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Abstract
This project argues that smuggling in commercial goods, a.k.a. grey markets, can prompt cooperation between states locked in an enduring rivalry. Enduring rivalries are protracted conflicts between pairs of states that involve at least six militarized disputes, which are linked and spread over at least two decades. Eighty-six cases are identifiable between 1827 and 2001. Rival states typically impede bilateral trade to avoid negative security externalities. I test my proposition on hard cases: the India-Pakistan and China-Taiwan rivalries. Hard cases are ideal examples of rivalry—longstanding and dispute-prone—and unlikely examples of my argument, where foreign policy is shaped by security preferences, and rarely by commercial ones.
India and Pakistan’s territorial dispute over Kashmir prompted bilateral trade barriers starting in 1947. Though, beginning in 2011, these nuclear-armed rivals began removing trade barriers even while their core dispute is outstanding and salient. This foreign policy shift can be traced to smuggling via Dubai, where Indian and Pakistani firms skirt barriers to each other’s markets. China and Taiwan’s competing territorial claims ruled out bilateral engagement onwards from 1949. In 1987, these rivals began liberalizing cross-Straits commerce although their dispute was outstanding and salient, which can be traced back partially, albeit crucially, to smuggling via Hong Kong. Separately, I construct an original database on trade barriers across the 86 rivalries, with which I identify that liberalized trade co-occurs with fewer and less severe disputes.
My findings pertain to enduring rivalries and to grey markets. First, globalization can alter enduring rivalry, in contravention to extant theory that globalization does not impact these cases. Second, insofar as commerce co-occurs with rivalry de-escalation, scholars should seriously examine economic factors in these cases. Third, grey markets merit attention in the study of world politics, whereby smuggling flows represent a transnational determinant of trade.
