When a “trade war” is a war
Published 07 December 2017
We often talk about trade wars but in the era of a rules-based trading system the phrase typically refers to the use of tariffs or import restrictions to inflict economic harm. It was not always so.
We often talk about “trade wars,” but in the era of a rules-based trading system the phrase typically refers to the use of tariffs or import restrictions to inflict economic harm. It was not always so.
Before the General Agreement on Tariffs and Trade (known as GATT) and its design for the peaceful settlement of commercial disputes, the use of military power in international economics was commonplace. Let’s look at a forgotten war and its peace treaty and look for parallels in today’s trading system.
Spices by Land and Sea
The spice trade is a pure example of international exchange: a product is prized in one country, but the plants that produce it grow somewhere else. During the middle ages, most spices (along with dyes, perfumes, and other precious commodities) traveled over land from Asia to Europe. Yet in 1453, the Ottoman Sultan Mehmed II launched a siege of Constantinople (now Istanbul) and blocked Europeans from accessing the traditional trade routes. This act triggered a scramble for sea routes, catalyzing Europe’s “Age of Exploration.” Christopher Columbus may have bumped into a Caribbean island in 1492, but it was Vasco da Gama’s 1497 voyage around the Cape of Good Hope to reach India that revolutionized the spice trade. Portugal began as the trader with a dominant position, but by the early 17th Century both the Dutch and British were deeply engaged in seaborne trade and commerce in what we now call East Asia.
State-owned Enterprises Fight Over Nutmeg
The expansion of trade and investment was channeled through “state-owned enterprises,” famously the VOC, or Dutch East India Company, followed by the British and their East India Company (EIC). Some explorers “played for both teams.” Englishman Henry Hudson found Long Island and sailed up what is now the Hudson River on a voyage sponsored by the VOC. Meanwhile, the struggle for control of the spice trade in Asia had turned violent, with the fight over nutmeg at center stage.
Through the VOC, the Dutch attempted to achieve a monopoly on nutmeg sourced from the volcanic soils of the Banda Islands. Much to their consternation, the British had gained control of Pulau Run, one of the smallest of those islands. Back in Europe, a 1619 cooperation agreement had been signed by VOC and EIC. Despite some words on paper at headquarters, a VOC Commander in the islands staged an invasion of Run (which the British had left undefended) and burned all the nutmeg trees. Skirmishes in the spice islands became an extension of fighting back home between the British and Dutch, which spilled into North America where the British fleet took control of Dutch-held Manhattan in 1664. By 1666, the Dutch had taken control of Run to consolidate nutmeg production.
The Treaty of Breda: a City for a Spice
Wars, even small ones, are complicated, and the Second Anglo-Dutch War (1665-1667) is no exception. But it’s fascinating how big a role trade played in the drama, including its conclusion at Breda in 1667. The peace treaty led to a change to the English Navigation Acts in favor of the Dutch, allowing Dutch ships to carry to England goods that had come down the Rhine River. Several Dutch trading principles were accepted by Britain, including confining the definition of “contraband” to implements of war. While the English failed to take over part of the spice trade, they received New Netherland (New York and New Jersey) from the Dutch in the settlement. Thus, Manhattan changed its name and the Dutch left North America for the “Far East.”
The GATT Revolution: Trade Wars Now Seldom Become Shooting Wars
While it’s easy to caricature history, we are not so far removed from “gunboat diplomacy” and dispute resolution through military power instead of mutually-agreed rules. The GATT at 70 has its share of critics, but we should celebrate the advances it represents—not the least of which is that trade wars seldom become shooting wars.
Read more on the fight over nutmeg:
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