Polarity and Free Trade aware that each seeks to exploit the persuade either Britain or the United wealth of others to enhance its own States to guarantee its security,France power.That trade is a means to this end is regarded the retention of the superior also common knowledge:as David Bald- position accorded to it in the treaty as its win observes,private international trade only alternative.Thus,"the sanctity of "is by far the most [cost-Jeffective .. treaties and the strict enforcement of the way for one country to acquire the goods status quo"became the first principles of or services of another"(Baldwin 1985, French foreign policy (Wolfers 1940,19). 116).As a result,states do not calculate Because it viewed any treaty revision as their payoffs from trade only in real in- setting a dangerous precedent,France en- come terms:relative power effects are gaged in a determined effort to compel likely to affect their calculations strongly. Germany to comply with its reparations The interwar period provides a com- obligations. pelling example of the power of the secur- Repeated negotiations on German pay- ity dilemma to contribute to a free trade ments did little to reconcile the underlying deadlock.The acrimony of the interna- conflicts of interests among the great tional economic diplomacy that preceded powers.Neither Britain nor the United the 1933 World Economic Conference States came to appreciate the French sense suggested that the conference would not of acute vulnerability;France never ac- secure a free trade truce.In the early inter- cepted the Anglo-American vision of an war years,the payment of German repar- economically prosperous and politically ations was the subject of repeated negotia- satiated Germany;and Germany never tions.Ostensibly a technical issue whose deviated from its strategy of destroying resolution depended upon expert testi- the Versailles settlement. mony regarding Germany's ability to pay, Thus,the economic diplomacy that the payment of reparations was in reality preceded the 1933 World Economic Con- a highly political issue:the integrity of the ference left a very unpromising legacy:a entire Versailles settlement was at stake pattern of intense conflict over fundamen- (Trachtenberg 1980,122). tal security issues among the great In negotiations that extended from the powers.It is no surprise that conflict Paris Peace Conference of 1919 to the rather than cooperation marked the 1933 Lausanne Conference of 1932,the issue of Conference as well,although factors reparations exposed the political roots of other than historical precedent contrib- international economic diplomacy.Deter- uted to its conspicuous lack of success mined to minimize its involvement in con- (Eichengreen 1988;Oye 1985). tinental politics,Britain insisted that the The interwar example obviously does stabilization of Europe depended on the not imply that political conflicts neces- restoration of financial stability and eco- sarily obstruct the realization of gains nomic prosperity to Germany.It opposed from trade.In theory,these conflicts need the provisions of the Versailles settlement not paralyze states.They can instead be that it believed either inhibited the resolved through the use of a two-step economic recovery of,or contributed to process in which states initially dismantle financial instability in,Germany (Schuker trade barriers between them;subsequent- 1976,384).As a result,Britain was sym- ly,each adjusts its defense strategy to ac- pathetic to German demands for a reduc- commodate any changes in the balance of tion in reparations. power that occur as trade barriers fall France,however,was reluctant to en- The danger that a window of vulnerabil- dorse any revision of the Versailles settle- ity may open between stages,however,is ment favorable to Germany.Unable to a powerful deterrent to this approach:the 1247Polarity and Free Trade aware that each seeks to exploit the wealth of others to enhance its own power. That trade is a means to this end is also common knowledge: as David Bald￾win observes, private international trade "is by far the most [cost-]effective . . . way for one country to acquire the goods or services of another" (Baldwin 1985, 116). As a result, states do not calculate their payoffs from trade only in real in￾come terms: relative power effects are likely to affect their calculations strongly. The interwar period provides a com￾pelling example of the power of the secur￾ity dilemma to contribute to a free trade deadlock. The acrimony of the interna￾tional economic diplomacy that preceded the 1933 World Economic Conference suggested that the conference would not secure a free trade truce. In the early inter￾war years, the payment of German repar￾ations was the subject of repeated negotia￾tions. Ostensibly a technical issue whose resolution depended upon expert testi￾mony regarding Germany's ability to pay, the payment of reparations was in reality a highly political issue: the integrity of the entire Versailles settlement was at stake (Trachtenberg 1980, 122). In negotiations that extended from the Paris Peace Conference of 1919 to the Lausanne Conference of 1932, the issue of reparations exposed the political roots of international economic diplomacy. Deter￾mined to minimize its involvement in can￾tinental politics, Britain insisted that the stabilization of Europe depended on the restoration of financial stability and eco￾nomic prosperity to Germany. It opposed the provisions of the Versailles settlement that it believed either inhibited the economic recovery of, or contributed to financial instability in, Germany (Schuker 1976, 384). As a result, Britain was syrn￾pathetic to German demands for a reduc￾tion in reparations. France, however, was reluctant to en￾dorse any revision of the Versailles settle￾ment favorable to Germany. Unable to persuade either Britain or the United States to guarantee its security, France regarded the retention of the superior position accorded to it in the treaty as its only alternative. Thus, "the sanctity of treaties and the strict enforcement of the status quo" became the first principles of French foreign policy (Wolfers 1940, 19). Because it viewed any treaty revision as setting a dangerous precedent, France en￾gaged in a determined effort to compel Germany to comply with its reparations obligations. Repeated negotiations on German pay￾ments did little to reconcile the underlying conflicts of interests among the great powers. Neither Britain nor the United States came to appreciate the French sense of acute vulnerability; France never ac￾cepted the Anglo-American vision of an economically prosperous and politically satiated Germany; and Germany never deviated from its strategy of destroying the Versailles settlement. Thus, the economic diplomacy that preceded the 1933 World Economic Con￾ference left a very unpromising legacy: a pattern of intense conflict over fundamen￾tal security issues among the great powers. It is no surprise that conflict rather than cooperation marked the 1933 Conference as well, although factors other than historical precedent contrib￾uted to its conspicuous lack of success (Eichengreen 1988; Oye 1985). The interwar example obviously does not imply that political conflicts neces￾sarily obstruct the realization of gains from trade. In theory, these conflicts need not paralyze states. They can instead be resolved through the use of a two-step process in which states initially dismantle trade barriers between them; subsequent￾ly, each adjusts its defense strategy to ac￾commodate any changes in the balance of power that occur as trade barriers fall. The danger that a window of vulnerabil￾ity may open between stages, however, is a powerful deterrent to this approach: the