Getting the economic context right: the WWI analogy and contemporary East Asia

ABSTRACT

World War I has become the “go-to” analogy for understanding the contemporary security dynamic in East Asia, especially as it concerns US-China relations and the possibility of war. However, this analogy fails to account for the fundamental changes in economic flows in the current environment, specifically the growth and proliferation of foreign direct investment (FDI). Capital flows were primarily portfolio investments in 1914, while FDI flowed from great powers to secondary, allied states. This is not representative of East Asia today, where FDI flows between possible belligerents in any future conflict and global value chains link states within and across regions. Ultimately, World War I may no longer provide a satisfactory analogy for understanding the impact economic interdependence has on modern war given FDI’s importance in the global economic system.