NS3040 Fall 2016
Geo-economics
Overview I
• Key points
• Today states relying less on traditional means of
achieving power through weapons buildup and military
conflict
• Instead relying more on economic means
• Sanctions becoming tool of last resort
• Increased use of other punitive measures
• Establishment of competing trade regimes, and manipulation of
prices
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Overview II
• Interconnectedness of global economy means that
particular countries have the ability and willingness to
implement economic measures
• In many cases these are becoming important functions of foreign
and security policy
• Many political leaders have moved from seeing the opportunities
of independence to focusing on the risks
• Look to protect national producers and supply chains
• As risk aversion leads to trade and capital to become
more regionally constrained could translate to lower
equity prices and higher bond spreads
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Overview II
• Seeing a trend to a more fragmented international trading
system
• So called “smaller clubs of trade” are becoming common in the
formation of trade agreements
• However regionalism leads to a “patchwork effect” across the
globe as well as within regions
• Can hinder investments and integration and
• Lead to increased strategic competition.
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Overview III
• As countries increasingly revert to economic measures
to reassert their geopolitical power
• Increase in global risks – These influence the way countries
interact and business operate
• Affects both global trade and political cooperation
• Ultimately the effects of geo-economics may undermine key
governing institutions inhibiting their ability to deal and address
future global challenges
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Instruments of Geo-Economics I
• Geo-economics not a new phenomenon
• Idea of nation-states deploying economic weapons in
international situations can be traced back through cold war’s
spheres of influence – colonial days
• However through the twentieth century the balance of power
among nations typically views through lens of geopolitics
• Only recently that geo-economics has become a key
paradigm
• Difference is geopolitics focuses on military power, natural
resources and demographics as measures of national influence
• Geo-economics emphasizes factors such as productivity, trade
balances and foreign investment
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Instruments of Geo-Economics II
• In recent years regional or preferential economic
integration the more popular geo-economic strategy
• One of goals countries have sought to achieve through
economic integration a geopolitical one
• Gain relative power by joining forces with others to
increase their collective market size and economic
opportunities
• Part of the logic of the EU and the Pacific Alliance
• Why ASEAN countries are seeking to create a unified
market
• One of the main drivers of U.S. attempts to form the TTIP
and TPP
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Instruments of Geo-Economics III
• Other geo-economics tools are
• Strategic investments through foreign direct investments in other
countries
• Governments purchasing other governments’ debts
• Such strategies enable countries to exert geo-political
influences through economic dependency
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