Geopolitical Risk and Trade Reorientation Dynamics: A Comparative Study

The global trade system has been experiencing major restructuring due to geopolitical risks through reshuffling different economic blocs. To this end, we conduct a comparative assessment of the response of trade to geopolitical risk, economic and trade policy uncertainty across three thriving blocs, namely, the BRICS, G7, and ASEAN countries. Given the distinct features of the sample data, we apply cross-quantilogram and partial cross-quantilogram approaches to analyze monthly data from January 2000 to June 2023. Our empirical evidence confirms the favorable impact of geopolitical events on trade integration in the BRICS bloc. However, in comparison to BRICS nations, G7 countries have demonstrated lower resistance to geopolitical uncertainty, while the ASEAN bloc exhibits a cautious approach to increased geopolitical risks in the short term, leading to a potential loss in trade integration. Overall, this study shows that comparing these blocs in the context of geopolitical risk and intraregional trade integration requires a policy that offers a balance among economic cooperation and diplomatic ties, which nevertheless are critical for economic integration and welfare.