Trading with other countries only prevents war up to a point; once you trade too much, conflict actually becomes more likely.
March 19, 2026
Original Paper
The Interdependence Dilemma Global Value Chains, Hold-Up Vulnerabilities, and the Fragility of Commercial Peace
SSRN · 6438723
The Takeaway
This challenges the long-held 'Commercial Peace' theory by showing that hyper-specialization in global value chains creates 'hold-up vulnerabilities.' When dependency becomes too asymmetric, the less-dependent nation is incentivized to use military force to exploit those vulnerabilities rather than preserving the trade relationship.
From the abstract
We develop a two-country model to examine when deeper global value chains deter conflict and when they amplify it. Firms undertake relationship-specific investments that raise productivity but create hold-up vulnerabilities: the less-dependent party extracts informational rents that flow into government revenues. Governments anticipate these rents when choosing military capacity and responding to geopolitical shocks. We find a fundamental non-monotonicity: moderate integration strengthens the li