Geopolitical dominance and global economic integration
How does the global balance of power shape patterns of economic integration? Fernando Broner, Alberto Martin, Josefin Meyer, and Christoph Trebesch formalize, in this paper, a theory of “hegemonic globalization,” more precisely, the idea that dominant powers (hegemons) enable globalization by inducing other countries to align their policies.
The authors develop a model that places countries on a circle representing heterogeneous policy preferences (e.g., governance type, regulations, institutions). Two core premises drive the setup: deviating from a country’s preferred policy is costly, and the gains from trade between any two countries increase with their policy similarity (“alignment”). Hegemons, as defined purely by economic size, can move first and influence others’ policy choices by making alignment more attractive. They then solve for two equilibria: fragmentation (each country follows its own preferred policy) and globalization (all align with the hegemon). This is extended to a multipolar world with an incumbent and a rising hegemon, and then to a coercion extension where the hegemon can threaten to sever trade links with non-aligners.
Broner et al. also build the Global Treaty Database that includes 76,849 international agreements (bilateral and multilateral) signed between 1800 and 2020, classified by subject area using GPT-4 applied to treaty titles and descriptions. Treaties are used as alignment proxies because they establish binding commitments that reduce cross-border transaction costs.
Findings
- A large enough hegemon triggers a shift from fragmentation to globalization by making policy alignment individually rational, even for countries with very different preferences.
- Globalization raises global welfare, but countries whose preferences diverge most from the hegemon’s lose out.
- In a multipolar world, whether a rising hegemon strengthens or weakens globalization depends on how different its preferences are from the incumbent’s : a China-like rising power risks fragmentation while a US-under-Britain-like one reinforces it.
- Coercion (trade threats) can force alignment at lower hegemon size, but may produce excessive globalization that reduces welfare; it ultimately fails once the rising hegemon is large enough to deviate.
- Hegemons disproportionately drive treaty-making; historical shifts toward rising hegemons (UK→US in the 19th century; USSR→US post-Cold War; US→China today) are clearly visible in the data
- Countries aligned with the same hegemon trade more with each other than bilateral treaty links alone would predict, confirming indirect bloc-level trade effects
Hegemonic Globalization
Authors: Fernando Broner, Alberto Martin, Josefin Meyer, Christoph Trebesch
From: CREI, BSE, DIW Berlin, Kiel University
U.S.–China decoupling and its global spillovers
Broner et al.’s model above predicts that a rising hegemon with preferences far from the incumbent (e.g., China vs. U.S.) risks global fragmentation. Pol Antràs and Andrea F. Presbitero, in this paper, document precisely this fragmentation unfolding in real-time trade data and tariff policy.
The authors use monthly bilateral trade flow data from Trade Data Monitor (111 reporting economies, 195 partners, disaggregated at HS-6 for 7,851 products) alongside updated tariff schedules from Bown (2025), covering the full arc from the 2018–19 tariff war through Liberation Day (April 2025). To systematically characterize third-country exposure, the authors build a taxonomy of six exposure channels, namely, export competition, import competition, import price declines, sourcing competition, sourcing price declines, and rerouting potential.
Geopolitical influence is embedded into a standard terms-of-trade model in which governments are tempted to use unilateral tariffs to manipulate the terms of trade. The key result is that cooperative low-tariff outcomes are harder to sustain when a country’s economic size and geopolitical power are tightly aligned.
Findings
- The Great Reallocation is real and accelerating: China’s share in U.S. imports fell from 23% in 2017 to 8% in 2025; reallocation was slower for goods with longer production cycles, and sharply faster after Liberation Day.
- Third-country exposure is multi-dimensional: the same country can simultaneously face export competition threats (e.g., Vietnam, Germany) and sourcing price decline opportunities; these channels are largely uncorrelated with each other.
- Geopolitical alignment shapes trade: countries more closely aligned with each other trade disproportionately more; this effect has strengthened markedly since 2018.
- The size–power correlation has risen sharply: the countries with the greatest market power increasingly also possess the greatest geopolitical leverage, making WTO-style cooperative trade harder to sustain.
- Globalization persists but in fragmented form: the world is not deglobalizing in aggregate, but reorganizing into geopolitically shaped blocs with “connector” third countries playing a pivotal role.
The Remains of the Trade: The U.S.–China Trade War and its Aftermath
Authors: Pol Antràs, Andrea F. Presbitero
From: Harvard University, International Monetary Fund
