Geopolitics has cast a long shadow on the gravity model of world trade

Subscribe to enjoy similar stories. High-school physics textbooks tell us that the gravitational pull between two objects is determined by three factors—the weight of the two objects, the distance between them and a universal gravitational constant. The gravitational force is directly proportional to the mass of each object, while it is inversely proportional to the distance between them.

This idea has been successfully adapted in the economics of international trade through the gravity model. Countries tend to trade more with those that are close to them in terms of distance. And the size of economies has a big role to play in determining the volume of trade between two countries.

As with the laws of physics, bilateral trade strengthens on the basis of economic size while it wanes based on distance. This intuitive—but empirically tested—model needs an airing at a time when US President Donald Trump wants to undermine the system of open multilateral trade that has generally served the world well in recent decades. It is thus no surprise that the largest trading partners of the US are either countries such as Canada and Mexico that it shares borders with or large economies such as China and Japan whose sheer size strengthens the case for trade.

All this is in a normal world. But we live in abnormal times, in which the geopolitical factor is growing in importance. Economic relations between countries are increasingly dependent on their strategic alignment.

While much of the current discussion is about trade, the first signs of splintering can be found in the patterns of direct foreign investment (FDI). This is an important signal because trade and investment are joined at the hip in this age of global supply chains. Trade