S8 Ep23: What is geoeconomics?

Episode Summary

Executive Summary: This episode defines geoeconomics as the study of links between geopolitics and economics, especially how great-power rivalry shapes trade, finance, sanctions, aid, war, and globalization. The guests argue the field is timely but underdeveloped, with major research gaps in historical comparison, measurement of soft power, international finance, and the economics of military spending.

Main Topics: Defining geoeconomics (Priority: 5/5): The guests frame geoeconomics as a broad field examining how geopolitical rivalry and economic outcomes interact, especially across borders and international systems. Geoeconomic tools: sanctions, tariffs, export controls (Priority: 5/5): Sanctions, embargoes, tariffs, and export restrictions are presented as core policy tools that connect strategic goals to economic costs and spillovers. Granular data and empirical methods (Priority: 4/5): The discussion highlights how new research uses highly disaggregated data such as firm balance sheets, product-level trade, shipment data, and individual bank accounts to study policy effects. Aid and soft power (Priority: 3/5): The episode explores how foreign aid can serve geopolitical purposes, though it remains harder to measure than hard-power tools and the literature is still emerging. Globalization, hegemony, and dollar dominance (Priority: 5/5): The guests discuss whether world politics drives globalization cycles, whether the current era marks deglobalization, and whether the dollar’s reserve-currency role could eventually weaken. Research gaps and future directions (Priority: 5/5): They call for more historical work, better conceptualization of soft power and geopolitical risk, deeper study of international finance, and greater attention to military economics and defense spending.

Key Arguments: Geoeconomics is distinct from general political economy because it focuses specifically on international geopolitical rivalry and its effects on cross-border flows, wars, trade, and finance. Sanctions are a prime geoeconomic instrument because they are geopolitically motivated but operate through economic channels that affect targets, senders, and third countries. Modern research benefits from unusually granular data, enabling analysis of individual bank accounts, firm balance sheets, shipment-level trade, and product-level flows. Tariffs should be included in geoeconomics because they can be used coercively, not just for standard trade policy, and they reshape global value chains and geopolitical outcomes. Export controls, such as limits on advanced GPUs to China, force economists to weigh geopolitical benefits against real costs to domestic firms and the possibility that targets adapt technologically. Soft power through aid matters, but its geopolitical effects are harder to quantify; the field needs better proxies and more evidence. Historical patterns suggest that globalization tends to be stronger under hegemonic stability and weaker under multipolar rivalry, but the current transition is still unresolved. A major blind spot is geopolitics in international finance: how great-power rivalry affects capital allocation, currency systems, financial stability, and rescue institutions. Military economics and defense financing are under-studied and increasingly important as war risks rise and countries increase defense spending. Economists can contribute by quantifying costs, benefits, and incidence, but interdisciplinary work with political science, international relations, and security studies is crucial.

Data Points: CEPR Discussion Paper: 19856 - The paper is identified at the end of the episode as the discussion paper to search for on cepr.org. Historical comparison window: 150 years - Christophe Trebesch says one project looks back 150 years to study how governments financed military buildups. Policy area examples: 5 subfields - The guests outline five subfields of geoeconomics: sanctions/tools, trade, finance, geopolitical risk, and war economics. Time references: 1970s and 1980s - The discussion of dollar dominance notes that debates about the end of dollar power already existed in the 1970s and 1980s. Historical eras cited: Late 19th century UK; U.S. after World War II - These are given as examples of hegemonic periods associated with greater globalization. Research gap emphasis: Large and rich literature on sanctions; much less on international finance - Moore highlights a comparative imbalance in the current geoeconomics literature.

Pivotal Quotes: "We define geoeconomics in a broad way as a study on the interlinkages between economics and geopolitics." — Christophe Trebesch: Core definition of the field early in the conversation. "Sanctions are really an important part of geoeconomics, and they're like a really good example for geoeconomics because they link geopolitical goals and economic interactions." — Katrin Moore: Explaining why sanctions are central to the field. "We need to turn more to history" — Katrin Moore: A key research agenda item about filling gaps in geoeconomic scholarship.

Implications: Listeners should expect geoeconomics to become more relevant as sanctions, export controls, aid, and defense policy expand. The field needs better data, history, and interdisciplinary tools to assess costs, benefits, and long-run global shifts.