From Tariffs to Tensions: Geopolitics at the Crossroads of Trade Wars and Diplomacy

Abstract

The weaponization of trade policy has transformed tariffs from conventional economic instruments into catalysts of sustained geopolitical rivalry, challenging traditional diplomatic frameworks and corporate resilience strategies. Despite growing scholarship on trade wars, few studies integrate macro-level trade dynamics, micro-level firm adaptation, and diplomatic discourse to explain how economic friction escalates into strategic competition. This study examines how tariffs evolve into geopolitical tensions, evaluates the efficacy of diplomatic de-escalation mechanisms, and identifies firm-level strategies that mediate geopolitical shocks. Employing a mixed-methods design (2018–2025), we combine quantitative gravity models, firm-level financial data, and the Geopolitical Risk (GPR) Index with qualitative analysis of diplomatic documents, elite interviews, and policy narratives across the U.S., China, EU, and ASEAN. Results indicate that geopolitical risk reduces bilateral trade volumes by 30–40%, with services trade most vulnerable. Firm profitability declines and volatility increase in high-tariff, low-openness environments; however, investment efficiency and supply chain diversification significantly buffer adverse impacts. Qualitative findings document a discursive shift toward “strategic autonomy,” diplomatic fatigue, and anticipatory corporate adaptation, particularly among ASEAN firms benefiting from trade diversion. This research advances an integrated framework linking macro-level risk, firm resilience, and diplomatic statecraft, offering actionable insights for policymakers navigating economic fragmentation, corporations designing adaptive supply chains, and multilateral institutions seeking governance reform.