Geopolitics and Globalization
Paper Session
Saturday, Jan. 3, 2026 2:30 PM - 4:30 PM (EST)
- Chair: Michele Ruta, International Monetary Fund
Optimal Tariffs with Geopolitical Alignment
Abstract
As global tensions have intensified, the great powers have increasingly turned to economic statecraft as a means to achieve their foreign policy goals. Among its key instruments, trade policy---including both the imposition or threat of tariffs and the offer of preferential trade arrangements---have been designed as sticks and carrots to foster political alignment. In this paper, we revisit the question of optimal tariffs in a setting where large countries care not only about their economic welfare, but also about the political alignments of smaller countries. We consider two geopolitical scenarios. In the first, there is a single large country---a "hegemon"---and a continuum of small countries. The large country offers a preferential trade agreement to all small countries that choose to align with it. All non-aligned countries face MFN tariffs. In the second scenario, there are two "great powers" in a bipolar world. Each large country offers a free trade agreement to those that align exclusively with it and sets an MFN tariff for those that do not. The small countries sort into three groups, those that align with A, those that align with B, and those that remain unaligned.We characterize the optimal tariffs for the hegemon and the optimal best responses for the two great powers. We discuss how the hegemonís tariffs vary with geopolitical conditions, including its size. In the bipolar case, we also consider whether the two powers' tariffs are strategic substitutes or strategic complements. When analytical expressions are ambiguous, we resort to a crude calibration to get a sense of the relative magnitudes of the conflicting forces.
Equilibrium Trade Regimes
Abstract
The rules of the World Trade Organization are increasingly being disregarded by its members, raising concerns about the future of multilateral liberalization. In this paper, we develop a dynamic model of the international trading system to analyze the sustainability of rules-based trade regimes. We consider a framework of stochastic asynchronous games, where a leading country determines the trade regime and the identity of this leader changes over time. In a many-country, infinite-horizon game, we show that transitioning from a power-based to a rules-based regime requires the presence of a hegemonic power -- i.e., a country significantly larger than all others. Dominant countries benefit from a power-based regime but may choose to maintain rules because of the possibility of losing their dominance in the future. We find that the long-term viability of a rules-based equilibrium hinges on the cost of establishing it, which must be neither too small nor too large. If the cost is too small, the system follows a cyclic equilibrium; if too large, a power-based regime prevails. In a bipolar state, free-riding and market-power forces further undermine the feasibility of rules-based equilibria. Our findings highlight the risks posed by the ongoing erosion of multilateral cooperation and its potential long-term consequences for the world trading system.Geoeconomic Pressure
Abstract
Economic pressure—the use of economic means by governments to achieve geopolitical ends—has become a prominent feature of global power dynamics. This paper introduces a methodology using large language models (LLMs) to systematically extract signals of geoeconomic pressure from large textual corpora. We quantify not just the direct effects of implemented policies but also the off-path threats that induce compliance without formal action. We systematically identify governments, firms, tools, and activities that are involved in this pressure. We demonstrate that firms respond differently to various forms of economic pressure, as well responding differently to policies that have been implemented versus the threat of future pressure.JEL Classifications
- F5 - International Relations, National Security, and International Political Economy
- F1 - Trade