Trade Wars, Tech Rivalry and Geopolitical Tensions

In the last decade, escalating trade wars, technological rivalry and growing geopolitical tensions have shaped the global economic landscape. The U.S.-China trade dispute, concerns over technological supremacy and shifting alliances have dominated headlines and policy discussions, emphasizing the importance of geopolitical alliance in an increasingly volatile global economy.

Three key figures using 2015 data shed light on the relationship between geopolitical distance and international trade patterns before the recent escalation of global economic tensions. The first figure shows U.S. technology exports, represented by a royalty payment-to-population ratio (the ratio of the dollar value of royalty payments to the population of the country making the payments), plotted against geopolitical distance. Royalty paymentsThese consist of all payments for the use of intellectual property, which ranges from patents to trademarks. Though broad, the payments are a useful proxy for U.S. technology transfers to other countries. are shown as a percentage of the paying country’s population to limit bias that could be caused by differing population levels. Geopolitical distance was computed using the absolute difference between countries’ foreign policy preferences based on United Nations voting data as measured by Michael A. Bailey, Anton Strezhnev and Eric Voeten.For details, see Michael A. Bailey, Anton Strezhnev and Eric Voeten, “Estimating Dynamic State Preferences from United Nations Voting Data,” Journal of Conflict Resolution, February 2017, Vol. 61, No. 2, pp. 430-456.

As shown in the scatter plot, a clear negative correlation (−0.35) is visible, indicating that countries more closely aligned with the U.S. tended to import more American technology.

Royalty Payments to the U.S. and Geopolitical Distance, 2015

SOURCES: OECD-WTO: Balanced International Trade in Services–EBOPS 2010; CEPII research center’s gravity database; Bailey, Strezhnev and Voeten, 2017; and authors’ calculations.

NOTE: The red line is the regression line.

The Role of Tax Haven Countries

An interesting aspect of the analysis emerges when we consider the role of tax haven countries in the first figure. When we excluded countries known for their favorable tax policies (i.e., Ireland, the Netherlands, Switzerland and Luxembourg), the correlation between technology exports and geopolitical distance became more pronounced; the correlation between royalty-to-population ratio and geopolitical distance increases to −0.50 when we remove tax havens. (See figure below.)

This change likely reflects the impact of profit shifting, a practice where multinational companies move profits to low-tax jurisdictions to reduce their overall tax burden. For technology exports, this often involves routing royalty payments through subsidiaries in tax haven countries, potentially distorting the apparent relationship between geopolitical distance and technology transfer. By removing these outliers, we can better observe the underlying trends in genuine economic activity. This refined view suggests that geopolitical alignment may have an even stronger influence on substantive economic ties than was initially apparent, particularly in the realm of technology transfer.

Royalty Payments to the U.S. and Geopolitical Distance for Countries Excluding Tax Havens, 2015

SOURCES: OECD-WTO: Balanced International Trade in Services–EBOPS 2010; CEPII research center’s gravity database; Bailey, Strezhnev and Voeten, 2017; and authors’ calculations.

NOTE: The red line is the regression line.

While the focus so far has been on technology exports, represented by royalty payments, we will now expand our analysis to include broader categories of U.S. exports. Scholars often use broader export measures as proxies for technological and economic influence, given that U.S. goods exports frequently include high-tech products and high-value brands. By incorporating this broader measure, we can better capture the impact of geopolitical distance, as it reflects not only technological trade but also the broader economic relationships shaped by geopolitical alignment.

The third figure displays a similar pattern for the ratio of the dollar value of all U.S. goods exports to the destination country’s population. Again, there is a negative correlation with geopolitical distance of −0.40.

U.S. Goods Exports and Geopolitical Distance, 2015

SOURCES: CEPII research center’s gravity database; Bailey, Strezhnev and Voeten, 2017; and authors’ calculations.

NOTE: The red line is the regression line.

Relevance of Geopolitical Distance Grows in Global Technology Trade

These patterns provide context for understanding current global tensions. The strong negative correlation between geopolitical distance and technology exports highlights the strong link between geopolitical alignment and access to U.S. technology. This relationship underlies current debates about technological decoupling, restrictions on tech transfers and concerns about digital sovereignty.

In recent years, global competition for the control of key technologies has intensified, leading to policy actions. Examples include:

• The U.S. has implemented restrictions on the export of advanced telecommunications equipment to certain countries, citing national security concerns. These measures have significantly affected global supply chains in the tech sector.
• The U.S. has imposed limits on the export of cutting-edge semiconductors and chip-manufacturing equipment to specific nations. These restrictions extend beyond U.S. borders, affecting even foreign-made chips that use American technology, thereby reshaping the global semiconductor industry.

Alongside these technology transfer restrictions, there has been a resurgence of tariffs as a tool of economic policy. Recent proposals for new tariffs, particularly on high-tech products, represent a further evolution of this trend. The interplay between technology transfer restrictions and new tariff proposals highlights the growing relevance of geopolitical distance in the global technology trade.

Recent developments in global trade policies have demonstrated that governments are increasingly willing to intervene in technology markets to protect critical national interests. The figures demonstrate the economic advantages of close alignment with the U.S. in 2015. This insight provides context for current discussions about economic security, supply chain resilience and “friendshoring,” or sourcing goods and services from geopolitical allies.

The 2015 data capture a moment before many current tensions fully emerged, offering a baseline for understanding subsequent shifts. It suggests that today’s geopolitical and economic challenges are not sudden developments, but rather the evolution of long-standing geopolitical patterns.

Notes

1. These consist of all payments for the use of intellectual property, which ranges from patents to trademarks. Though broad, the payments are a useful proxy for U.S. technology transfers to other countries.
2. For details, see Michael A. Bailey, Anton Strezhnev and Eric Voeten, “Estimating Dynamic State Preferences from United Nations Voting Data,” Journal of Conflict Resolution, February 2017, Vol. 61, No. 2, pp. 430-456.