Global supply chains have become instruments of economic statecraft in contemporary international relations. This dissertation examines the presence, impact, and causality of the relationship between intermediate goods trade and interstate conflict and cooperation. It extends the conceptualization of trade interdependence structure focused on flow attributes by introducing the dimension of flow composition. This dimension is based on a typology of commodities that uses centrality, which assesses a commodity’s importance in the global production ecosystem, and substitutability, which evaluates the availability of alternative supplier countries to define the compositional attributes of dependence between states.
The dissertation develops a theoretical framework that addresses the influence and vulnerabilities flow attributes and flow composition jointly produce for interdependent states. Specifically, the study posits that high interdependence involving central intermediate goods increases the likelihood of conflict initiation through the actual or potential use of negative sanctions, while dependence on non-central intermediate goods promotes cooperation through positive sanctions. The substitutability of these goods further influences the magnitude of the counterpart’s response.
The study employs a mixed methods approach to test the argument. A quantitative analysis demonstrates the calculation of the centrality and substitutability indices for intermediate goods with United Nations Comtrade directed dyadic trade data, the categorization of the intermediate goods based on the typology using unsupervised machine learning, and construction of the interdependence scores to examine the relationship between intermediate goods interdependence structure and interstate conflict and cooperation. It also introduces a new measure of interstate conflict and cooperation using Integrated Crisis Early Warning System event data. A regression analysis of all directed dyads between 1995 and 2020 reveals that an increase in dependence that is primarily made of central intermediate goods is positively associated with the increase in the likelihood of conflict, while non-central intermediate goods with cooperation. Additionally, decreased substitutability of the flows is associated with increased outcome magnitudes, whether in conflict or cooperation.
Case studies of the 2019 Japan-South Korea Trade Dispute and the 2010 China-Japan Rare Earth Elements Dispute contextualize the argument. Congruence testing reveals that the structure of dependence incentivized the use of negative sanctions on central intermediate goods which in turn led to deterioration in relations in both cases. Results from interrupted time series analysis suggest that these sanctions intensified tensions beyond pre-existing levels, and findings from counterfactual estimations indicate that the mere threat of economic impact at the time of the dispute was sufficient to exacerbate conflict. In the Japan-South Korea case, the response involved a WTO dispute, widespread boycotts and protests, and threats to scrap a critical security agreement. In the China-Japan case, the reactions included protests and a post-crisis WTO dispute. However, the intensity of the conflict was mitigated by Japan’s effective diversification of suppliers. These cases demonstrate that flow attributes made interdependence a variable in directed dyadic relations and flow composition shaped the nature and outcome of the applied economic statecraft.
