Scott Snyder is Director of the Center for U.S.-Korea Policy at The Asia Foundation and Adjunct Senior Fellow for Korean Studies at the Council on Foreign Relations.

China’s rising economic strength has highlighted a need to understand in greater detail the impact of complex economic interdependence on prospects for alliance cohesion, especially when an ally comes to depend on a potential adversary as its leading trading partner and engine for economic growth. This is an issue that did not come into play to any significant degree in analyzing alliance dynamics during the cold war era precisely because the development of security and economic relationships during that period were aligned with and served to reinforce each other, and the level of economic ties among potential cold-war adversaries was minimal. Analysis of trade relationships among security allies from that period shows a clear correlation of preferences for trading relationships with security partners versus adversaries, but it is not clear based on that data alone that there was necessarily causality between economic trade patterns and security alliances. In fact, structural differences between market economies (that tended to be allied with each other) and non-market economies were a significant deterrent to the development of economic relations with non-security partners during the cold war. In the post-cold war era, economically interdependent trade and investment relationships have been relatively unconstrained by political and security considerations, resulting in a situation where non-security partners such as China, a potential challenger to U.S. power, have become actively integrated in global supply chains as a leading manufacturer of goods for the global market.

In considering this question, Dong Sun Lee and Sung Eun Kim have attempted to provide an empirical analysis of the influence of bilateral economic relations as a factor in shaping America’s Asian alliances, concluding that “economic ties do not markedly reinforce the security alliances of East Asia, because they have an asymmetrical structure”(Lee and Kim 2010, 4). But in making the argument that asymmetry matters, Lee and Kim assume that the economic consequences of interdependence are negative for dynamics within the alliance and that these negative consequences may cancel out positive effects of economic interdependence, even though the main argument of that the paper proves is that economic ties do not necessarily reinforce security alliances. The authors’ assertions regarding asymmetrical economic relations as having an impact on alliance dynamics are unproven and not dealt with to any significant degree by the evidence presented in the paper.

On the basis of the empirical conclusion that the intensity of economic interdependence and alliance strength do not show any relationship to each other, the authors warn against overstating the policy impact of the KORUS FTA as a factor likely to influence alliance relations. I agree with the main part of the conclusion that economic ties do not necessarily directly reinforce security alliances and that security analysts have tended to overemphasize the importance of the KORUS FTA to the future of the security relationship, but I contend that the authors have misattributed asymmetry between alliance partners as a circumstance that might make economic interdependence have greater salience; i.e., asymmetry within alliances does not provide the larger power with special tools of economic coercion within the alliance. Existing literature addressing this issue concludes that economic dependency does not provide useful political leverage capable of changing behavior in a target state especially if the target state is a democracy; secondly, economic interdependence over the long-term may be able to transform foreign policy objectives of the target state when a broad consensus exists in the initiating state (Kahler and Kastner 2006, 523-541).

The pattern of post-cold war alliance-based economic interaction with China is different from patterns that occurred during the cold war, with both the United States AND its allies engaging with China economically without reference to whether or not China is also a security ally. This is reflective of the fact that factors of competition and comparative advantage in the post-cold war period have been primarily determined by market rather than by politics, and the market weighs security factors as relatively inconsequential in managing trade and investment relationships rather than privileging political or security factors as primary determinants of economic relations. The primary question for consideration then becomes whether economic interactions with China—as a potential ‘peer competitor’—might diminish the capability of the alliances in the event of a confrontation.

The Limits of the Theoretical Framework

Theoretical literature on the relationship between economic interdependence and alliances provides a mixed picture, in part because there is still a limited data set for analyzing behavior of allies against the backdrop of complex economic interdependence. The prioritization of security over economics that prevailed in the cold war context tended to justify assumptions that “security externalities” shape and reinforce trade between allies dampening impulses to trade with potential adversaries (Gowa 1989, 1245-1256). Theories of relative gains further supported the desirability from a realist perspective of privileging economic interactions within alliances versus with non-security partners or potential adversaries (Grieco 1993, 729-743). But the developing post-cold war pattern of economic integration without regard to security boundaries that had been previously imposed by alliances during the cold war is not rational or desirable behavior from the perspective of the need to utilize economic means to conserve power or to avoid providing potential adversaries with the economic foundations that might allow them to develop into a potential threat. Richard Betts puts a fine point on the dilemma for realists posed by the phenomenon of economic interdependence, especially as it relates to China’s rise, when he asks, “Should we want China to get rich or not? For realists, the answer should be no, since a rich China would overturn any balance of power”(Betts 1993, 55). Yet the United States, South Korea, and Japan all count China as their number one trade partner and leading supplier of low-cost consumer goods to industrialized markets. This fact suggests that these countries have either forsaken realist strategic logic or those short-term transactional benefits of trading with China, even at the cost of allowing China to get rich, outweigh longer-term strategic considerations as a factor in these relationships.

Liberal views of economic interdependence emphasize the benefits to be gained by rising trade and investment, in the form of reduced risks of conflict derived from economic self-interest in political restraint to avoid the respective costs to one’s own self-interest that derive from the web of interdependence. (Rosecrance 1986). But these views are also challenged by the fact that political tensions in China’s relations with South Korea, Japan, and the United States have been on the rise, and in some recent cases such as the apparent cut-off of exports to Japan of rare-earth metals at the height of a September 2010 dispute over the Senkaku/Diaoyutai islands, China has appeared willing to utilize economic leverage as a tactical measure to press for political gains (Mo 2010). It appears unlikely that China-centered economic integration within Asia will lead to the end of political conflict in the region; in fact, there is growing concern that China might continue to utilize economic dependency of its neighbors on the China market as leverage to gain the political upper hand, a factor that poses a fundamental problem for liberal theorists.

A hypothesis that Lee and Kim put forward in their paper but do not develop in any significant fashion is that economic interdependence within alliances should be considered in the context of asymmetry within the alliance relationship; i.e., economic dependency of the weaker ally might be a tool by which the stronger ally might heighten the junior partner’s sense of entrapment and therefore seek alternatives to the alliance. But this view is also challenged by dramatic shift in economic patterns that has occurred in the transition from the cold war to the post-cold war period, which has arguably lessened any prior correlation that might have existed during the cold war between economic patterns of interaction and security imperatives within alliances. This means that the senior partner’s leverage to request security assistance in out-of-area conflicts or to demand support in a bilateral context would decrease as a result of a shift in the relative importance of the senior ally as a trading partner. Yet despite the diminished economic role of the United States as a trading partner with its allies, there has not been a reduction in U.S. demands for assistance from Asian allies, and the absolute levels of contribution that both South Korea and Japan have made have increased in the post-cold war period at the same time that economic interdependence within the alliances has lessened. Lee and Kim suggest that economic interdependence within alliances might matter while at the same time arguing that economic interdependence and security imperatives are not directly linked, but these conclusions are self-contradictory.

The Limits of the Empirical Data

The paper challenges conventional wisdom that economic interdependence and security alliance preferences are co-related. But the data upon which the authors draw is primarily from the post-cold war experience, while the theoretical conclusions that trading preferences and security allies are correlated are primarily based on data from the cold war era. The data presented covers the period during which economic relationships were no longer limited by security alliance preferences, but does not go a step further to ask whether there are any potentially damaging implications for the durability of alliances that might result from the delinking of trade and investment preferences from political and security considerations. This is a critical question that requires much closer analysis than it has received to date...(Continued)

Acknowledgement

This paper has been written as a critical response to Dong Sun Lee and Sung Eun Kim, “Ties that Bind: Assessing the Impact of Economic Interdependence on East Asian Alliances,” EAI Asia Security Initiative Working Paper No. 3, January 2010.