Why do some state leaders choose to escalate conflicts with close economic partners while others refrain? This chapter explores how a state’s perception of its relative position in a shared supply chain influences its response to conflict, by applying the psychological framework provided by prospect theory. When a state’s key industries are more dependent on the opponent within their shared supply chains, its leaders are more likely to escalate conflicts. This asymmetry in dependency makes policymakers see themselves as being in a strategically disadvantageous position, and the prospect of being replaced in the supply chains predisposes them towards more risk-seeking behavior. By contrast, when a state holds relative dominance within its shared supply chains, its leaders are less likely to risk conflict escalation. They perceive themselves as occupying a superior strategic position and will act in a relatively risk-averse manner to avoid further losses. This theoretical framework is employed to analyze two empirical cases: the ongoing trade conflict between South Korea and Japan and the conflict between South Korea and China over Terminal High Altitude Area Defense (THAAD).