These and other earlier interpretations of geoeconomics are useful, but they are also incomplete. Strikingly, none of the existing written understandings of geoeconomics succeeds in comprehensively capturing the phenomenon that, as a plain empirical matter, seems most responsible for the term’s recent resurrection: the use of economic instruments to produce beneficial geopolitical results. Despite the considerable attention paid to the global financial crisis and its geopolitical aftereffects, as well as to the growing need to place U.S. foreign policy more firmly in the service of the country’s domestic economic interests, matters of where, how, and how well states today wield economic instruments as tools of statecraft remain sorely underexplored analytic and policy territory.10
With this in mind, we urge the following definition of geoeconomics:
* * *
GEOECONOMICS: The use of economic instruments to promote and defend national interests, and to produce beneficial geopolitical results; and the effects of other nations’ economic actions on a country’s geopolitical goals.
* * *
On this understanding, geoeconomics stands as both a method of analysis and a form of statecraft.11 The first dimension of this three-part definition (“the use of economic instruments to promote and defend national interests”) applies in a general way to traditional understandings of how domestic economic strength promotes U.S. power projection, at least in theory. This dimension is important and well understood.12
Similarly, the final element of this definition of geoeconomics (“the effects of other nations’ economic actions on a country’s geopolitical goals”), while historically underattended compared to other aspects of international relations, has attracted growing interest in recent years. The revival of international political economy certainly deserves some of the credit for this renewed interest.13 But across much of that literature, the predominant focus remains at the level of the system, rather than the nation-state, in attempts to explain how broad economic phenomena—globalization, for instance—might impact multilateral institutions. With some important exceptions, contemporary debates in the field of international political economy still show little interest in more applied matters of power projection and managing relations between nation-states. These positive steps notwithstanding, Alan Dobson is quite right that “economic affairs still often sit uneasily beside political and diplomatic matters.”14
Maybe it should come as no surprise, then, that the role of economic phenomena in shaping geopolitical outcomes also tends to go underreported in much of the press commentary on the foreign policy dilemmas of the day. For all of the discussion surrounding the causes and accelerants of the 2014 Ukraine crisis, for example, it was rare for anyone to highlight the role of international monetary policy in exacerbating the country’s long-running economic woes into full-scale crisis. “Ukraine’s financial problems had been mounting over many years,” explained Benn Steil, director of international economics at the Council on Foreign Relations.15 “But it was the mere prospect of the [United States] Fed pumping fewer new dollars into the market each month that pushed the cost of rolling over its debt … beyond Kiev’s capacity to pay.… The rest is history.”16 That history, Steil correctly notes, has largely “overlooked the role that the Fed’s taper talk played in the toppling of Yanukovych and the chaos that followed.”17
But things may be changing. Thanks in large part to two particular economic headlines bearing undeniable geopolitical consequences, there are reasons to think that a revival of interest in this particular strand of geoeconomics could prove widespread and enduring. The first is the 2008–2009 financial crisis (and the attending eurozone crisis), which now, six years on, continues to prompt a flurry of popular and academic commentary trained on the geopolitical meaning of the ordeal.18 The second is the rise of China, thus far largely an economic story, but one that is widely understood to carry some of the most profound geopolitical effects since the United States emerged from World War II as the world’s leading power. Given their magnitude and long tails, both of these stories have helped bring economic phenomena and their geopolitical impacts into foreign policy reporting and commentary.
Our focus is instead the middle element of our definition of geoeconomics: “the use of economic instruments … to produce beneficial geopolitical results.” For it is these economic techniques of statecraft that, while aptly describing much of foreign policy practice today, puzzlingly remain underexplored territory, especially in any conceptual way and especially in the United States.
British international relations theorist Susan Strange spotted this oversight as far back as 1970, arguing that “what is noticeably missing from the picture are more general studies of international economic relations—whether of problems or issue areas—treated analytically, with the political analysis predominating over the economic analysis.”19 This conceptual gap is not for lack of topical interest; the last several years have seen considerable, sustained attention to individual geoeconomic instruments, as well as around specific countries.20 Among the most compelling of these country-specific portrayals is Edward Luttwak’s most recent book on China. In it, Luttwak argues that because the “logic of strategy … mandates growing resistance to growing power,” and because “any significant warfare between nuclears [is now] largely inhibited,” opposition to Chinese ascendance will manifest geoeconomically.21 For Luttwak, because “China’s continuing rise ultimately threatens the very independence of its neighbors, and even of its present peers, it will inevitably be resisted by geoeconomic means—that is, by strategically motivated as opposed to merely protectionist trade barriers, investment prohibitions, more extensive technology denials, and even restrictions on raw material exports to China if its misconduct can provide a sufficient excuse for that almost warlike act.”22
Others have looked at the role that economic techniques of statecraft have played historically—a slight but important difference from those historians, such as Gavin and Sargent, who tend to focus more on explaining how various economic considerations have shaped foreign policy outcomes. Impressively researched over ten years, Dobson’s 2002 US Economic Statecraft for Survival amounts to a revisionist Cold War history, one that accounts for the neglected role of economic statecraft in explaining U.S. policy between 1933 and 1991. And, although not his apparent motivation in writing, the particular question that Dobson asks—how the United States moved from assiduously defending its neutral trading rights in wartime (prior to entering World War I) to prosecuting a kind of economic warfare against the Soviet Union in peacetime (immediately post–World War II)—is itself a testament to the sort of schizophrenic, often contradictory relationship the United States has had with geoeconomic techniques over its history.
Despite ample attention to historical, topical, and country-specific issues, there has been far less in the way of conceptual thinking about economic and financial instruments as tools of statecraft. Noting Susan Strange’s original call to this effect, David Baldwin’s 1985 Economic Statecraft remains among the few works that have sought to answer it. Baldwin’s primary task is “to think about thinking about economic statecraft,” and he does so by taking explicit aim at the double standards and intellectual hindrances that impede clear policy reflection about geoeconomic techniques. His insights, now thirty years on, remain more evergreen than not.23 Baldwin’s purpose, however, was less to understand how states deployed these techniques and more to vindicate these practices “as more useful than the [prevailing] conventional wisdom would have one believe”—a feat he attempts through a series of historical case studies on sanctions, as well as important looks at trade and aid.24 He does not address whether these techniques were in regular or effective use by foreign policy practitioners of his day, and he does not attempt to apply his framework to gain insight into the challenges foreign policy makers faced.
Nor has there been much progress on these fronts since Baldwin, as several observers—Dobson, Walter Russell Mead, Juan Zarate, Robe
rt Zoellick, and others—have lamented in more recent years.25 While for a time this relative neglect may have been regrettable but not concerning, the situation seems different today. With economic instruments of statecraft now in such widespread use, promulgated by some of the world’s most powerful countries, it seems worth a clearer acknowledgment and understanding of the phenomenon. Ultimately, however, definitions count for only so much. Much of understanding what geoeconomics is comes in acquiring the capacity to think about it. It is worth elaborating our definition with a few additional clarifying points:
POINT 1
Geoeconomics is different from geopolitics.
Rather than focusing on economics as the means to advance geopolitical aims, some definitions of geoeconomics have reversed this means-ends relationship, emphasizing instead how countries might apply military or geopolitical muscle (what some call “hard power”) to bring about beneficial economic results.26 It is undoubtedly an important topic, but one more for a book on geopolitics than for a volume on geoeconomics. For when it comes to classifying various forms of statecraft, it is the means, not the ends, that should dictate. After all, as David Baldwin explained, “bombing a library is not called cultural warfare; bombing homes is not called residential warfare; bombing nuclear reactors is not called nuclear warfare; and bombing factories should not be labeled economic warfare.”27
Indeed, there has been a tendency to treat geopolitics and geoeconomics as interchangeable. While the two are doubtless related, they should be distinguished.28 Part of the difficulty is that, much like geoeconomics, there is no single agreed-upon definition for geopolitics; if anything, that term is invoked even more loosely than geoeconomics. According to one of the most widely cited definitions, geopolitics is a method of foreign policy analysis that seeks to understand, explain, and predict international political behavior primarily in terms of geographical variables.29 Other, more general definitions tend to focus on the relationship between politics and territory—that is, the art and practice of using political power over a given territory.30
Put otherwise, geopolitics is really a set of assumptions about how a state exercises power over territory—what constitutes this power, and how it is increased and spent down. The same is true of geoeconomics as we define it here. But most geopolitical accounts traditionally explain and predict state power by reference to a host of geographic factors (territory, population, economic performance, natural resources, military capabilities, etc.).31 Geoeconomics, in our view, is about providing a parallel account of how a state builds and exercises power by reference to economic factors rather than geographic ones.
On this understanding, then, the use of military power in service of economic goals fits more comfortably as a facet of geopolitics than of geoeconomics. Even so, the two are obviously closely linked, and the relationship between them begs for study and further thought. In particular, it is worth questioning whether the growing use of geoeconomic tools as instruments of statecraft is changing patterns of when and how countries engage in the use of military power.32 While not directly within the scope of this book, it is an important question and one we touch on intermittently throughout the coming chapters.
Critically, understanding geoeconomics requires appreciating deeply embedded differences in the operating assumptions of geopolitics and economics. The logic of geopolitics is traditionally zero-sum, while the logic of economics is traditionally positive-sum. As Michael Mandelbaum put this point in his latest book, “The heart of politics is power; the aim of economics is wealth. Power is inherently limited. The quest for power is therefore competitive. It is a ‘zero-sum game.’ Wealth by contrast, is limitless, which makes economics a positive-sum game.”33 Geoeconomics essentially combines the logic of geopolitics with the tools of economics, viewing the economic actions and options of a given state as embedded within larger realities of state power. This fact often puts geoeconomic approaches in tension with the assumptions of economics.
Consider it this way: returning to the idea that, as Mandelbaum puts it, in “economics, unlike in war, everyone can be a winner,” the point about geoeconomics is that this distinction holds up only as long as economic actions are being pursued for the sake of economic ends.34 It turns out, however, that when put to geopolitical use, economic instruments can produce outcomes that are every bit as powerful and as zero-sum as those resulting from traditional military showings of state power.
Symptoms of these disciplinary tensions between economics and foreign policy surface in the U.S. context all the time. Most of the calls to reorient U.S. foreign policy to account for the expanding role of economic power—to do geoeconomics better—also tend to speak plaintively about the U.S. government’s institutional inability to integrate foreign policy and economic strategy. Former secretary of state Hillary Clinton did so in her confirmation hearing.35 Clinton is joined by a chorus of outside observers that spans former U.S. military leaders, economists, and foreign policy strategists, Republicans and Democrats alike.36 Shortly after her economic statecraft agenda debuted, David Rothkopf, CEO and editor of Foreign Policy, penned a piece on Hillary Clinton “ingesting” the Commerce Department, deeming “the Clinton speech a sign of a successful Secretary of State continuing to work to reinvent the department she leads—to ‘think different’ in the words of Steve Jobs … [and] the sign of an administration maturing and developing better priorities and vital competencies where they are needed.”37 Others, such as former State Department official Nicholas Burns, began to ask whether Secretary Clinton’s new agenda would enable the Obama administration to change the way Washington has traditionally worked by placing economic issues on par with military and diplomatic ones in calculating the national interest.38
Why has any exchange across the realms of foreign policy making and economics proven so difficult? The most commonly held view is that it was not always so; that in fact, the United States historically has been quite adroit at economics-centered foreign policy. As Robert Zoellick, former U.S. trade representative and World Bank president, recently put it, this “separation of economics from U.S. foreign policy and security policy reflects a shift from earlier American experience. For its first 150 years, the American foreign-policy tradition was deeply infused with economic logic. Unfortunately, thinking about international political economy has become a lost art in the United States.”39
Zoellick details this view with a powerful historical account—what amounts to a far better reading of U.S. history.40 But this account raises a crucial question: if the United States was once so adept at this brand of economics-centered statecraft, why are we not anymore? This important question we take up later, in Chapter 6.
POINT 2
To focus on the use of economic instruments to advance geopolitical ends is to say nothing about the nature of the ends themselves; whether the ends of foreign policy are also changing stands as a separate question.
If some understandings of geoeconomics employ a reverse means-ends configuration (again, military power in service of economic aims), others focus only on the ends. Indeed, many a foreign policy commentary has invoked the term geoeconomics as a way of arguing that the priorities of foreign policy either would or should shift toward economic goals and away from military-oriented ones.
Most would agree that this understanding of geoeconomics entered the modern lexicon of international affairs with a 1990 article by Edward Luttwak, wherein Luttwak argued that “the waning of the Cold War is steadily reducing the importance of military power in world affairs.” “World politics,” he believed, was giving way to geoeconomics, “the admixture of the logic of conflict with the methods of commerce.” “As the relevance of military threats and military alliances wanes,” Luttwak observed, “geoeconomic priorities and modalities are becoming dominant in state action.” He expounded on the topic of his article in a 1993 book, this time in a more alarmist tone. Geoeconomics, he explained,
is not more and not less than the continuation of the a
ncient rivalry of the nations by new industrial means. Just as in the past when young men were put in uniform to be marched off in pursuit of schemes of territorial conquest, today taxpayers are persuaded to subsidize schemes of industrial conquest. Instead of fighting each other, France, Germany and Britain now collaborate to fund Airbus Industrie’s offensive against Boeing and McDonnell-Douglas. Instead of measuring progress by how far the fighting front has advanced on the map, it is worldwide market shares for the targeted products that are the goal.
Similarly, while they do not explicitly use the term geoeconomics, scholars like Mandelbaum and Francis Gavin make a case that the nature of states’ geopolitical aims would shift away from military issues and hard security dilemmas toward economic preoccupations. This may well be true, but it is largely outside the scope of this book.41 By contrast, geoeconomic approaches, as defined here, are concerned only with how states are exercising economic and financial tools to achieve their desired geopolitical aims. However, as a state comes to perceive the geopolitical climate as increasingly about economic power projection and hones its own geoeconomic reflexes accordingly, it may—indeed, should—be the case that this realization and re-tooling process leads to changes in its foreign policy strategies.
Next, to suggest that a state is marshaling an economic tool in furtherance of some geopolitical objective is not necessarily to imply that there are only geopolitical objectives at stake. States can and often do design geoeconomic policies that simultaneously advance multiple interests—geopolitical, economic, and otherwise. China’s strategic investments in Africa stand as perhaps the strongest example. But in this respect, geoeconomics is no different from any other brand of statecraft (think, for example, of the economic spoils that war can produce). It is the presence (and not the solitary presence) of an important geopolitical interest that is controlling, in other words. And while countries typically do not offer much insight into the rank-ordering of relative motivations, design choice is often telling. As we argue in Chapter 7, there are plenty of economic policies that could ostensibly simultaneously advance economic and geopolitical goals; often, though, a trade agreement conceived as a serious means of pursuing some foreign policy objective would be a different sort of agreement from one that was aimed narrowly at economic goals.
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