Money is the new muscle: The rise of Geoeconomics
Issue 12: Economic tools can be just as important as hard power
At its most simplest, geopolitical power is drawn from three major pillars - military power, diplomatic power, and economic power. Economics is intrinsically intertwined with geopolitics and is immediately obvious when we look at the current shifting power dynamics in the World Order. We only need to look at Trump’s tariff policy over his first 100 days in office to see how integrated economies are vulnerable to external threats.
The term geo-economics was first coined in a 1990 article by Edward Luttwak, who argued that in the post-Cold War landscape, the significance of military capability in global power dynamics was giving way to that of geoeconomic power. Broadly, the best way to think about geoeconomics is the interplay between international economics, geopolitics, and strategy, but more specifically, the use of economic instruments (trade, investment, sanctions, currency, energy, technology) by States to achieve strategic and geopolitical objectives and project power. In this sense, there are two major means of exerting power - with either a carrot or stick approach (i.e. incentives or punishments). This was a new way of thinking about power, a shift away from the traditional geopolitical thinking which focused more exclusively on military and territory.
Trade is vital to geoeconomics
Looking at Trump’s tariff policy, his stated aims are ostensibly to: bring manufacturing back to the United States; respond to unfair trade policies from other countries; increase tax revenue; and incentivize crackdowns on migration and drug trafficking. Yet beyond these domestic justifications, the tariffs functioned as a key instrument of geoeconomic statecraft—a deliberate use of economic tools to attempt to achieve strategic geopolitical objectives.
Trump’s tariffs exemplify how economic measures can be deployed to reshape global power dynamics. While framed as being a corrective economic policy, they also aim to reduce the U.S. trade deficit, protect economic sovereignty, and bolster national security. By imposing tariffs on critical sectors—most notably steel and aluminium—the administration is looking to safeguard domestic industries deemed essential for defense and infrastructure, thus enhancing the resilience of the U.S. economy by increasing their competitiveness in an era of intensifying great-power competition. These tariffs also serve as a signal to adversaries and allies alike that the U.S. is willing to use its market power coercively to achieve strategic ends in a transactional-like approach.
Trump’s tariff board
If you want to know more, we interviewed Antonia Colibășanu, a senior analyst and Cheif Operating Officer of Geopolitical Futures to give us an overview of geoeconomics which can be found here:
This type of economic leverage is not new, nor is it unique to Washington. Throughout history, states have recognized the strategic utility of geo-economics, utilising the convergence of economic and geopolitical objectives, to promote a more favourable position within the international environment. From access to natural resources (and increasingly critical minerals) to control over strategic technologies like semiconductors and defence manufacturing, states increasingly turn to trade policy, investment controls, and supply chain interventions as tools to assert influence and hedge against dependency.
Understanding the direction and strength of economic power of the United States, China, Russia and the European Union is crucial for understanding the current geopolitical order and provides insights into their ability to act globally. The EU, for example, finds itself recalibrating its economic strategy in light of the weakening transatlantic alliance, as it seeks greater strategic autonomy in a shifting geopolitical landscape, decoupling from Washington. Meanwhile, the US, China, and Russia are competing globally over who can most effectively harness their economic tools to project influence globally.
United States
The United States remains the world's foremost geoeconomic power, though it does not hold an uncontested hegemonic position. Its dominance rests on several foundational pillars. Chief among them is the role of the US dollar as the global reserve currency, which grants Washington outsized influence over international trade, capital flows, and monetary policy. This fact, combined with the size of their economy, enables Washington to exert leverage globally through tools such as sanctions, access to capital markets, and regulatory power. Importantly, this privileged position has ensured that the US has been able to run large scale trade deficits for decades, without undermining confidence in their economy (allowing large scale government expenditure).
Alongside this leverage, the US can use its broader economic strength to coerce and influence other states through tools such as financial pressure and sanctions. In addition, the United States' role at the center of global economic transactions and affairs allows it to amplify its influence in the pursuit of strategic and geopolitical objectives.
Another aspect of US economic power is its leadership role in emerging and strategic technologies, and its central role in the development of AI and quantum computing allows it an advantage in global competition. Despite its immense economic power, the current administration will most likely regret using as recklessly as of late.
China
Since the economic reforms of the late 1970s, China's economic growth has been nothing short of extraordinary, with its GDP increasing by 9% each year on average. Investment, industrial production, and export-driven manufacturing are responsible for this growth. In the modern day, however, its geoeconomic strength lies primarily in trade rather than finance. Between 2010 and 2022, China's trade power grew significantly, surpassing that of the United States and even the European Union. Another key aspect of the rise of Chinese geoeconomic power has been its integration into the global economy and international financial system, and its decision to join the World Trade Organisation (WTO) in 2001 has massively benefited Chinese geoeconomic power. Despite this, challenges persist. For example, there is a requirement for Beijing to address significant trade imbalances as their economy industrialises, and similarly transitions away from their overreliance on low-skilled industries which have increasingly been outsourced to South-East Asia. Likewise, unequal distribution of economic development which has predominantly focused on the highly populated coastal regions has left behind the interior and western provinces, leading to internal instability.
Perhaps the most prominent example of Chinese geoeconomic power in action is the well known Belt and Road Initiative (BRI). It is a global-scale Chinese-led infrastructure development project that aims at building critical infrastructure in the interest of improved trade and better economic outcomes. This project has already mobilised more than a trillion dollars and focuses on key infrastructure areas such as transport, energy, digital, and industry. In the financing and construction of these projects, China used its state-owned enterprises, technology, and national standards, as well as providing widespread employment for Chinese engineering companies and subsequent economic development. BRI participants have arguably developed dependencies on the Chinese state because of this, allowing Beijing to gain an influential foothold in regions of strategic interest.
Mapping China’s BRI from the Brookings Institute (https://www.brookings.edu/articles/charts-of-the-week-chinas-belt-and-road-initiative)
Russia
In the geoeconomic sense, Russia is somewhat of a one trick pony. Their considerable economic power and leverage is solely reliant on commodities such as oil and gas and its geographic position along key Eurasian trading routes - oil and gas were responsible for roughly two thirds of all exports. Its control over these industries has given it significant influence in global energy markets. This comes with structural weaknesses however, with this dependency exposed when they were cut off from European markets after invading Ukraine, and subsequently needing to find alternative buyers at reduced rates.
Russian exports by category in 2023 from OEC
Russia has looked to lead a movement on de-dollarization in a bid to reduce dependence on the West. Leveraging their BRICS membership Russia has lobbied for an alternative financial infrastructure, pushing for development of alternative payment systems and trade arrangements. Due to their vulnerabilities, however, they are now trading with China from a dependent position and are trading in Yuan. In pursuit of reducing dependency on the West, Russia has also focused on Eurasian integration and strategic partnerships by providing oil, gas, and energy, in exchange for diplomatic ties.
A clear example of Russia leveraging its geoeconomic power occurred in the aftermath of Ukraine’s 2004 pro-Western “Orange Revolution”. In response to Kyiv’s political pivot toward the West, Moscow sharply increased natural gas prices for Ukraine which was and remains heavily dependent on Russian energy for both domestic consumption and industrial production. The dispute intensified, culminating in Russia cutting off all gas supplies to Ukraine on January 1, 2006. This move not only disrupted Ukraine’s economy but also reverberated across Europe, as several EU countries reliant on gas transiting through Ukraine experienced shortages.
By weaponizing energy dependence, Russia aimed to reassert its influence over Ukraine’s political trajectory and to send a warning to other former Soviet states contemplating closer ties with the West. This incident exemplifies how Russia uses its dominance in energy exports, particularly natural gas, as a strategic instrument to exert pressure, maintain regional hegemony, and counter perceived encroachments by Western institutions such as NATO and the EU.
European Union (EU)
Undoubtedly, the European Union is one of the leading geoeconomic actors in the world and this field is its predominant mean of wielding power. Its central position in global economic and financial networks, alongside its economic size, has afforded the European Union significant influence in global affairs. At the policy level, the EU has been increasingly more mindful of the utilization of geoeconomic power to achieve strategic objectives. Its “geoeconomic turn” is reflective of the increasing international security considerations in EU economic policy. As a political and economic alliance (not military), the EU leverages its economic power through tools such as trade agreements, investment policies, and sanctions to achieve its objectives. Due to the size of its internal market and extensive trade agreements, the EU can leverage its own economic strength to influence global affairs, such as trade, investment, and international relations.
The European Union’s ongoing trade frictions with the Trump administration, particularly over tariffs, have highlighted the growing urgency for Brussels to assert greater strategic autonomy. These tensions have reinforced the EU’s need to evolve from a predominantly regulatory and economic bloc, into a more assertive geopolitical actor capable of shaping international affairs through the strategic use of its economic instruments.
EU’s trade agreements from the Department of International Trade and Economic Security
Brussels does have a track record of using its economic weight to influence geopolitical outcomes. A prime example is its role in the international response to Iran’s nuclear program. In the early 2010s, amid growing global concern over Iran’s potential development of nuclear weapons, the EU took a decisive step by establishing its own autonomous sanctions regime. Unlike the previous collaborative measures, this regime was designed to intensify over time, targeting key sectors including oil exports, banking, dual-use technologies, and industries linked to nuclear and ballistic missile capabilities.
The economic pressure applied by the EU was significant and coordinated in nature. It contributed to a sharp contraction in Iran’s economy, consequently shifting the domestic political landscape, and paving the way for the election of the more moderate President Hassan Rouhani in 2013. These developments culminated in Iran’s engagement in direct negotiations with world powers which eventually led to the signing of the Joint Comprehensive Plan of Action (JCPOA) in 2015.
This episode illustrates how the EU, when acting cohesively and strategically, can deploy economic coercion effectively to achieve diplomatic objectives. Brussels has the potential not just as a normative power, but as a credible geopolitical actor—one capable of leveraging market access, regulatory influence, and sanctions to shape global outcomes.
From the Pickle Jar of Ronan - Geoeconomics and real world examples
Geoeconomics is a vast and strategically vital field that leaders must understand in order to navigate today’s complex global environment. The tools available to states can broadly be categorized as either coercive or incentive-based. The skillful deployment of these instruments allows states not only to secure national interests, but also to shape the behavior of others, influence international outcomes, and bolster their geopolitical standing.
I would argue that sanctions, which are generally seen as a collective punishment on a group of people, are generally ineffective at achieving their aims as evidenced by decades long sanctions programs against the government of Zimbabwe by the US following human rights abuses and anti-democratic practices. These sanctions are utilised by the ruling ZANU-PF party in Harare for propaganda purposes and have not had any meaningful impact on ZANU-PF.
A summary of some of these geoeconomic tools can be found in the table below:
Under President Donald Trump, the United States departed from a decades-old bipartisan consensus that had underpinned and protected the liberal international trade order. For generations, both Republicans and Democrats recognized the unique advantage the U.S. held by occupying a central position in global trade and finance, supported by its dominant role in institutions such as the IMF and the World Bank. This position gave Washington exceptional ability to set global norms, enforce economic rules, and safeguard its strategic interests through multilateralism.
However, the Trump administration’s approach—characterized by unilateral tariffs, threats to withdraw from trade agreements, and a transactional view of economic relations—undermined the credibility of U.S. leadership. This shift introduced uncertainty into the global economic system and alienated traditional allies such as Canada, Japan, and the European Union. These partners, in turn, began exploring hedging strategies and alternative alliances to insulate themselves from U.S. economic coercion.
Sanctions on various regimes as of 2014 from the Financial Times
Meanwhile, America's leadership in emerging and strategic technologies—including artificial intelligence, semiconductors, and quantum computing—continues to give it a powerful edge in shaping the global digital order. Control over these technologies not only enhances economic competitiveness but also grants strategic leverage in shaping future security architectures and norms.
Yet, the political disruption caused in the early days of the Trump presidency—and the broader erosion of trust in U.S. reliability—has had lasting effects. It has complicated Washington’s ability to negotiate trade deals and weakened its influence in shaping global economic governance to the same extent it once could.
Dive deeper into Trump’s Tariffs by listening to our episode available here:
If you like what we do here at The Pickle Gazette, please share and subscribe so that you get every new issue delivered straight to your inbox.