* In [David] Ricardo’s time trade is estimated to have constituted about 1 percent of world GDP. Since then, despite exploding world output, the volume of trade relative to GDP has risen more than thirteenfold.
* Advantages based on natural resources still exist, as they did when England specialized in wool and Portugal in wine, but more dominant today are advantages that can be acquired. These can be the advantages conferred by being established in an industry and gaining thereby either specialized knowledge or economies of scale or scope. There is also the possibility, in industries where knowledge is easily transferred, and where economies of scale are not significant, of dispersing production around the world to use cheap labor or other special advantages, and then to exploit the cheapness of modern transportation to deliver these goods to global markets.
* one might conclude that the location of economic activity today no longer matters since international companies can repatriate their profits from whatever part of the globe houses their actual economic activities. However, in almost all cases, most of the economic benefit stays where the value is added. Profits are usually only a small portion of the value added through economic activity, and most of the value added, such as wages, remains local. It matters to a country to be the site of an economic activity, whoever may own the company.
Although the countries do not compete directly, in the way companies do, the amount of economic activity actually taking place within their borders is vital. As we will see in this book, it is vital not only for those engaged in a particular industry who may experience the up and downs of activity directly but also for the country as a whole.
* Some of the truths most dear to the hearts of economists are those that clash with the practical intuition of those not trained in the field. It does not require special training to see that foreign competition can put some domestic jobs in danger, or that once vibrant home-grown industries sometimes succumb to foreign competitors who can make the goods they once produced more cheaply or better. International trade sometimes leads to the contraction or even loss of some industries, even significant ones such as automobiles or consumer electronics, and can therefore cause hardship and unemployment. But economists generally maintain that such localized pain is more than compensated for by the availability of better automobiles or compact disc players to the large consuming public.
* improvement in one country’s productive capabilities is attainable only at the expense of another country’s general welfare. An improvement in the productive capability of a trading partner that allows it to compete effectively with a home-country industry, instead of benefiting the public as a whole, may come at the expense of that home country overall. And this harm is not the localized damage previously mentioned, loss of jobs in the immediately affected industry, but an adverse effect that is felt throughout the home
country.* Why should a country be satisfied with the current state of affairs if it can see a way to do better?
* among the multitude of stable outcomes, those that are best for one country tend to be disadvantageous for its trading partner.
* And we mean that it is disadvantageous for its trading partner in a very wide sense. It is a sense that takes into account not only the local effects on individual industries but also the wider effects on the entire national population. It is in this sense that we find that there is inherent conflict in international trade.
* Thus countries today can change their circumstances and can acquire (or lose) industries through rapid alterations of their capabilities in industries that do not have high entry costs. This can lead to a new outcome in international trade. The possibility of such changes and such new outcomes is another and different source of multiple
outcomes.Remarkably enough, the resulting different outcomes obey the same simple laws as those that govern the case of high entry cost and largescale operations. Once again, we will find inherent conflict in the countrywide interests of trading partners. Once again, the outcome that is best for one country tends not to be good for another. Once again, a
multitude of possible outcomes become a possible source of conflict in international trade.* If the operation of free markets in the global economy always produced a unique and relatively predictable outcome for the interrelated economic affairs of nations, then there would be little that anyone could do to change it. That predestined balance of economic forces would represent our unavoidable destiny. Directed by the market’s Invisible
Hand, we would be fated to produce, trade, and prosper, all in a strictly choreographed international pattern. We could study, describe, and write about the details of that fate, but in the end we would either have to accept it or fundamentally reject the guidance of the free market. If, in addition, there were grounds for believing this destiny to be dependably beneficial—always serving not only the economic interests of the world as a whole but also each of the countries that compose it—then the uniqueness and inevitability of that outcome would be reassuring rather than inhibiting or threatening. This fortunate state of affairs, in which we are only deprived of the ability to tinker with something that is already for the best, is just what classical trade theory may lead us to expect.* The development of a new industry is slow, involves a long time and large-scale effort, and is beset with risk.
* Retainability means that a country with many industries can hold on to them even though the wage in this many-industry country may be very high. As we will see in more detail in the next chapter, if a country is producing more than its population’s share of the world’s commodities, it will have a high income and, usually, a high standard of living. If it produces a large share of the world’s goods, it has much to consume and much to trade. It becomes a high-wage, high-consumption country.
* a country that finds itself frozen out of most industries and is unable to enter will find itself with little to consume that is produced at home and little to trade to obtain goods from abroad.
Grok says:
To analyze Global Trade and Conflicting National Interests by Ralph E. Gomory and William J. Baumol (2001) in light of John J. Mearsheimer’s essay on war, we need to explore how the economic arguments in Gomory and Baumol’s work intersect with the realist perspective on international politics and war articulated by Mearsheimer. Both texts address the competitive nature of international relations, but they focus on different domains: Gomory and Baumol examine economic trade dynamics, while Mearsheimer emphasizes security and military conflict. Below, I will compare their core arguments, highlight synergies and tensions, and assess how their perspectives illuminate the interplay between economic competition and the potential for war in a multipolar world.
Overview of Key Arguments
Mearsheimer’s Essay on War
Mearsheimer’s essay, rooted in realist international relations theory, argues that international politics is inherently competitive and conflict-prone due to the anarchic structure of the international system, where no higher authority exists to protect states. Key points include:
War as a Central Feature of International Politics: War is a perennial danger because states prioritize survival in a self-help system. The absence of a global enforcer means states must compete for power to ensure security, leading to security dilemmas where one state’s gain in military capability threatens others.
Politics as Competitive and Potentially Violent: Politics, both domestic and international, is a “contact sport” driven by clashing interests and values. In international anarchy, these conflicts can escalate to war, as states fear existential threats and shifting power balances.
Escalation Dynamics: Limited wars tend to escalate into total wars due to political passions (e.g., nationalism), military preferences for decisive victories, and the dynamics of war itself (e.g., victory disease, inadvertent escalation). This is particularly dangerous in the nuclear age.
Realist Lens: Mearsheimer critiques liberal theories that downplay military factors, arguing that survival concerns trump economic, legal, or moral considerations. States may initiate wars (preventive or opportunistic) if they perceive threats to their security, regardless of international norms.
Gomory and Baumol’s Global Trade and Conflicting National Interests
Gomory and Baumol challenge classical trade theories (e.g., Ricardo’s comparative advantage) by incorporating modern economic realities like economies of scale and rapid productivity changes. Their key arguments include:
Multiple Trade Outcomes: Unlike classical models that predict a single, mutually beneficial trade equilibrium based on natural advantages, modern trade produces multiple stable outcomes due to economies of scale, high entry costs, and acquired skills. These outcomes vary in their impact on national welfare.
Inherent Conflicts in Trade: The best economic outcomes for one country often harm its trading partners. For instance, a developed country benefits from aiding underdeveloped nations until they reach a competitive threshold, after which their industrial gains reduce the developed country’s welfare.
National Interests and Competition: A country’s prosperity depends on the success of its industries in global trade. Developed nations must compete vigorously against peers (e.g., the U.S. against Japan or Germany) to maintain economic advantages, as losing industries to rivals diminishes national welfare.
Policy Implications: Countries can influence trade outcomes through policies like protecting infant industries or investing in infrastructure. The authors are not protectionist but argue that strategic interventions can secure better outcomes in a world where market forces alone do not guarantee optimal results.
Synergies Between the Two Works
Both Mearsheimer and Gomory/Baumol emphasize the competitive nature of international interactions and the centrality of national interests, albeit in different spheres. Their arguments align in several ways:
Competition as a Core Feature:
Mearsheimer views international politics as a zero-sum struggle for power, where states compete to ensure survival. Similarly, Gomory and Baumol argue that global trade is not always a positive-sum game; one country’s economic gain can come at another’s expense, especially among developed nations.
Both reject liberal assumptions of harmony. Mearsheimer critiques liberal theories that predict the obsolescence of war, while Gomory and Baumol challenge the classical trade model’s assumption that free trade always benefits all nations equally.
National Interests Over Global Good:
Mearsheimer asserts that states prioritize survival over moral or legal norms, leading to actions like preventive wars. Gomory and Baumol argue that countries pursue trade outcomes that maximize national welfare, even if it harms trading partners, suggesting a parallel focus on self-interest.
For example, Mearsheimer notes that states may violate international law to enhance security (p. 10). Similarly, Gomory and Baumol suggest that countries may use protectionist measures or industrial policies to secure retainable industries, prioritizing national prosperity over free-market ideals (pp. 8, 65-67).
Structural Constraints:
Mearsheimer’s anarchic international system, lacking a higher authority, drives security competition (p. 13). Gomory and Baumol’s trade model, where market forces preserve multiple outcomes rather than selecting a single optimal one, creates a structural environment where countries must actively compete to avoid unfavorable equilibria (pp. 7-8).
Both frameworks highlight the absence of an automatic mechanism ensuring mutual benefit, whether in security (no global enforcer) or trade (no guaranteed optimal trade outcome).
Potential for Conflict:
Mearsheimer explicitly links political competition to war, noting that disputes can escalate due to nationalism or military dynamics (pp. 29-35). Gomory and Baumol imply that economic competition can strain relations, particularly when a country’s industrial losses threaten its economic base, potentially escalating into broader conflicts (pp. 24, 41-42).
For instance, the loss of key industries (e.g., U.S. semiconductors to Japan) could weaken a state’s economic power, which Mearsheimer would argue translates into reduced military capability, heightening security concerns and the risk of conflict.
Tensions and Differences
While there are synergies, the two works diverge in focus, assumptions, and implications, revealing tensions when applying economic trade dynamics to a realist security framework.
Domain of Analysis:
Mearsheimer focuses on military power and war, viewing economic factors as secondary to security concerns. He argues that political considerations “invariably trump economic, legal, and moral considerations” (p. 36). Gomory and Baumol focus exclusively on economic welfare, with no direct discussion of military conflict.
This creates a tension: Mearsheimer might argue that economic competition, as described by Gomory and Baumol, is subordinate to security imperatives. For example, a state might sacrifice economic gains to bolster military alliances or avoid dependence on a rival for critical industries.
Conflict Outcomes:
Mearsheimer sees conflict as potentially catastrophic, culminating in war that threatens state survival (pp. 13-14). Gomory and Baumol’s conflicts are economic, resulting in reduced national welfare (e.g., lower GDP per capita) but not existential threats (pp. 24-26).
However, economic losses could indirectly fuel Mearsheimer’s security dilemmas. For instance, if the U.S. loses its semiconductor industry to China, as Gomory and Baumol warn (pp. 67-68), this could weaken its technological edge, prompting a security-driven response, such as trade restrictions or military buildup, aligning with Mearsheimer’s escalation dynamics.
Role of Cooperation:
Mearsheimer acknowledges limited cooperation among great powers (e.g., U.S.-Soviet nonproliferation efforts) but emphasizes its fragility in the shadow of security competition (p. 15). Gomory and Baumol highlight cooperative potential in trade, particularly when developed nations aid underdeveloped ones, creating mutual gains until a competitive threshold is reached (pp. 37, 59-60).
This difference suggests that economic cooperation might mitigate tensions in Mearsheimer’s framework, but only temporarily. For example, U.S. aid to India (a zone of mutual gains, per Gomory and Baumol, p. 61) could strengthen bilateral ties, but as India’s industries grow, Mearsheimer’s logic predicts rising security competition if India becomes a great power.
Policy Prescriptions:
Mearsheimer implies that states should prioritize military preparedness and strategic alliances to deter threats, with economic policies serving security goals (e.g., avoiding dependence on rivals). Gomory and Baumol advocate for economic policies like government support for retainable industries (e.g., U.S. Sematech, p. 67) to secure favorable trade outcomes.
These prescriptions can conflict. For instance, Gomory and Baumol’s call for competing vigorously against developed rivals like Japan (p. 5) might lead to trade wars, which Mearsheimer would see as risking escalation into military conflict, especially if economic losses threaten a state’s power base.
Interplay Between Economic Competition and War
Combining the insights of both works reveals a deeper understanding of how economic competition in trade can intersect with the potential for war in a multipolar world, as outlined in Mearsheimer’s essay.
Economic Power as a Foundation for Military Power:
Mearsheimer notes that great powers like China and Russia emerged by 2017 due to their “sufficient economic and military capabilities” (p. 7). Gomory and Baumol’s analysis suggests that economic strength, driven by industrial success in global trade, is a prerequisite for such capabilities.
For example, China’s rise as a great power, which Mearsheimer attributes to its economic growth (p. 7), aligns with Gomory and Baumol’s observation that countries can acquire industries through productivity gains (pp. 9-10). However, this growth can harm trading partners like the U.S., creating economic tensions that, per Mearsheimer, could escalate into security competition or war if the U.S. perceives China as an existential threat.
Trade Conflicts as Catalysts for Security Dilemmas:
Gomory and Baumol’s “zone of conflict” (pp. 37, 60), where one country’s industrial gains harm another, mirrors Mearsheimer’s security dilemma, where one state’s military buildup threatens others (p. 14). Economic losses in key industries (e.g., U.S. steel or semiconductors) could prompt protectionist measures or sanctions, which rivals might interpret as hostile, triggering a spiral of retaliation.
For instance, U.S. efforts to retain its semiconductor industry (Gomory and Baumol, p. 67) could lead to trade restrictions on China, which China might counter with cyberattacks or military posturing in the South China Sea, aligning with Mearsheimer’s escalation dynamics (pp. 29-35).
Nationalism and Economic Competition:
Mearsheimer highlights nationalism as a driver of escalation, fueling hatred and pushing states toward total war (pp. 29-30). Gomory and Baumol’s emphasis on national welfare and industrial success can amplify nationalist sentiments, especially if a country perceives foreign competition as a threat to its economic identity.
For example, Japan’s dominance in automobiles (Gomory and Baumol, p. 17) in the 1980s sparked U.S. nationalist rhetoric about “saving American jobs,” which could have escalated into broader political or military tensions if Japan were a strategic rival, as Mearsheimer’s framework suggests.
Strategic Implications in a Multipolar World:
Mearsheimer’s multipolar world (post-2017, p. 7) increases the likelihood of great power competition, as China, Russia, and the U.S. vie for dominance. Gomory and Baumol’s analysis suggests that economic competition among these powers will intensify, as each seeks to secure retainable industries and avoid unfavorable trade outcomes.
This dual competition (economic and military) could create flashpoints. For instance, Russia’s economic dependence on energy exports, if threatened by U.S. or Chinese industrial policies, could prompt aggressive actions (e.g., in Ukraine), aligning with Mearsheimer’s view of war as a response to perceived threats (p. 10).
Critical Assessment
The synergy between Mearsheimer’s and Gomory/Baumol’s frameworks highlights the interconnectedness of economic and security competition in international relations. Economic losses in trade, as Gomory and Baumol describe, can weaken a state’s power base, triggering security concerns that Mearsheimer argues drive war. However, their differing focuses create blind spots:
Mearsheimer’s Oversight of Economic Drivers: Mearsheimer’s realist lens downplays economic competition as a direct cause of conflict, focusing instead on military power. Gomory and Baumol’s work suggests that trade conflicts can independently strain relations, even absent immediate security threats, by undermining national welfare and fueling political unrest.
Gomory and Baumol’s Silence on Security: Their economic model does not address how trade disputes might escalate into military conflict, a gap Mearsheimer fills. For example, their recommendation for vigorous competition among developed nations (p. 5) could exacerbate tensions in ways they do not explore, such as through trade wars or resource competition.
Together, the works suggest that economic and security policies must be integrated to manage risks in a multipolar world. For instance, the U.S. could pursue Gomory and Baumol’s strategy of supporting retainable industries (e.g., semiconductors) while aligning with Mearsheimer’s emphasis on maintaining military superiority to deter rivals. However, this dual approach risks escalation if not carefully managed, as aggressive economic policies could provoke retaliatory actions that spiral into conflict.
Conclusion
Gomory and Baumol’s Global Trade and Conflicting National Interests complements Mearsheimer’s essay by illustrating how economic competition in global trade mirrors the security competition central to realist theory. Both works underscore the zero-sum elements of international relations, where national interests drive states to prioritize their own welfare or survival, often at the expense of others. While Gomory and Baumol focus on economic outcomes and Mearsheimer on war, their arguments converge on the need for strategic action to navigate a competitive world. However, their integration reveals that economic disputes can amplify security dilemmas, increasing the risk of escalation in a multipolar system. Policymakers must balance economic and military strategies to secure national interests while minimizing the potential for conflict, a challenge made more acute by the complex interplay of trade and war in the modern era.