How Geopolitics is Being Priced in Real Time

This paper shows how recent advances in large language models (LLMs) make it possible to track geoeconomic pressure in near real time. By reading earnings calls and analyst reports at scale, algorithms can identify who is applying pressure, who is being targeted, which instruments are used, and how firms respond. The result is a new way to observe geopolitical risk as it actually enters corporate decision making.

Geoeconomic Pressure

• Clayton, Coppola, Maggiori, and Schreger
• Working paper, 2025
• A version of this paper can be found here
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Key Academic Insights

Geopolitics Has Become an Economic Variable
Trade policy is no longer an abstract backdrop. Firms now discuss tariffs, sanctions, export controls, and industrial subsidies directly in earnings calls. The paper documents a sharp rise in these discussions, especially around US–China tensions, sanctions on Russia, and large tariff episodes. Geoeconomic pressure is no longer episodic. It is persistent and increasingly central to corporate strategy.

LLMs Turn Text into Data
The authors use large language models to read hundreds of thousands of earnings calls and analyst reports. Instead of searching for keywords, the models classify who applies pressure, who receives it, which policy tools are involved, and whether actions are threatened or implemented. Crucially, the models also identify how firms respond. pricing changes, supply chain shifts, domestic investment, R&D, and sourcing decisions. This transforms qualitative text into structured economic data.

Pressure Is Targeted, Not Random
Export controls and sanctions follow a “small yard, high fence” logic. A few sectors matter disproportionately. Semiconductors, rare earths, energy, and telecommunications emerge as chokepoints. Tariffs, by contrast, are broader and affect a much wider set of firms. The data show that the United States and China apply most pressure to each other, but third countries often benefit indirectly as supply chains reroute.

Firms Adapt, Sometimes Quickly
Targets of geoeconomic pressure do not simply absorb losses. Chinese technology firms report increased domestic investment and R&D after export controls. Supply chains shift toward alternative suppliers in Korea, Vietnam, Mexico, and Malaysia. Firms used as instruments of pressure, such as semiconductor equipment producers, often report lost sales. The responses are heterogeneous and economically meaningful.

Tariffs Behave Like Taxes, Not Bargaining Tools
The paper finds little evidence that tariffs improve US terms of trade. Instead, US firms report higher input costs and higher consumer prices. Some domestic producers benefit, but most firms describe tariffs as a negative shock. This distinction matters for investors. Tariffs tend to redistribute profits across firms rather than create aggregate gains.

Practical Applications for Investment Advisors

Treat geopolitics as a measurable risk factor
This research shows that geopolitical pressure is not just a narrative risk. It shows up in firm disclosures, investment plans, pricing decisions, and margins. Advisors should treat geoeconomic exposure as a real portfolio input, especially for global equities, industrials, energy, and technology.

Watch supply chain winners and losers
When pressure is applied, some firms lose access to markets or inputs. Others step in to replace them. Firms in India, Mexico, Vietnam, and parts of Southeast Asia often benefit as supply chains reroute. Advisors can use this lens to evaluate regional tilts and thematic exposures.

Earnings calls reveal pressure before it shows up in financial statements. Firms discuss threats, uncertainty, and contingency plans in real time. Advisors should pay attention to how frequently and intensely management discusses tariffs, sanctions, and export controls. Rising discussion often precedes changes in capex, margins, and guidance.

Separate broad shocks from targeted risks
Not all geopolitical actions affect portfolios the same way. Export controls and sanctions are narrow but severe. Tariffs are broad but often less decisive at the firm level. Advisors should distinguish between concentrated risk to specific companies and diffuse pressure that affects pricing across an industry.

How to Explain This to Clients

“Geopolitics now affects companies the same way interest rates or inflation do. Governments use trade and financial tools to pursue strategic goals, and firms respond by changing where they invest, who they buy from, and what they charge. What’s new is that we can now measure this in real time by listening to what companies and analysts say. Understanding these shifts helps us manage risk and spot opportunities as the global economy becomes more fragmented.”

The Most Important Chart from the Paper

Figure 13 plots the share of firms discussing each of the tools in a given quarter inferred by single-firm analysts reports.

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged and do not reflect management or trading fees, and one cannot invest directly in an index.

Abstract

Geoeconomic pressure—the use of existing economic relationships by governments to achieve geopolitical or economic ends—has become a prominent feature of global power dynamics. This paper introduces a methodology using large language models (LLMs) to systematically extract signals of geoeconomic pressure from large textual corpora. We quantify not just the direct effects of implemented policies but also the off-path threats that induce compliance without formal action. We systematically identify governments, firms, tools, and activities that are involved in this pressure. We demonstrate that firms respond differently to various forms of geoeconomic pressure (tariffs, financial sanctions, and export controls), as well responding differently to policies that have been implemented versus the threat of future pressure. We use this methodology to study the firm-level responses to the ongoing global trade war.