Trade dynamics under geopolitical risk

Makram Khalil, David Osten and Felix Strobel

No 03/2025, Discussion Papers from Deutsche Bundesbank

Abstract: In recent years, major exporting economies experienced rising geopolitical risk. From the perspective of the US and the euro area, we employ detailed product data panels to study the consequences of trading-partner geopolitical risk shocks on bilateral imports. We find that these shocks lower import volumes and raise import prices. The decline in imports is stronger when the shocks hit countries that exhibit greater geopolitical distance to the US and the euro area, or when geopolitical risk shocks hit countries that are under US sanctions. Thus, increasing geopolitical risk triggers dynamics that are conducive to a fragmentation of global trade. A case in point are large effects for geopolitical risk shocks originating in China. We find that US and euro area imports from non-Chinese trading partners are also affected by such shocks, which also owes to US dollar and global oil price movements as well as trading-partner value chain linkages with China.

Keywords: Geopolitical risk; imports; United States; euro area (search for similar items in EconPapers)
JEL-codes: F14 F41 F61 F62 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-cna, nep-eec, nep-int and nep-rmg
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/311836/1/191765605X.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:311836

Access Statistics for this paper

More papers in Discussion Papers from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().