The Rise of Geoeconomics: Balancing Foreign Policy Objectives and Global Cooperation

The rise of geoeconomics marks a shift from purely economic policy to economic statecraft, where economic policies are used to advance foreign-policy objectives. However, this approach may hinder optimal economic policy design and international cooperation.

Global cooperation has declined since China's emergence as an economic power, challenging global hegemony with its state capitalism model. The global financial crisis, the pandemic, and the recent energy crisis triggered by Russia's invasion of Ukraine further undermined cooperation. Policy responses have become more protectionist, deviating from principles of competition and openness.

Trade tariffs, financial sanctions, and state-designed industrial policies aim to restrict foreign economic players' access to domestic markets. For example, tariffs imposed by the US on European steel and aluminum imports triggered retaliatory tariffs on US products imported into Europe. Sanctions on Russia have restricted market access for many multinational companies, while price caps target Russia's oil revenues. Export controls and digital currencies are also used to bypass payment systems reliant on the dollar and euro and to evade sanctions.

Industrial policies focused on critical and green technologies or raw materials aim to protect domestic industries and enhance self-sufficiency in the US, China, and the EU. However, these measures may lead to higher costs for consumers and limit technological innovations obtained from international collaboration.

This shift towards economic statecraft is replacing global multilateral forums like the World Trade Organization with bilateral deals among like-minded economies, excluding others and leading to fragmentation and divisiveness. The focus on exclusion rather than cooperation poses challenges for addressing global issues such as climate change, where collective action is crucial.

The endgame of economic statecraft remains uncertain, but its current trajectory raises concerns about the impact on global cooperation and the ability to provide global public goods. The article highlights the need for collaboration and emphasizes that excluding others from economic policies may impede progress and hinder the effective resolution of pressing global challenges.

By fLEXI tEAM