In 1876, the United States signed a trade agreement with the Kingdom of Hawaii which eliminated high U.S. sugar tariffs. Hawaii responded by ramping up sugar production for export to the United States, so much so that these exports increased fivefold from 21 million pounds in 1876 to 114 million pounds in 1883. Boosting sugar production required a large investment: sugar producers adopted new sugar-processing technologies, bought government and private land, undertook large-scale irrigation projects, and invested in fertilizers. The Hawaiian government signed the treaty expecting other markets for its sugar exports to open up soon thereafter. However, when the treaty expired in 1883, Hawaii had no viable alternative export market. Thus, during negotiations over the treaty's renewal, the United States demanded exclusive rights to Pearl Harbor; otherwise, the United States threatened to reinstate the high sugar tariff. The Hawaiian government conceded.

Almost 140 years later, this type of pressure remains a widespread phenomenon. Consider several recent examples: the European Union (EU) threatened not to renew trade agreements with Mongolia, Sri Lanka, Vietnam, and Nepal unless they improved their human rights records; the United States warned that it would not renew trade agreements with China, Vietnam, Cambodia, Romania, and Russia until they made political concessions; and China refused to renew many of its trade agreements unless its partners supported its “one China” policy. Indeed, incentives to renege on agreements abound as the intermingling of political and economic arrangements offers many opportunities for states to coerce their partners into making foreign policy concessions.

These examples of coercive diplomacy – the use of threats and assurances in combination to influence another state's behavior – highlight the dangers of cooperating with other states in the international system: states may hold their partners hostage at a later date to extract concessions from them. Yet the possibility that states will be taken advantage of has an unfortunate consequence: states often refuse to cooperate in the first place, preferring to “go it alone” rather than be subjected to extortion. When states cannot promise to refrain from holding their partners hostage, cooperation failures abound, making states worse off than they would be if they could commit to not exercising coercive diplomacy over their partners.

Making this kind of commitment is difficult, however, because coercive diplomacy is such a useful tool.