Aizenman, Desbordes and Saadaoui: Quantifying Trade Destruction From Bombs & Bullets Vs. Taxes and Sanctions

Key Takeaways

• New bilateral conflict index separates kinetic war, trade war, diplomacy, posture
• Kinetic fighting and trade-context hostility drive $334 bn trade loss since 2015
• US‑China trade accounts for half of estimated $334 bn risk
• Routine diplomatic hostility shows no measurable impact on trade flows
• Directed, calibrated indicator outperforms existing GDELT‑based measures

Pulse Analysis

The new bilateral conflict index introduced by Aizenman, Desbordes and Saadaoui addresses a long‑standing measurement gap in international economics. By calibrating raw GDELT event counts against the human‑curated ICEWS dataset, the authors correct systematic over‑reporting of hostile interactions among high‑trade allies. The resulting four‑layer decomposition—kinetic fighting, military posture, trade‑context hostility, and baseline diplomacy—provides a granular view of how different conflict dimensions affect trade, a nuance missing from aggregate conflict metrics.

Applying the index within a standard gravity framework, the researchers uncover that only kinetic conflict and trade‑related hostility generate statistically significant and economically sizable trade reductions. Their estimates suggest that geopolitical deterioration since 2015 has placed about $334 billion of bilateral trade at risk, equivalent to roughly 2.4% of 2015 world bilateral trade, with the United States‑China relationship accounting for half of that exposure. Notably, routine diplomatic hostility—despite dominating raw hostility scores—exerts no discernible impact on trade flows, underscoring the importance of distinguishing between symbolic tension and substantive coercion.

The study’s methodological advances also have practical implications for policymakers and analysts. The directed, asymmetric structure captures retaliation dynamics that can compound trade losses over multiple months, offering a more realistic assessment of conflict spillovers. Moreover, the indicator’s superior performance against the existing IntenSE metric validates the value of supervised calibration, Goldstein weighting, and sanctions‑context reclassification. As nations grapple with the weaponization of economic policy, this refined tool equips decision‑makers with actionable insight into the trade costs of both kinetic wars and trade wars.