US-China-Japan: Beware the ‘Megarian Trap’

Classical antiquity offers a lesson in the perils of economic warfare.

 “That decision may be judged irrational or merely a miscalculation of likely consequences, but it is like many similar ones throughout history in which passion inspired by old hatreds and wounded honor are the cause of dangerous actions.”

Donald Kagan

As the United States and China continue to play geopolitical chess in Asia, forming or renewing economic political and military alliances, it is pleasing to note that leading scholars in international relations from both East and West have once more turned their attention to Thucydides, the 5th century Athenian historian. More than two millennia old, Thucydides’ work has nonetheless become a center of vigorous debate among American and Chinese strategists alike, with the Chinese political science association dedicating a panel to it at its annual 2014 conference in Beijing. Whereas scholars and generals once looked to the Peloponnesian War to understand the conflict between U.S. naval power vs. Soviet land power, today they study it in hopes of neutralizing the rising security competition between a status quo power, the United States, and a rising/recovering power, the Peoples Republic of China.

But for all the interest in the study of classical antiquity, one area that has not received as much attention as it might is the comparison between the Athenian and Chinese ability to coerce an adversary through economic clout. Like Classical Athens, China today has repeatedly used its economic muscle to coerce states bold enough to confront it. The most recent case is the boycotting of Japanese brands. Four years ago the embargo on rare earths almost strangled the technology-intensive and export-dependent Japanese economy. And now latest reports highlight the downward trend in Japanese investments in China, suggesting the technologically hungry Chinese economy may be about to pay a similar price.

Even assuming that China is right to confront its neighbors’ claims of sovereignty over disputed territory, commercial retaliation is not an effective strategy. Embargos can produce a slow and very painful economic death, and embitter the citizens who must suffer the consequences, who may therefore view it as highly confrontational and warlike. The result could be lasting ill-will towards the state that initiated the embargo and polarized public opinion for many years to come. That in turn could have dire consequences for regional peace and stability.

The Megarian Degree

One of the decisions that polarized the Athenian assembly, in a critical moment for the preservation of peace, was the initiation of what is known to be the first official economic embargo in history. According to Thucydides, withdrawing this act of economic warfare by Athens against her neighboring city-state of Megara was the only condition that the Spartans put to the Athenians on the eve of the Peloponnesian war, offering peace in return.

Megara was a strategically located city-state, important to both Athens and Sparta. It lay between Corinth and Athens at the bottleneck pass from the Peloponnese to Attica. Access to Attica by land was hence possible only with the consent of the Megarians. Early on, Megara was embroiled in land disputes with Corinth. Although both states were members of the Peloponnesian League, Megara defected and instead sought the support of Athens, which grabbed the opportunity to intervene. This became one of the factors that led to the First Peloponnesian War.

Athens imposed a democratic regime on Megara that prevented the Spartans and their Peloponnesian allies from accessing Attic land. However, a well-executed Spartan covert operation with the support of dissident Megarian oligarchics massacred the Athenian guard and ultimately turned Megara into an oligarchic state. The Peloponnesian army invaded Attica, but the invasion was unexpectedly cut short. A “Thirty-Years Peace” treaty was ultimately signed, which returned Megara to the Peloponnesian League. Their Athenians were left embittered by the massacre of their guard at Megara and the perceived disrespect of the Megarians.

Subsequently, on the pretext of land disputes with Megara and under the leadership of Pericles, the Athenian ecclesia voted for a “Megarian Degree.” Among other things, the degree was designed to intimidate Megara and other city-states that may have wanted to support Corinth in its campaign against Athens after the events of Corcyra. The degree would ban any Megarian commercial ship from using ports controlled by Athens or its allies. Megarian products were blocked from Athens’ marketplaces. At the time, the Athenian empire extended from Magna Graecia (South Italy) to the Ionian, the Aegean and up to the Black Sea. Athens controlled many strategic ports that other city-states needed for their trade routes in the Mediterranean Sea. Consequently, the economic embargo devastated Megara, which was heavily dependent on trade in agricultural products and pottery. Hardest hit were the oligarchic elites of the city, who controlled much of the commerce.

Sparta’s Reaction

Renowned Yale historian Donald Kagan cites a comedy written in 425 by the great comedian Aristophanes, which is revealing as to the significance of the embargo in the outbreak of the (second) Peloponnesian War. Aristophanes has his comic hero Dicaepolis (which in Greek means fair city) say:

“Pericles in his fury enacted laws that sounded like drinking songs; That the Megarians must leave our lands, our market, our sea and our continent. Then, when the Megarians were slowly starving, they begged the Spartans to get the law of the three harlots withdrawn. We refused, though they asked us often. And from that came the clash of shields.” 

Although as Kagan notes this is probably comical exaggeration and a direct attack on Pericles, the leader of Athens, the adverse effects of the embargo remained crucial to persuading the Spartans to go to war, for it highlighted Athens’ asymmetric warfare capabilities and threatened the status quo of Sparta’s alliance in the Peloponnese. While initially the Spartans voted for unconditional war with rising Athens, they eventually backtracked and elected to sent envoys instead, bearing a single demand: “They proclaimed publicly and in the clearest language that there would be no war if the Athenians withdrew the Megarian Decree.”

At the ecclesia – Athens’ marketplace of ideas – Pericles persuaded his fellow citizens to rebuff the Spartan demand on the grounds that Athens was an independent, sovereign city-state. He further argued that under the Thirty-Years Peace treaty, any dispute should be resolved by binding arbitration. Pericles observed that if Athens appeased Sparta under the threat of war then future demands were sure to follow and thus Athens would not be an autonomous city-state but a Spartan protectorate. War ensued.

Japan-China and the Embargo

“Despite the fact that China has become Japan’s largest partner in trade and direct foreign investment, the animosity among nationalists in the two countries is growing and both governments are playing with fire.”

The Wall Street Journal

If current forecasts are to be believed, China is expected to become the biggest economy in the world sometime in the next decade. By 2030, some economists believe, China could be 1.5 times the size of the U.S. economy and more than four times larger than the Japanese economy. According to the gravity model in trade economics, commercial exchange between two countries is dependent on their relative GDPs and the relative distance between them. This means that during peacetime, Japan and China could be expected to be each other’s largest trading partner. Even in 2012, when China’s GDP was still only about half as big again as that of Japan’s, bilateral trade was worth nearly $350 billion per annum. Given the likely widening of their relative GDP gaps to China’s benefit, Japan’s economy will be more dependent on China’s than vice versa. This creates the conditions for a “Megarian trap”; that is, China will have the ability – and thus the temptation – to wreak havoc on the Japanese economy with an economic embargo. Recent history has shown that this could either be a state policy (rare earths) or a public opinion overreaction to bilateral sea disputes (the boycotts in 2012). Already Chinese officials have warned Japan in clear language of a potential third lost decade of economic development.

If China does attempt to coerce Japan economically, Tokyo may well find itself with no alternative but to ask for Washington’s direct intervention. To the disappointment of liberal internationalists, WTO and multilateral organizations would not be able to dissuade China. Moreover, WTO’s dispute settlement mechanism would probably be too slow to alleviate the damage to the Japanese economy. (In the rare earth case it took four years.) The argument Tokyo would present to Washington would be powerful and rational: China, the Japanese side would argue, is breaking norms of the liberal global order that are vital for worldwide economic stability and thus threatens not only Japan’s prosperity but also America’s economic security. The United States would have no choice but to directly intervene and prevail on China to show responsibility and drop any trade embargo or take the necessary steps to protect Japanese investments in China. This would put China in Athens’ position. Would Beijing accept Washington’s lecturing or would it, like Athens, tell Tokyo it must take the case to arbitration (at the WTO)? That is not an easy question to answer, given the likely Chinese public anger at both Japan and the U.S., and the difficulty the authorities would have taming nationalistic resentment. As Thucydides’ history shows, economic embargoes can be seen as an act of war. With its long tradition of commerce with Asia, and in the interests of peace, China would be advised to abstain from using economic coercion to resolve its disputes with Japan.

The triangular relationship among the U.S., China and Japan is the defining dynamic for peace in our time. Certainly, the U.S. must be prepared to live with a rising China. As the scholar Robert Scalapino puts it, the U.S. should deal with problems patiently and with strategic maturity. For its part, China should not let “old hatreds and insults” interrupt its recovery and should stay committed to its commercial engagement with the world. In the question of potestas vs. auctoritas, China should choose the latter and lead by attraction rather than coercion. In that sense, Beijing should solve issues with Japan through arbitration before things reach the nationalistic “street” in Tokyo or Beijing and get out of hand. The treatment of the recent delegation of Japanese businessmen in Beijing could perhaps be seen as a positive first step.

The travails of antiquity offer insights into the strategic maturity that great powers need to resolve disputes peacefully. Great powers should deploy economic warfare with caution, lest it lead to a Megarian trap and another great power conflict – cool, cold or hot. Such an outcome would be catastrophic and must be avoided by all costs. Thucydides warned us that his work was written not “to capture the applause of the moment but to be instead a possession for ever” (ktema es aei) as human nature remains a constant. It would be worth thinking twice before ignoring a warning from the father of political historiography and realpolitik.

Vasilis Trigkas is a research assistant in Sino-EU affairs at the Chairman of Tsinghua University’s Social Sciences department. He is a Non-Resident WSD Handa fellow for the Pacific Forum CSIS, a global shaper for the World Economic Forum and researcher at the ThinkinChina.asia community in Beijing.