The Fragmentation Paradox: De-risking Trade and Global Safety
02 December 2025 5:45 pm CET
Thierry Mayer (Professor of Economics at Sciences Po) presents his research (jointly with Isabelle Méjean and Mathias Thoenig) in the Vienna International Economics Seminar (VIES) series
In cooperation with CEU, FIW, Universität Wien, WIFO, WIIW and WU.
Venue
University of Vienna at the Faculty of Business, Economics and Statistics
Oskar-Morgenstern-Platz 1
1090 Vienna
2nd floor, HS17
Description
We develop a model embedding a diplomatic game within a quantitative model of trade. Bilateral disputes arise exogenously, and rival countries engage in negotiations (which may fail) to avoid war. All welfare-relevant geoeconomic factors, such as the realized costs of war, the concessions to prevent it, and the probability of escalation, depend on the opportunity cost of war, itself shaped by observed trade flows. We show how to estimate these costs in a calibrated model of trade applying it the US-China relationship, both historically and under "decoupling'' scenarios. We find that the growing US dependence on Chinese products and markets increased the cost of bilateral disputes. In this context, decoupling from China through increased tariffs may offer geopolitical benefits. Yet, our analysis highlights a fundamental security dilemma: decoupling may reduce the diplomatic concessions needed to maintain peace but can paradoxically raise the risk of escalation by weakening incentives for restraint.
Speaker
Registration
Participants are requested to register in advance with Julia Hnidek
The VIES seminar is dedicated to frontier research in international economics and features presentations by renowned international scholars.
The VIES is a joint initiative of CEU, FIW, Universität Wien, WIFO, wiiw and WU.