Wartime Commercial Policy and Trade between Enemies

Abstract Why do states trade with their enemies during war? States make deliberate choices when setting their wartime commercial policies, and tailoring policies to match the type of war the states are expecting to fight. Specifically, states seek to balance two goals–maximizing revenue from continued trade during the war and minimizing the ability of the opponent to benefit militarily from trade. As a result, states trade with the enemy in (1) products that their opponents take a long time to convert into military capability, and (2) products that are essential to the domestic economy. Furthermore, states revise their wartime commercial policies based on how well they are doing on the battlefield. An analysis of British wartime commercial policy in World War I finds that a product's conversion time into military capabilities determines if and when that product will be prohibited from trade during the war. Alternatively, domestic political pressures play only a marginal role in wartime commercial policy decisions.