Geopolitical Barriers to Globalization

We show that, since the mid-1990s, the trade-promoting effects of tariff liberalization have been increasingly offset by deteriorating geopolitical relations, stalling trade globalization after 2007. To quantify this barrier, we compile a database of 833,485 geopolitical events across 193 countries from 1950 to 2024 using large language models and construct a bilateral geopolitical alignment index. Local projections estimate that a one-standard-deviation permanent improvement in alignment raises bilateral trade by 20 percent in the long run. From 1995 to 2021, tariff reductions added 9.5 percentage points to trade growth, while geopolitical deterioration subtracted 6.8 percentage points and produced more uneven welfare effects.