So, what exactly is a customs union and how does it relate to market expansion? Before I explain it mechanically, I would like to define the concept both conceptually and historically so we are all starting with a similar frame of reference. Promise me you will continue reading till the mechanical explanation before you make assumptions based on obscure historical examples? Good, then let's go forth.
A customs union, and I am literally pulling the definition from Wikipedia here folks, is generally understood to be a trade bloc or arrangement among nations. It is most commonly known as a free trade area with a common external tariff, or common external tariff policy. The bonds of a custom union are at the very least economical, they exist for the purposes of increasing trade, economic co-dependence, and mutual benefit that comes from such and can lead to closer political and cultural ties between countries. They do not necessitate a political union though they are certainly seen through history as the stepping stones towards such.
One of the more well known, at least to the Vicky fanbase, is the Zollverein which helped further facilitate the unification of Germany but by no means was the sole deciding factor of that movement. The European Union, it can be argued, started off as merely the European Coal and Steel Community, which was a more restricted definition of a customs union but certainly counts in my eyes. Whether or not the North American Free Trade Agreement counts as a customs union is up for debate. While trade agreements regularly cover similar topics of tariff and economic co-dependence they are usually of a smaller scope and scale. Ultimately the economics of it is tricky, because it involves politics and what defines a union vs an agreement is not always a coherent 1:1 and before I get into explaining all the counterarguments of historical note, let's actually talk about the game some now, shall we?
Customs unions themselves cannot be forced through war but they can be forced as a result of other diplomatic entanglements. Certain subject relationships come with the implicit expectations of joining the shared market of their overlord but they also come with other strings attached. [See Subjects Dev Diary]
What allows a customs union to exist? That is dependent upon the trade policy of the participant nations, not all domestic laws allow for a nation to partake in a customs union (though most will alongside various other trade changes). Trade will be coming with a future dev diary so I will not be going into detail about that here, apologies.
But assuming that two nations both have trade policies that would allow them to do so, that’s all that’s needed to form a custom’s union? Well… no, economic unions of such are not simple agreements to be engaged in and reneged upon on a whim with anyone in particular. They have some more base level requirements.
The two nations (or more specifically the junior partner in question and the senior partner overseeing the market) must have neutral or positive relations to conduct this action. A nation who sees you in an antagonistic light as you are attempting to wipe them off the map isn’t going to give you access to its market willingly. Two nations that are trying to wipe each other off the map can both be junior partners in the same customs union led by another nation, just expect all the market disruption that would come with such chaotic developments if it's your frustration to handle as the overseeing power.
A senior member of a customs union must not be a subject of the junior partner or be a junior partner in another customs union. I'm not sure how the more lowly powers might feel about the matter, but the national prestige of this great power will not be subject to any Bavarian market. They must bow to Lubeck or there is no deal! AI considerations such as the requirements of port connection to facilitate market access, comparative GDP, rank, infamy and other diplomatic considerations are taken into account when accepting or proposing this relationship.
Any trade routes you might have had as a junior partner may be disrupted, you are not barred from trading outright as a junior member of the union but since it's no longer your national market you will have to engage in a few extra steps to take part in such. This is something we will go into more detail within a future dev diary so it will be simple statements at the moment, apologies again.
For internal trade, market access will now be calculated based on infrastructure usage in the recipient state and whether it has a connection to the market capital of the senior member. If you cannot connect the routes by land then ports will need to be staffed and supplied to provide such connections. If you are the senior partner and you’ve found with the addition of new members they are struggling to connect to your market capital, you can always consider shifting the center of your market elsewhere to better accommodate all members.
So what are the benefits of expanding your market by customs union? Why not just gobble up the territory by forcing someone to be your vassal or taking them under your direct authority?
If you were to take the territory, well you might have to do so militarily if the nation is unwilling to come along willingly. If that is the case then it's going to be a national expenditure to mobilize and supply your armed forces, you’re certainly going to take some infamy on the world stage, you might even lose the conflict depending on who gets involved. What if you need to concede part of the market to another nation to assist you - what if it's the resources you really wanted yourself. Even in the winning scenario you end up with a bunch of pops in a devastated landscape, radicalizing and potentially discriminated against in your larger empire - all you wanted was some coal, was that cost worth it? Sometimes it is, sometimes it isn’t.
A benefit of a customs union is that it decreases “relative transportation costs” compared to sticking to trading more manually among markets. You may not need to keep trade routes active though you may still need to utilize convoys for market connections. Instead of moving a more limited amount of goods between two markets you have the sum total of to markets buy orders and sell orders interacting. This may be very welcoming to some as it means less intensive micromanagement of their national economy and allows them to more natural growth of their industries. This also means the potential degradation if not dismissal of your transportation industry that fuels the trade sector of your economy, which also has implications. Which one is more beneficial to you ultimately depends on what you are trying to do, the size of your nation, and what you can afford.
A customs union means both increased goods accessibility and sales accessibility - for example you can trade with Prussia for your much needed coal as Lubeck (as you’ve seen me do in previous AARs) but trade is fickle, subject to changing winds of national priority, diplomatic scuffles, and possibly embargoes. Embedding yourself into the national economy of another gives you more concrete access to those goods and sales potential, but it also means they have access to your national economy with relatively less barriers. In the Lubeck AAR we turned the competitive advantage of our national industry focused on tools and shipping to further turn a profit in the larger Prussian market at the cost of less productive industries. Because we were able to keep the standard of living high and a Prussia devastated by revolt did not look as appealing (as it's never one single factor that determines these things) we profited further both monetarily and through migration.
Let's say you are a multiethnic empire, and some of your pops are a little uppity with the ideas of nationalism and their own independence, thoughts that don’t really sit well with your own as they jeopardize the stability of the empire as a whole. You can discriminate, repress, put in police and security forces to try and keep things under control - but that’s expensive. It's even harder to maintain when there is the homeland state these pops yearn to join on their border. What… What if you brought that neighboring country (through agreement or force) into your custom’s union? Sure your hinterlands may have a population migration to their homeland but you no longer have an insurrectionary problem to deal with. As opposed to them just mass migrating away to another country and/or market, you can have them stay within your economic borders if not exactly your national borders, thus keeping all the production and consumption benefits of the pops with relatively less insurrectionary costs.
Now that is a very cherry-picked example, but ultimately not all migration seen through a customs union is bad - even as a small nation willingly allowing migration of your poorer population within can allow you to refocus your economy (economic policies willing) and potentially attract them back post reform. A custom union allows such plays to be one’s where you don’t have an immediate zero-sum loss and can pull such pops or new ones back to your nation.
And before I digress into every other mechanics I would like to cover the most important “why would I allow myself to be subjected as a minor nation within a customs union, when it's clearly not advantageous to me” scenario. Well it certainly beats the alternative of getting wiped off the map or subjected further doesn’t it? Thinking in a realpolitik sense, if you are a small or middling state and you don't want to have your domestic resources gobbled up by a larger power, but you don’t have a way to protect yourself without submitting to another power, the only way to succeed is to submit partially. Now you could take the diplomatic route and step under the larger power as a suzerain in some way, some of these may necessitate a customs union regardless. They also can necessitate a loss of your diplomatic potential as an independent entity, that might not be a prefered option on your end. Submitting to a customs union willingly might not be the most advantageous of your choices, but tying your economy to theirs might be a way to maintain some distance from an inevitable political union. Potentially you could turn this to your advantage and maintain a separate diplomatic policy because of such integration. In the AAR as Lubeck we submitted to the Prussian customs union because it was a way to guarantee the AI would not easily turn towards us as a means of expansion and hopefully if we tied our economies close enough together they would not seek to interfere in our affairs, lest we bring the institutions to a halt.
And in closing, that’s a smattering of the potential that market expansion through a customs union can have. I could probably no doubt talk on this point further, until release potentially but I sadly have some forum limit or another about how long this post can be. I look forward to hearing your ideas and feedback on this topic in the various channels. Even more, I look forward to seeing how you all take this feature and play with it in the future when the game releases.
And with that I would like to take a moment to address the