Geoeconomics explained

Chatham House experts answer your questions

The World Today Published 9 December 2016 Updated 26 November 2020 1 minute READ

Marianne Schneider-Petsinger

Former Senior Research Fellow, Global Economy and Finance Programme; Project Director, Global Trade Policy Forum


The term geoeconomics has become popular but it lacks an agreed definition. Most commonly, it is understood as the use of economic tools to advance geopolitical objectives. Other definitions reverse the ends and means, emphasizing how flexing geopolitical muscle is used for economic results. Broadly, one can think of geoeconomics as the interplay of international economics, geopolitics and strategy.

Geoeconomics entered the lexicon in 1990 with an article by Edward Luttwak, which argued that following the Cold War, the importance of military power was giving way to geoeconomic power.

One reason the term is more commonly used now is the rise of China, which is increasingly using economic tools to project power. Two other factors are also relevant: the revival of state capitalism and state-owned enterprises means that states have more economic resources at their disposal; and the deep integration of global trade links and financial markets has made geoeconomic tools more powerful.

In War by Other Means, Robert Blackwill and Jennifer Harris explore today’s leading geoeconomic instruments: trade policy, investment policy, economic and financial sanctions, financial and monetary policy, energy and commodities, aid and cyber. While some function as they have in the past (aid), others are new (cyber) or operate in a different environment (energy).

China is arguably the world’s most prominent practitioner of geoeconomics, but Russia and the US are also major players. Beijing has repeatedly cut car imports from Japan or withheld exports of Chinese rare earths to Japan in efforts to weaken Tokyo’s resolve over territory and sovereignty in the East China Sea. In providing aid to Africa, China rewards those countries that vote with it at the United Nations.

Russia uses its energy endowment to advance strategic objectives. In 2008, it shut off gas pipelines to parts of Europe in the middle of winter amid political disputes. The Kremlin offers huge financial support to annexed Crimea.

In response to the Russian annexation of Crimea, the US and others did not send troops to defend Ukrainian territory, but instead introduced sanctions on Russia. The US has also led international efforts to influence Iran’s nuclear policies through sanctions. The preponderance of the dollar and US dominance of the international financial system mean that American sanctions have a lot of bite.

With Donald Trump in the White House, it is an open question whether the US will employ US geoeconomic tools to advance the country’s strategic interests. But one thing is clear: geoeconomics is a term we will hear a lot more in the next years.