Naval Power and Effects of Third-Party Trade on Conflict

This study argues that the effect of third-party trade on dyadic conflicts is conditional on the naval power of both the potential conflict initiator and its target state. This conditional effect occurs mainly because naval power allows trade-integrated initiators to reduce their trade dependence on a given trade partner and its allies more easily. At the same time, the target’s naval power increases the costs that conflict inflict on the initiator’s trade. As maritime trade accounts for about 80 percent of world trade volume, naval capability has an important effect on combatant states’ ability to substitute trading partners during a conflict and to mitigate trade-related costs, thereby affecting the relationship between third-party trade and conflict. The findings of our statistical analyses support our theoretical expectation that the pacifying effect of third-party trade diminishes as the initiator’s naval power increases, yet increases as the naval power of the potential target increases.