Publications and Research
Document Type
Working Paper
Publication Date
2026
Abstract
Can geopolitical risk reshape international trade? I construct directed, monthly measures of bilateral geopolitical risk and its associated sentiment from approximately 5.1 million news articles in the GDELT Event Database, and estimate their effect on trade among eight Asia-Pacific economies at the HS2 product level over 2015--2025, using Poisson pseudo-maximum-likelihood gravity local projections with high-dimensional fixed effects. Pooled across countries, rising risk produces an immediate expansion of trade led by verbal threats and by news tone orthogonal to event content, rather than by material acts, indicating that how a conflict is reported can move trade before the conflict materializes. A home-country heterogeneity specification uncovers a sharp asymmetry: when bilateral risk rises, the United States expands imports (roughly $+12$ percent per standard deviation, cumulatively) while contracting exports (about $-10$ percent), and the two adjustments differ in timing: the import expansion arrives on impact and fades within three quarters, while the export contraction emerges only after a quarter and persists for more than a year. The import response is uniform across the product space rather than concentrated in storable goods, so it does not reflect selective inventory accumulation. Sustained bilateral hostility therefore widens the American deficit with the partner rather than closing it, while smaller connector economies instead contract on one or both sides of trade. The findings identify geopolitics as an upstream driver of the bilateral trade shares that the invoicing-currency and exchange-rate pass-through literature take as given.
Comments
This submission represents a preliminary version of the manuscript and is subject to further refinement.