The fog of news: How news-based geopolitical risk clouds bilateral trade

The hyper-globalization paradigm after the Cold War is disintegrating and is giving way to a new arena of strategic competition in which economic efficacy and national security rival each other. Although the devastating influence of active war on trade is not much of a secret, the consequences of the ubiquitous threat of war the fear and perception of geopolitical tension remain little known. This study investigates how dyadic geopolitical risk (GPR), measured through news media interpretation of conflicts and tensions, influences bilateral trade flows. The results reveal a critical temporal dynamic: geopolitical risk does not disrupt trade contemporaneously. Instead, it exhibits a significant "phasing-in" effect, with negative impacts materializing after a one-year lag and accumulating over a three-year period. A joint geopolitical risk shock leads to a cumulative trade reduction of approximately 6.5%. These results underscore the late but consistent nature of the geopolitical uncertainty and how risk perception may erode world economic integration even in the absent of actual conflict situations.