Working Paper Revision

Technology, Geopolitics, and Trade

Abstract: We study when unilateral export controls are optimal by quantifying how geopolitical rivalry reshapes trade in ideas. Empirically, cross-border technology flows are far more sensitive than goods trade to geopolitical distance, especially where IPR is weak, and these penalties intensify after 2017. Motivated by this evidence, we build a growth–trade model in which geopolitical distance raises breach risk in licensing; firms partially reprice risk via higher royalties but cannot fully insure quantities. In a consumption-only benchmark, a permanent rise in US–China geopolitical distance yields modest net gains for the United States, implying no benchmark motive for controls. Once governments place weight on national security, measured as relative technological leadership, controls can be welfare-improving despite efficiency costs. When the probability of Chinese retaliation rises with control tightness, the optimal policy is strictly interior (tighter than laissez-faire yet below a full ban).

JEL Classification: F63; O14; O33; O34;

https://doi.org/10.20955/wp.2025.029

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2025-10-22

Number: 2025-029

Related Works

• Working Paper Revision (2025-10-22) : You are here.
• Working Paper Original (2025-10-21) : Technology, Geopolitics, and Trade