Research

Abstract: This paper studies when financial sanctions induce BRICS countries to coordinate alternative trade settlement regimes. I develop a dynamic quantitative gravity framework in which countries trade under a dominant dollar-based settlement regime and face stochastic financial sanctions that raise the effective cost of dollar-settled transactions through payment-system frictions. Countries may instead coordinate on an alternative trade settlement arrangement that insulates intra-coalition trade from the sanctions wedge but entails scale-dependent network costs together with one-time switching costs and smaller return costs. Equilibrium wages, prices, and welfare are computed in an Eaton--Kortum general equilibrium, and forward-looking regime choice is determined by value iteration in a persistent sanctions environment. The model generates endogenous switching thresholds corresponding to economically meaningful trade-cost shocks, roughly equivalent to 20–25\% reductions in trade under dollar settlement, together with coalition formation dynamics under collective and sequential arrangements. Quantitative results show that collective adoption becomes optimal at moderate sanctions intensity, while bilateral initiation typically requires higher sanctions because marginal costs remain elevated in small coalitions. The founding bilateral coalition is China--Russia, whose combined trade scale generates sufficient marginal cost compression to trigger an immediate cascade to the full BRICS bloc. Coordination frictions between the collective benchmark and the self-enforcing full-coalition threshold are small, and redistribution can sustain coordination over a somewhat wider range of sanctions intensities. Evaluated at current country-specific sanctions intensities, the model is consistent with the observed bilateral shift in China--Russia trade settlement while explaining the absence of switching among other BRICS pairs. The framework provides a tractable approach to studying trade coalitions and financial sanctions in a geoeconomic environment.

(Submitted)

Abstract: This paper examines how large trade shocks affect workers differently over the life cycle and how these heterogeneous economic effects translate into electoral outcomes. Using the U.S. China Shock as a source of plausibly exogenous variation in local labor demand across commuting zones, I compare cohorts that age through the shock in more exposed locations to otherwise similar cohorts in less exposed areas. I show that workers approaching retirement in highly exposed commuting zones experience the largest and most persistent income losses, consistent with limited adjustment horizons and irreversible labor market disruptions. These losses are accompanied by significant political consequences: electoral punishment of incumbents is concentrated in locations where trade-induced income declines fall disproportionately on older, highly politically engaged cohorts. The results highlight how trade shocks that generate concentrated losses among politically influential groups can amplify the electoral consequences of globalization and contribute to backlash against trade openness.