes. In terms of application, Keynes’
national economy meant a focus on full employment and other national indicators which
reflect the health of the nation. The US, Japan, and Australia among others are still
profoundly influenced by Keynesian ideas. Keynes himself didn’t seem to be interested in
international trade and barely mentions it in the General Theory. He believed that his
theory of full employment would lead to a world where the vagaries of trade could be
contained.
“But if nations can learn to provide themselves with full employment by their domestic policy,...there
need for no important economic forces calculated to set the interest of one country against that of its
neighbors. There would still be room for the international division of labor and for international
lending in appropriate conditions. But there would no longer be a pressing motive why one country
need force its wares on another or repulse the offerings of its neighbor, not because this was necessary
to enable it to pay for what it wished to purchase, but with the express object of upsetting the
equilibrium of payments so as to develop a balance of trade in its own favor. International trade would
cease to be what it is, namely a desperate expedient to maintain employment at home by forcing sales
on foreign markets and restricting purchases, which if successful, will merely shift the problem of
unemployment to the neighbor.” 32
The problem with all these theories is that they are based on England, North
America or European experience. Marxism, Liberalism and Realism are the three children
of the West. Not only is trade irrelevant but so is history and cultural development in the
Asia Pacific. It is a simple task to apply a Western theory to adequately explain everything
of note in the East.
The classic case is Japan. One view is that Japan is unique and that the source of its
post-war economic success can be attributed to specific institutional advantages. 33Another
See for example Paul Kennedy The Rise and Fall of Great Powers: Economic Change and Military Conflict from
1500 to 2000, (New York: Vintage Books, 1987).
32 John Maynard Keynes, The General Theory of Employment, Interest and Money, (New York: Harcourt, Brace and
World, 1936), 383.
33 Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975, (Stanford:
Stanford University Press, 1982).
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similar view is that East Asian countries subverted the western model of economic growth
and free trade and by a judicious use of government policy were able to achieve miracles.34
One problem is that this ‘Japanese’ solution may also be ‘German’.35 Once again, theories
get stuck in traditional positions. On one side is the literature which claims that there is a
pure global capitalism into which Japan and China naturally fit. Japan is often said for
example to be the perfect case of classical free market economics. 36 The problem is
compounded when the question is asked: when did classical capitalism take off in Japan and
China? 37History, politics and economics are thus simply being used to fit into preexisting
theoretical frameworks.
The starting point for trade seems to be at the point of exchange. If someone has no
income them they cannot engage it trade and that itself is important. Poverty is a terrible
blight upon society but it is probably the desire of most people, if not all, to have the
opportunity to buy something for themselves. Trade is thus driven by the lust for goods and
services. But trade is not about a neo-liberal agenda, it is not about the government or the
big bad corporations. It is not about ‘the other.’ Rather, trade is about complicity. It is
complicity within a system of commerce such that continual participation binds the
individual to a broader system. Not only are they complicit, but they are responsible. If
citizens are appalled by conditions in developing countries, then all they have to do is
abstain from trade. Regardless of class or creed, all have the opportunity to enjoy the
benefits of trade, all are complicit and all are responsible.
A few other principles are needed to complete this picture. First, trade is more likely
to lead to conflict and peace reigns only when participants consent to the prevailing
arrangements and are satisfied with the division of wealth. While tensions mount over rocks
in the sea and historical grievances, the division of wealth under the current ATS has not
produced sufficient backlash for its termination.
Second, trade is unreliable as an instrument for peace unless that peace is code for
imperial expansion. This is because the trading system is inseparably tied to an imperial
Robert Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization,
(Princeton: Princeton University Press, 1992), The East Asian Miracle: Economic Growth and Public Policy,
(Oxford: Oxford University Press, 1993).
35 See Wolfgang Streek and Kozo Yamamura, editors, the Origins of Non-Liberal Capitalism: Germany and Japan
in Comparison, (Ithaca: Cornell University, 2001).
36 See for example Dick Beason and Dennis Patterson, The Japan that Never Was: Explaining the Rise and Decline
of a Misunderstood Country, (Albany: State University of New York Press, 2004), Yoshiro Miwa and J. Mark
Ramseyer, The Fable of the Keiretsu: Urban Legends of the Japanese Economy, (Chicago: University of Chicago Press,
2006), Dick Beason and Jason James, The Political Economy of Japanese Financial Markets: Myth Versus Reality,
(New York: Palgrave MacMillan, 1999).
37 See for example Jack Goody, Capitalism and Modernity: The Great Debate, (Cambridge: Polity Press, 2004).
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system. It is currently the ATS, the first ‘global’ system. It was designed to promote US
economic advantage but now that it does not, how long will it last?
Third, trade is, when fully realized rapacious and unforgiving, sometimes leading to
great wealth for some but at the expense of others, always unpredictable and unstable.
Trade is ultimately driven by consumer demand which in turn returns complicity to
individuals. This is perhaps the most misunderstood aspect of international trade. There are
winners and losers. Communities die, while others rise from the ashes.
The Problem of Trade in History
The third problem of coming to terms with trade is the problem of trade in history.
Far from being a benign influence, international trade has often been associated, even the
cause for some major conflicts involving Asia Pacific countries. Both Japan and China
suffered at the hands of foreign powers in their efforts to open up the countries to trade. It
was lust for trade which opened up Japan in 1853/4 under pressure from the U.S. for among
other things, a whaling port. Japan had been closed since around1600, and was at peace with
all its neighbors throughout its period of isolation.
The desire for trade or rather the imposition of undesired trade was at the heart of
the Opium Wars between China and the West. In both the Japan and Chinese case, the
principles of most-favored nation were imposed. This principle continues to lay at the heart
of the post-W.T.O. multilateral trading system. Rather than any benign principle of
fairness, historically it imposed by stronger powers upon weaker ones.
Trade was at the heart of the reasons Japan went to war in the Pacific. Lacking
major natural resources, Japan craved imports of raw materials and oil in order to build its
economy. While Japan had effectively become a significant economic power by the 1920s,
the country was still overcome with a number of economic and social problems. It had also
become dependent on foreign trade. Japan was also potentially a major competitor to other
European interests in Asia, as well as a future competitor with the U.S.
As for Japan’s Imperial ambitions, it is often said that Japan’s efforts to create an
Empire came at a time when the idea of Empire was becoming politically inconvenient.
There isn’t much evidence for this view. The arguments that England was poised to release
its colonies before the war isn’t convincing. Partition in India was a complete debacle. In
any event, the war bankrupted Britain and the colonies were no longer economically viable
to maintain. The stubbornness of some of the European powers to hold onto their Asian and
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African territories, despite the rhetoric of ‘freedom’ and ‘democracy,’ doesn’t provide much
evidence to support the idea that Japan was simply too late in designing an Empire. 38
Trade was regarded as an insufficient incentive to bring about the stability of
Europe following the conclusion of the Second World War. Early liberalization of trade
under the auspices of the Organization for European Economic Cooperation (O.E.E.C.) did
little to extinguish the view that the future of European stability lay in a firmer foundation,
that of the realization of ‘Europe.’ The first step was the establishment of the Customs
Union, an arrangement avoided by most countries because it insists upon a common
external tariff and fosters the creation of an internal market. While the customs union idea
was popular in the 1960s, it has only been in Europe where the customs union led to deeper,
more comprehensive unification.
A unified Europe had been an ideal for many for some time and the devastation
wrought as a result of conflict provided an appropriate justification for pursuing a common
path. Stability was also needed in light of a divided Europe – with West/East Berlin and
Eastern Europe under Soviet control. There was also the belief that a common European
market would be a sufficient basis for competition with the U.S. Throughout the 1950s1970s, the E.E.C. would be the major opponent of the U.S. in G.A.T.T. negotiations. Most
of the major controversies in the G.A.T.T. which led to the Uruguay Round (1986-1994)
stemmed from the failure of the U.S. and E.E.C. to resolve their differences. The E.E.C. was
fully consistent with the rules of the G.A.T.T. Article 24 provided the legal justification for
the formation of customs unions. The idea that the G.A.T.T. was undermined by the
creation of the E.E.C. or that it violated the principle of free trade is inaccurate on both
counts.
As mentioned in the previous section, there has been considerable debate over the
sources for economic growth in Japan. What has garnered much less attention is the
remarkable competitive system that has emerged since 1945. The period of ‘economic
supremacy’ has not been enduring for any of the countries in the region. Export-driven
growth characterized the stabilization and prosperity of South Korea, Taiwan, Singapore, as
well as Japan and now China. There was a short period when Japan was said to be No. 1.
There was some anticipation that next would be Korea. 39 No one calls Japan No. 1 anymore
and even China’s rapid growth seems to be slowing.
The path to war with Japan was not a surprise to a number of contemporary commentators. It was simple
really – deny Japan’s military ambitions and then begin by cutting off trade routes and resources.
38
See Alice Amsden, Asia’s Next Giant: South Korea and Late Industrialization, (Oxford: Oxford University Press,
1989).
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The post-war post-growth mercantilism is rapacious. It is volatile. Indeed, the old
mercantilism was more like a global treasure hunt. In the past, traders could rely upon the
continual supply of goods from a particular source – silk, pottery, spices for example.
Certain places were famous for them and traders. Under the post-war system, competitive
pressures between trading nations means that export demand for commodities are often
changing. This introduces often profound social dislocation. Trade has led to the profound
industrial restructuring of national industries. The cumulative dynamic of this structure of
trade isn’t stability it is quite the opposite. It is volatility.
This volatility and the association between trade and conflict is also seen in the
recent efforts to resurrect the Asia Pacific Community in the form of the Trans-Pacific
Partnership. The old view was that the basis for prosperity was in an open trading system
but that was only convenient when the US was No. 1. Now that China poses a serious
economic threat, the goal of the U.S. is to reassert dominance in the region. 40 The dangers
of the TPP were long anticipated. Indeed, it could be argued that as far back as the 1960s,
American scholars and business leaders were investing efforts in regional arrangements
that would forestall or prevent the kind of agreements being proposed today.41 Groups such
as A.P.E.C. and the W.T.O. have played a role in containing trade conflict but have not
forestalled the jealousy that comes when others are equally successful as a result of using a
trade system that was devised to suit someone else.
The war on terror has been fortuitous for U.S. trade policy, enabling America to
insist on the intimacy between the branches of economic and military security. Australia’s
free trade agreement with the U.S. for example was promoted as part of this broader
strategic alignment. The so-called ‘free’ trade agreements since the late 1990s, implemented
during an era of low tariffs have been nothing more than acts of capitulation from countries
eager to appease the U.S. out of fear of China on one hand and fear of what America might
do if a country does not sign up.42 The TPP is ostensibly designed to consolidate free trade
in the Pacific but excludes the major Pacific trading nation, China.
Interestingly, the original Japanese ambition for US involvement in the idea that would become APEC was
engagement in Asia. Yoichi Funabashi, Asia Pacific Fusion: Japan’s Role in APEC, (Washington D.C.: Institute for
International Economics, 1995).
41 Ross Garnaut for example writing in 1989 argued that in light of the need to accommodate the growth of
China, the US must be careful not to promote “proliferation of discriminatory concessions to the United States,
at the expense of third parties.” He had in mind Taiwan, but the point was clear – the US had the potential to
use trade policy as a weapon against China rather than encouraging it to participate in the global system.
Garuant, Australia and the Northeast, 154.
42 Michael Sutton, “The Afraid of China Club Beckons, though free farm trade is still a farce”, The Japan Times,
February 13, 2013; Michael Sutton, “Lack of Vision Hurts T.P.P.”, The Japan Times, October 18, 2013.
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Will trade prevent war in the Asia Pacific?
So, will trade prevent war in the Asia Pacific? This paper has offered three cautions,
with respect to the problem of trade, the problem of trade theory and the problem of trade
history. With respect to the problem of trade, there are two dynamics. Trade bursts
through open trade barriers but it also transforms societies. Much of this dynamism does
not create the foundations for lasting economic security. Japan was No. 1 in the 1980s. Now,
it is not. With respect to trade theories, trade dynamism in the region is set against theories
that have little interest in substantive engagement with the real world developments
underway in the Asia Pacific. With respect to trade history, much more could be said on the
relationship between trade and conflict. Certainly, the region has a long intimacy with the
way trade and conflict relate to one another.
Ultimately, preparation for war is useless until it begins, as the cost of military
hardware, especially in the current climate, is constantly increasing and depreciation along
with technological advancement means that unless equipment and technology is being used
productively, it is a waste of money. That being said, the above argument suggests war is
more likely to occur and so this paper might comfort some in their desires to be prepared.
In terms of the next step, the lust for trade needs to be rethought and re-theorized.
Some way of conceptualizing the importance of trade without falling into the old western
paradigms is needed. If what happens in the real world does not challenge theory
construction, then those theories are obsolete and the theories become ideology and this
leads to various forms of oppression. If the ATS is to fall what will replace it and what role
would China play? There is also a need to revisit the history of trade and conflict.43
Trade is increasingly the lifeblood of most countries and any attempt to replicate
what happened to Japan in the lead-up to the Pacific War needs to be averted. If anything is
clear, there is little evidence that trade leads naturally to peaceful relations between
countries. Trade introduces dynamics and challenges for all countries with citizens who lust
after the benefits of trade and who would gladly be complicit in any system that confers
such benefits. It is as much a question of personal values and desires as anything else, for
trade would stop if people ceased to consume. Sadly, it is also a question of the role of
nations for despite all that has happened, no one learns from history and the relic of
nationalism is still a sufficient motive to plunge everyone into war.
43
One issue that could be re-examined is the role of the Protestant ethic in the rise of capitalism in the West.
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