Is China an Exception to the Commercial Peace? Trade Interdependence and Chinese Foreign Policy

In the contemporary globalized world, the challenge for addressing countries like China has been how to avoid military conflict over serious security differences that is so integrated with the world economy. Conventional wisdom would contend that increased economic interdependence would allow for China’s “peaceful rise” and therefore reduce incidences of military conflict.

Jiakun Jack Zhang, Postdoctoral Fellow at Princeton’s Niehaus Center for Globalization and Governance, has actually found that China’s economic integration since opening up in 1979 has not decreased military conflict. He applies bargaining theories of war to understand the effects of trade dependence on the use of military force, arguing that China uses military force primarily in territorial disputes that do not disrupt trade. China’s territorial aims have been relatively consistent since the inception of the Communist regime in 1949; its unresolved territorial disputes are not constrained by trade dependence with other countries – and potentially even encouraged by it in low-intensity disputes.

Zhang created his own dataset of Chinese foreign policy from 1949 to 2016, and used stock market returns to measure both political and economic shocks as well as investor sentiments. He finds no consistent evidence that there are negative abnormal returns in markets when military disputes escalate, barring the exception of the Taiwan Straits Crisis of 1995 and the potential effects of the current trade war.

Zhang’s talk today was a presentation coming from his research for his dissertation. If you’re interested in looking at his research, you can find some of his projects here.

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