Geoeconomics, Trade and Industrial Policy
Paper Session
Saturday, Jan. 3, 2026 8:00 AM - 10:00 AM (EST)
- Chair: Nuno Limao, Georgetown University and NBER
Strategic Disintegration
Abstract
Suppose a country anticipates that it may use trade as a point of leverage in future geopolitical conflicts. How should it develop domestic industries and international trading relationships today in order to strengthen its hand tomorrow? Domestically, we show that the country should abstain from peacetime industrial policies if it can credibly threaten trade taxes as geopolitical punishments during conflict, but not otherwise. Internationally, its peacetime trade policy should promote the accumulation of foreign capital that makes foreign prices—not foreign welfare—more sensitive to trade during conflict. We apply these insights to provide the first quantitative exploration of the US’s optimal policies for building geopolitical power vis-à-vis China. The optimal policy promotes US-China trade on both the import and export marginsEconomic Costs of National (In)Security
Abstract
We examine the structure, rationale, and economic impacts of export controls and their growing use worldwide for national security reasons. U.S. export controls primarily target dual-use goods—technologies with both civilian and military applications—through licensing requirements and multilateral agreements such as the Wassenaar Arrangement. Recent policy changes, particularly in high-tech sectors like semiconductors and aerospace, have increased trade frictions, causing delays, higher costs, and regulatory uncertainty. About 44% of U.S. exports fall under some form of export control, though only a fraction require a formal license. We show that export controls, even those requiring minimal licensing, reduce exports and that the effects are mitigated for members of multilateral export control regimes (MECRs). We quantify the economic impact of unilateral versus multilateral control measures, assessing their effects on trade.The Fragmentation Paradox: De-risking Trade and Global Safety
Abstract
We develop a theory of international trade and interstate war that integrates a quantitative model of trade with a diplomatic game of escalation to conflict. Bilateral disputes over a state-controlled public good arise exogenously and belligerent countries engage in diplomatic negotiations to attempt to resolve the disputes peacefully. In equilibrium, all the welfare-relevant geoeconomic factors—such as the costs of war, the cost of concessions required to avert war, and the probability of deescalation—depend on the observed trade flows. We quantify these factors in a general model of trade calibrated to current data. The model is then applied to study the historical evolution of geoeconomic factors for USA and China, as well as under prospective “decoupling” scenarios. Over time, the bargaining power of the US vis-à-vis China as deteriorated when the country has become increasingly dependent on China, while China was not opening as much to US products. In this setting, decoupling from China could be rational. The analysis however underscores the existence of a fundamental security dilemma: because trade dependencies influence bargaining power in negotiations, decoupling reduces the costs of diplomatic concessions needed to avoid war but can paradoxically increase the risk of escalation into armed conflict by weakening the incentives for disciplining negotiation. Overall, this quantitative framework provides insights for policymakers on determining the optimal level and instruments of decoupling.JEL Classifications
- F1 - Trade
- F5 - International Relations, National Security, and International Political Economy