Free trade for a safer world - Part 1
The shortcomings of military deterrence
By Sahil Shah, Co-founder of the Global Stability Network.
This is the first in a two-part series examining the role of economic deterrence in stabilising great power relations.
Part 1, below, outlines the current global geopolitical context and the limitations of the efficacy of military deterrence.
Part 2 will outline the potential role of economic deterrence in achieving strategic stability.
We currently face two major regional wars, multiple civil wars, and worsening great power relations, at a time when global coordination is at its most important, given challenges around AI, climate change, future pandemics and the proliferation of technologies that facilitate mass destruction. Decoupling and protectionism have recently seen increasing support in the West, emphasising self-sufficiency over interdependence. Libertarian arguments for free trade have largely been ineffective, with foreign policy hawks insisting that decoupling (or, in later endorsements, “derisking”) is needed for security.
Since the wars in Ukraine and the Middle East broke out, western leaders have doubled down on the importance of military deterrence, despite its risks and imitations. However, military deterrence has limitations. Military, and especially nuclear deterrence, are particularly risky and the consequences of failure catastrophic. In an increasingly fragile world, it is important to critically evaluate and explore alternatives.
While the humanitarian, economic, environmental, reputational, social and political costs of war for a nation's population can be severe, the impacts on a leader’s or inner circle’s direct interests can be more limited. Military action alone also may not pose direct security or economic threats to a leader, and evidence shows its lack of effectiveness in achieving regime change, especially for nuclear armed states.
Context
The current global security architecture isn’t working. We have major regional wars in Europe and the Middle East. Senior officials in the Anglosphere speak about conflict with China as if it is a matter of when, not if, and preparations for military confrontation alongside allies in Asia and Australia are accelerating. Politicians also make headlines by bringing forward timelines for when we must be ready for direct conflict with Russia, or that we are already at war. The “trend” in security circles is to urge national leaders toward strategic autonomy and independence, weakening foreign states’ ability to influence domestic affairs, and there is a growing cross-party consensus in the US and Europe about decoupling with China (now often labelled as de-risking).
“Decoupling reduces the economic costs associated with choosing confrontation and conflict, potentially weakens our ability to exercise economic deterrence, and thereby increases, rather than reduces stability.”
The doomsday clock is closer than it ever has been to midnight, and the widespread adoption of a Cold War mentality degrades the capacity for global cooperation essential to tackling climate action, pandemic preparedness, AI governance, and other global challenges.
An alarmingly high number of flashpoints are multiplying which could trigger a major global conflict. Regional wars, potentially triggered by climate-related dynamics such as water shortages or migration, threaten to balloon into proxy wars and draw their patrons into direct clashes. AI-enhanced mis/disinformation and false flags exacerbate tensions and existing conflicts, and a shift towards autocracy in democracies could lower the thresholds for conflict.
As diplomacy weakens, there is an ever-larger burden placed upon military deterrence, predicated on a firm belief that it will continue to work, even whilst it frays and conflicts break out, such as conflicts in Ukraine and the Middle East. This is a policy position made with little democratic input, and one that has not been robustly and critically evaluated for its effectiveness.
This piece seeks to introduce a new paradigm that shifts the burden onto economic deterrence as an alternative or complement to military deterrence, and explores its ability to contribute to strategic stability. Sanctions have traditionally been imposed and evaluated in a narrow sense, focused on how effectively they inflict damage as punishment or a means to slow down a war machine. In other words, the focus has been on the impact they have after they’ve been put in place. This paper will instead outline an economic statecraft toolkit that involves the threat of targeted economic sanctions that can then be used as a deterrent.
The role of deterrence in international stability
Deterrence traditionally is broken up into two kinds. Deterrence by denial (defensive), involving attempts to reduce the benefits an adversary might expect from aggression, contrasted with deterrence by punishment (offensive), postures that threaten additional costs. The NATO definition of deterrence identifies three elements needed to deliver effective deterrence: capability (the threat can be carried out), credibility (there is a non-negligible probability of the action being taken) and clear communication. Deterrence is one of the tools states believe they can use to discourage rogue or powerful actors from deviating from international norms.
Classical deterrence is inherently psychological in its roots, and relies upon a paradigm of rationality and the assumption that leaders maximise perceived welfare for their states. It is a form of communication - a threat intended to be read by the opponent in such a way as to change their calculations and persuade them against an action they would otherwise choose. It assumes that the opponent makes some kind of rational choice weighing costs and benefits according to their preferences.
However, the field of behavioural economics has moved a long way away from the assumption of economic rationality, with a robust evidence base that human decision-making is highly emotional. Behaviour is influenced by biases that distort decision-making, but also by human intuitions heavily influenced by cultural, evolutionary and emotional factors. This introduces a variety of complexities and uncertainties to deterrence calculations.
Evaluating military deterrence
The nation state
Military deterrence typically threatens violent retaliation on nation states, as opposed to heads of state or military leaders.
To understand the effectiveness of military deterrence, let us examine each of the costs war might inflict and try to gauge how likely each might be to successfully deter a leader. These costs include humanitarian, economic, reputational, environmental, social and political costs.
Humanitarian impacts:
There is scant evidence that humanitarian impacts of war have significant influence upon military decisions that leaders take in times of conflict, and good evidence to suggest that other factors, such as the vulnerability of their military capabilities, the prospects of victory and their grip on power, have far greater influence. The war in Ukraine, where Russian casualties have been estimated to be between 462,000 and 728,000 is a prime example, but history is littered with other examples, from the Great African War, the current war in Sudan, the Vietnam war, the Iran-Iraq war, and even the Eritrean-Ethiopian war. In each of these instances, there is a lack of evidence to suggest that large numbers of civilian casualties changed military decisions. Assuming that a leader is motivated by the wellbeing of his or her own population, especially when considering a crony capitalist or oligarchic state, is liable to lead to strategic errors in deterrence calculations and models.
Economic contraction:
The evidence of the economic impacts of war itself is mixed, however short term costs for large states are sometimes limited. In the shift to a war economy, GDP often experiences a short term boost with the increase in government spending, whilst the fall in GDP growth rate due to a drop in civil investment often takes time to emerge. This can be seen in the current conflict between Russia and Ukraine. Despite the transfer of investment from the civil economy, the largest imposition of sanctions the world has seen, and the collapse of Foreign Direct Investment, Russian GDP loss has so far been limited. The long term impact of wartime debt is significant, but this is only felt by future administrations and generations. For large economies, conflicts are unlikely to create immediate significant recessions. Economic impacts themselves may have little impact on the leadership, if state survival is the focus; however, if contraction contributes to civil unrest or other political pressure leaders may change course.
Reputational impacts:
Assessing the reputational impacts of choosing to engage in war is nebulous and complex. We can identify three key perspectives that would influence the reaction of states not directly involved in the conflict. States may react based on their subjective value or ideological system; they may focus on their own direct interests; or they may view conflicts through an allies-and-adversaries lens.
A mercantilist, self-interested perspective would tend to dampen any political reaction and prevent shifts in trade patterns. India’s continued extensive trade in oil and arms with Russia after the invasion of Ukraine is a case in point. From this perspective, third parties would only care as much as the conflict directly impacts them, potentially through global commodity markets, inflation and supply chains.
A second perspective sees conflict simply through the lens of allies and adversaries. It is common practice for states to support, or at least refrain from criticising, military action from others within their bloc and to condemn military action from states in opposing blocs who may be considered adversaries. This behaviour is often seen by those outside the relationships as reprehensible as it can undermine the rule of law and the ability of the international community to establish mutual rules that restrain aggressive action without exception or prejudice.
A third perspective would be one based on ideological, religious or subjective value systems. This could be theocratic such as Islamic republics and Israel, or based on other values, such as ‘maintaining sovereignty’ or ‘upholding democracy’.
Moreover, with states competing for spheres of influence, information has become its own domain of conflict and reputation management. The breadth of Russian influence operations has been well documented, particularly across Sub-Saharan Africa. Equally noteworthy are US influence operations in Malaysia relating to the Chinese COVID-19 vaccine. Information environments where AI-generated content can be highly tailored, disseminated and amplified are increasingly battlegrounds of competing narratives, leveraging preexisting beliefs, values, prejudices and even outrages. The ability to warp the truth and flood information environments makes it harder for balanced, impartial views of conflict to emerge, and this creates additional uncertainties in predicting any subsequent reputational impacts.
Environmental impacts:
The damage to natural capital (environmental impacts) of war tends to be localised and largely incurred by the country hosting the conflict, so there is little notable deterrent potential for an aggressor as impacts are mainly felt by the country being invaded. There may be certain transboundary resources, e.g. if a lake across borders is polluted, or if a nuclear power plant is damaged that may have downwind radiation impacts. Environmental impacts alone are unlikely to present significant deterrent effects for leaders contemplating war but may affect tactical decisions taken within conflicts, especially if relating to natural resource governance or control.
Social and political impacts:
Potential isolationism, conscription, terrorism and counter attacks are all possible in response to an aggressive attack on another state. This could include visa bans, ostracisation from other countries/publics and a potential increase in domestic polarisation if fault lines are created between those who support and oppose the conflict. Leaderships and their inner circles can often be isolated from these impacts.
The leadership
It is crucial to understand the motivations of the adversary’s leadership when considering effective deterrence strategies. In authoritarian, and sometimes democratic, states, there is evidence that many leaders are self interested or focused principally on retaining their positions and exerting influence. This is evident in the estimations of wealth and spending patterns of leaders ranging from Jose Eduardo dos Santos, to Suharto and Ferdinand Marcos. Furthermore, there is evidence of a correlation between autocracy and corruption. If this is the case, then signalling credible threats of smart sanctions or other costs imposed on the individual state leader and their inner circle could be more effective than those imposed on the wider nation state, measures that often backfire and strengthen the legitimacy of resistance.
Military conflict can threaten the loss of power and regime change if a state were to be weakened or to lose.This is far less likely for states with nuclear weapons, states that may end up using them rather than face defeat.
Other concerns to leadership include the following:
Remaining in power. The postponement of elections, the repression of opposition and the abolition of term limits are common leadership acts to remain in power, especially when a state is under threat or in a conflict. Leadership/regime displacement is not only a loss of power, it can threaten the lives, wealth and legacies of the leadership and their inner circles. Credible threats to the stability or power of a leadership may thus function as an effective deterrent.
Their own safety and security. Assassination risks, both from domestic and foreign actors are of high concern to leaders. However, their security arrangements can make this exceptionally difficult. They are exceptionally challenging military targets. President Zelensky has said there have been dozens of unsuccessful assassination attempts against him. Moreover, failed assassination attempts can strengthen support for the leadership, and if carried out by a foreign actor, can increase domestic support to engage in a conflict. Assassination may cross ethical lines, harming the reputation of those states that engage in it, and opening their own leadership up to reprisals. It also harms the prospect for negotiations essential to managing confrontations, triggers chaos and can escalate and extend the life of conflicts.
The safety and security of their family/inner circle. Again, the concerns and security arrangement preventing credible threats to these goods are likely to be similar here. Moreover, if successful, and carried out by an external actor, an attack on a leader’s family or inner circle could be seen as an escalation or provocation and may make conflict more likely or intense.
The protection of their wealth/assets. Leaders are often habituated to lives of largesse and can view wealth and power interchangeably. Threats to reduce their individual economic power may therefore have persuasive influence.
Autonomy and freedom. Threats to limit freedom of movement, such as through arrest warrants by the ICC for war crimes, may offer a deterrent effect. However, there is scant literature on this effect.
Legacy/reputation. Politicians are known for caring about their legacy. Actions that damage their reputation, especially amongst their own citizens or in-groups they care about, may influence their behaviour. Understanding the concerns of target audiences is critical when attempting to undermine support for a regime through informational campaigns.
“Quite possibly the most effective form of deterrence is that which credibly weakens a leadership's power or stability, or threatens regime change. Military conflict rarely achieves this.”
Evaluating the impacts of military deterrence on leaders
The leaders of large nation states tend personally to be isolated from the direct effects of interstate conflict, far away from the frontline and with personal security.
War drives actions to strengthen national unity, can sometimes facilitate corruption and the consolidation of power, and even enable a leader to enact martial law. Leaders are often able to delay elections, block legal action or other challenges to their position, alongside other authoritarian actions. War is unlikely to negatively impact a leader's wealth directly unless through targeted sanctions.
Efforts to exclude leaderships from international political and cultural events can have influence, the most salient recent example being the isolation of apartheid South Africa. However, they can just as easily lead to the creation of bloc politics, pushing adversary states into deeper confrontation.
Moreover, state propaganda in controlled media environments can position a political leader as a war hero, enhancing their reputation and legacy. War creates a common enemy, creating a useful distraction to a civilian population who may otherwise have domestic grievances to prioritise.
If the most effective forms of deterrence are those that credibly threaten a leader’s grip on power, and if military action or its threat actually ends up strengthening it, then it stands to reason that military deterrence can be a suboptimal option.
The relationship between conflict and regime change
Military deterrence may be considered effective if there is a perceived high likelihood that interstate conflict leads to leadership displacement and regime change. There is some evidence in some cases where foreign intervention and conflict has led to regime change particularly in cases of overwhelming defeat, notably in Iraq and Libya in the early 21st century. A large dataset from Alexander B Downes records 120 leaders having been forcibly removed through foreign-driven regime change in the last two centuries (1816-2011). However, the dataset suggests that regime change imposed by military intervention has several major downsides; in particular that it often then leads to an insurgency, and is frequently unsuccessful in achieving lasting and favourable regime change. The positive outcomes in Germany, Austria and Japan after World War Two are the exceptions that stand out. Furthermore the dissonance between the objectives of the domestic population and the foreign regime generates regime instability that often bleeds into neighbouring countries, such as the Syrian civil war spilling over into Lebanon and Turkey.
Information warfare can also trigger regime change. Regime change in Serbia (2000), Kyrgyzstan and Uzbekistan (both 2005) and the Colour revolutions more broadly are seen as partially caused by Western influence operations. Information warfare more recently has seen More recently, calls for Russian intervention in the coup in Burkina Faso are interpreted as information warfare, and it is thought to have played a role in the outcome of the US 2016 elections and the recent Slovakian and Romanian elections. Influence operations tend to be seen as less pernicious than kinetic combat, and play a significant role in the proposed structure of economic deterrence. The target leaderships and their population need to be exposed to the deterrence message, and credibly persuaded that the outcomes of aggressive actions will lead to worse outcomes for them.
There are no instances so far in which a hot conflict directly led to regime change in a nuclear state. There is evidence to suggest that the Soviet-Afghan war contributed to the end of the Soviet Union, but there is a general consensus that economic factors and domestic dissent played a significantly greater role.
Ronald Reagan and Mikhail Gorbachev famously said in 1985 that a nuclear war can never be won and should never be fought, a formulation repeated by the five nuclear weapon states a month before Russia invaded Ukraine in 2022. This is often assumed to mean that direct war between two nuclear powers must be avoided at all costs because there are no clear ways of containing a hot war between nuclear weapon states. Regime change through military action can generally only be achieved through combat victory, which may not be possible between nuclear armed states.
It is clear that there is no strong consistent causal link between conflict and leadership displacement / regime change, and further to this, even when conflict has led to regime change, there is insufficient evidence to suggest that it is likely to lead to a more favourable regime.
All in all, the evidence throws doubt on the claim that military deterrence can impose sufficient incentives to deter military action. This is especially the case for great power conflict in the modern age, where there is great scepticism that a conventional conflict against a great power could be won definitively without the war escalating to a nuclear one, which neither side could be said to have won. Military deterrence and nuclear deterrence in particular would have to be more effective than other methods such as economic deterrence, due to the exceptionally large humanitarian costs if they fail.
Part 2 will outline the potential role of economic deterrence in achieving strategic stability between Great Powers.