Business as usual? Economic responses to political tensions

Christina L. Davis, Sophie Meunier

Research output: Contribution to journalArticlepeer-review

111 Scopus citations

Abstract

Do political tensions harm economic relations? Theories claim that trade prevents war and political relations motivate trade, but less is known about whether smaller shifts in political relations impact economic exchange. Looking at two major economies, we show that negative events have not hurt U.S. or Japanese trade or investment flows. We then examine specific incidents of tensions in U.S.-French and Sino-Japanese relations over the past decade-two case pairs that allow us to compare varying levels of political tension given high existing economic interdependence and different alliance relations. Aggregate economic flows and high salience sectors like wine and autos are unaffected by the deterioration of political relations. In an era of globalization, actors lack incentives to link political and economic relations. We argue that sunk costs in existing trade and investment make governments, firms, and consumers unlikely to change their behavior in response to political disputes.

Original languageEnglish (US)
Pages (from-to)628-646
Number of pages19
JournalAmerican Journal of Political Science
Volume55
Issue number3
DOIs
StatePublished - Jul 2011

All Science Journal Classification (ASJC) codes

  • Sociology and Political Science
  • Political Science and International Relations

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