Geoeconomics

In an era when great powers possess nuclear weapons that make direct confrontation unthinkable, competition has migrated to new domains. Geoeconomics represents this shift: the use of economic means to achieve geopolitical ends, and the analysis of economic actions through a strategic lens. As Edward Luttwak memorably described it, geoeconomics is “the logic of conflict in the grammar of commerce.”

Defining the Field¶

Geoeconomics occupies the intersection of economics and strategy. Traditional economics assumes markets operate according to efficiency principles, with states intervening primarily to correct market failures. Traditional geopolitics focuses on territory, military power, and the physical geography of strategic competition. Geoeconomics fuses these concerns, recognizing that:

• Economic relationships create dependencies that can be exploited
• Control over supply chains, financial networks, and technology standards confers political leverage
• States pursue economic policies not merely for prosperity but for power
• Commercial actors—firms, banks, investors—become instruments and targets of statecraft

The field gained prominence after the 2008 financial crisis revealed the strategic vulnerabilities embedded in global economic interdependence, and accelerated dramatically following the 2022 Russian invasion of Ukraine, which triggered the most extensive sanctions regime in history.

The Instruments of Geoeconomic Power¶

States deploy multiple tools in geoeconomic competition:

Sanctions and export controls represent the most visible instruments. The United States has sanctioned Iran’s economy, frozen Russian central bank assets, and restricted advanced semiconductor sales to China. These measures exploit American centrality in global financial networks and technology supply chains. But sanctions are a double-edged sword: overuse accelerates efforts to create alternative systems, and secondary sanctions strain alliances.

Trade policy shapes economic relationships in ways that serve strategic purposes. Tariffs, quotas, and market access negotiations can reward partners and punish rivals. China’s informal boycotts of South Korean goods (over THAAD deployment), Australian products (over COVID inquiry calls), and Lithuanian exports (over Taiwan ties) demonstrate how trade can be weaponized without formal sanctions.

Strategic investment builds influence through infrastructure, resource development, and technology transfer. China’s Belt and Road Initiative represents the most ambitious example—financing ports, railways, and telecommunications networks across Asia, Africa, and Latin America. Such investments create economic dependencies, establish physical presence, and sometimes include contractual terms that provide political leverage.

Currency and financial leverage derives from control over the infrastructure of global finance. The dollar’s status as the world’s reserve currency gives Washington unique power: dollar-clearing systems enable sanctions enforcement; access to dollar funding is essential for most international trade and finance. This privilege has prompted discussion of dedollarization, though alternatives remain limited.

Technology control has emerged as perhaps the most consequential domain. Semiconductors, artificial intelligence, quantum computing, and telecommunications standards increasingly determine economic competitiveness and military capability. The American campaign against Huawei, restrictions on advanced chip manufacturing equipment to China, and competition over 5G standards all reflect the geoeconomic significance of technology.

The Logic of Geoeconomic Competition¶

Geoeconomic strategies operate through several mechanisms:

Coercion uses economic pressure to compel changes in behavior. Sanctions against Iran aimed to halt nuclear development; trade restrictions on Russia sought to impose costs for aggression. Coercion relies on the target’s vulnerability and the credibility of sustained pressure.

Deterrence threatens economic costs to prevent unwanted actions. The expectation that sanctions would follow Russian invasion may not have prevented the 2022 war, but calculations about economic consequences shape behavior in many cases.

Influence cultivation uses economic benefits to build political relationships. Development assistance, preferential trade terms, and investment flows can create goodwill and dependencies. China’s infrastructure financing in developing countries exemplifies this approach.

Resilience building reduces vulnerabilities to others’ geoeconomic pressure. Diversifying supply chains, developing domestic industrial capacity, accumulating foreign exchange reserves, and creating alternative payment systems all enhance strategic autonomy. European discussions of strategic autonomy center partly on reducing economic vulnerabilities.

Geoeconomics Versus Geopolitics¶

The distinction between geoeconomics and traditional geopolitics reflects changing strategic realities:

Yet this distinction is not absolute. Economic strength ultimately enables military power; military security makes economic activity possible. Geoeconomics complements rather than replaces traditional strategy. A state vulnerable to blockade remains constrained regardless of its economic sophistication; a state facing financial isolation may be compelled to military action it would otherwise avoid.

Contemporary Applications¶

Several ongoing contests illustrate geoeconomic competition:

U.S.-China technology rivalry centers on semiconductors, AI, and standards-setting. American export controls aim to slow Chinese technological development; China invests massively in self-sufficiency. The outcome will shape the global technology ecosystem for decades.

European energy security was transformed by the Ukraine war. Russia’s weaponization of gas supplies—and Europe’s hasty diversification away from Russian energy—demonstrated both the vulnerability of energy dependence and the difficulty of rapidly restructuring supply chains.

The Global South has become an arena of geoeconomic competition. China, the United States, the EU, and regional powers compete to provide infrastructure, investment, and market access. Developing nations seek to leverage this competition while avoiding excessive dependence on any single partner.

Financial infrastructure alternatives are emerging as states seek to reduce vulnerability to American financial leverage. China’s Cross-Border Interbank Payment System (CIPS), Russia’s SPFS, and discussions of BRICS payment mechanisms all aim to create options outside Western-controlled systems.

Critiques and Risks¶

Geoeconomic competition carries significant dangers:

Economic fragmentation may reverse decades of efficiency gains from globalization. Duplicate supply chains, incompatible technology standards, and restricted market access raise costs and reduce innovation.

Escalation dynamics can spiral unpredictably. Sanctions invite retaliation; export controls prompt race-to-the-bottom restrictions; investment screening may become protectionism by another name. The line between defensive measures and aggressive ones often blurs.

Alliance strains emerge when geoeconomic measures impose costs on partners. Secondary sanctions force allies to choose between American markets and trade with sanctioned states; technology restrictions may disadvantage allied firms.

Blowback effects can harm the initiator. Weaponizing the dollar encourages alternatives; overusing sanctions dilutes their impact; cutting trade ties eliminates the leverage that interdependence provides.

Normative erosion threatens the rule-based trading system. When great powers routinely cite “national security” to justify economic restrictions, the distinction between legitimate and pretextual claims erodes, undermining the WTO and other institutions.

The Future of Geoeconomics¶

Several trends will shape the field’s evolution:

Selective decoupling rather than complete separation appears likely. Critical sectors—semiconductors, pharmaceuticals, strategic minerals—will see reduced interdependence, while consumer goods trade may remain relatively open.

Middle power strategies will become more sophisticated as states like India, Indonesia, Turkey, and Brazil navigate between competing blocs. These nations possess enough market size and strategic importance to maintain leverage without full alignment.

New instruments will emerge. Digital currencies, carbon border adjustments, data governance frameworks, and AI regulation all present geoeconomic opportunities and vulnerabilities that did not exist a generation ago.

The geoeconomic domain has become as consequential as any battlefield. Understanding how economic tools serve strategic ends—and how strategic competition reshapes economic relationships—is now essential for navigating international affairs.