The Politics of Economic Exchange: Carrots and Sticks in Taiwan-China-U.S. Relations

Abstract

This paper is motivated by three ideas. First, analyses of interstate relations have over-emphasized the role of hard power (especially military capabilities) to the relative neglect of soft power (including the important role played by economic statecraft). Second, these analyses have privileged the role of the state while not giving civil society (in the case of this paper business interests) sufficient attention. Evolving relations between the state and civil society influence the feasibility and success of economic statecraft. And third, economic carrots and sticks are two sides of the same coin, and their effects are in part contingent on the alignment of domestic interests and influence. I pursue these ideas in the context of Taiwan-China-US. economic relations, offering general heuristics and selective reference to the pertinent literature. After a short introduction, the discussion proceeds to treat (1) the double-edged nature of economic intercourse, (2) relative bargaining power (3) vulnerability to economic holdup, (4) cross-border signaling, and (5) evolving domestic interests and influence. The paper`s conclusion returns to the thesis that carrots and sticks are two sides of the same coin when states engage in economic exchanges.