Economic Interdependence and the Development of Cross-Strait Relations

Abstract

By measuring the extent to which improved economic relations between China and Taiwan has led to improved political relations, this project uses the case of cross-Strait relations to test the idea that economic interdependence encourages peace. Trade ties and indicators of political relations measure the extent to which economic interdependence can encourage peace and work toward conflict resolution in an inherently conflictual relationship. Economic interdependence expands contacts between states, encourages the building of cooperative institutions, and introduces new incentives for peace over conflict. This paper argues that economic interdependence is not sufficient to resolve political conflict, but it builds an environment conducive to improved political relations and easing of tensions. These improvements are not high-level, political, diplomatic ties but rather the building of lower level political and societal exchange. Trade relations have grown between China and Taiwan from 2003 and 2011, and this economic interdependence is correlated with expanded interaction in tourism, transportation, political dialogue and cultural exchange. These effects allow for greater mutual understanding and contact, which create a reciprocal effect by contributing to increased economic interaction. While progress in cross-Strait relations is constrained by the internal politics of both China and Taiwan at any moment, the United States plays an important role in reinforcing the positive effects of economic interdependence.