Geopolitical risks are weighing on euro area and US foreign trade 74th edition – March 2025

In a new study (Khalil, Osten and Strobel, 2025), we show, using data on euro area and US imports from 1990 to 2019, that price-adjusted imports from countries with heightened geopolitical risk are declining, while import prices are rising. For the euro area and the United States, an increase in the geopolitical risk of a trading partner therefore acts as a negative supply shock to imports from this country. In this context, we identify geopolitical risk shocks for 44 countries using the index for geopolitical risks proposed by Caldara and Iacoviello (2022), which is based on the frequency of newspaper articles on intergovernmental conflicts, unrest and terrorism. In a panel of bilateral product-level import flows, we estimate the effects on import volumes and prices for the euro area and the United States, while controlling for influences from domestic demand developments. Our analysis does not examine the sharp increase in geopolitical risk worldwide as a result of the Russian war of aggression in Ukraine. Studies on the impact of this war come to similar conclusions (see, for example, Gopinath, Gourinchas, Presbitero and Topalova, 2025).