The increasing geopolitical turmoil in international trade calls for revisiting the longstanding question of whether trades pacify conflicts. Using 64 years of data around a unique natural experiment in the mid-Ming dynasty in China (1368-1432), we show, in a difference-in-differences approach, that when the state re-opened border trades with the nomads under state-monopolized ministries, the famed “Tea-Horse Trades” substantially reduced regional Sino-nomadic conflicts. The pacification effect remains robust after adopting the distances from tea-producing regions and extreme weather as instruments. We also point to the exchange of information during trades as a possible channel behind the reduced conflicts.
Chen Shuo