Come sail your ships around me: wartime trade, distance, and the impact of the global shipping industry on the pacifying effect of trade

This study uses the recent Red Sea crisis to assess the collateral trade costs of militarized conflict. Using monthly trade data, we show that attacks by Iran-backed Houthis triggered a sharp decline in flows typically routed through the Suez Canal, with larger losses among country pairs reliant on this route. However, this divergence was short-lived, as trade among these dyads rebounded within months. Despite one of the most significant disruptions to maritime transport in decades, countries maintained trade with their first-best partners. We attribute this resilience to the shipping industry’s adaptability. These findings speak to debates on wartime substitution and ‘trade through globalization’: features of the shipping sector–one of the most globalized industries–enhance countries’ ability to mitigate trade disruptions. As a result, the deterrent effect of trade disruptions, emphasized in liberal theories, may be weaker in a still-globalized system.