Governments worldwide increasingly are using economic policies, such as export bans, financial sanctions, and trade tariffs, to achieve noneconomic goals. The benefits of these geoeconomic policies can be significant, accomplishing a geopolitical purpose without threatening, or using, military force—and without the high human and economic costs of war. Perhaps the world should welcome this.
Yet coercive policies can be costly for nations that impose them. As appealing as it may be to use economic policies for coercive purposes, sometimes the benefits are not worth the cost.
Close connection
International politics and international economics have always been closely intertwined. The age of mercantilism that prevailed from the 15th to the early 19th centuries was explicitly organized around the interaction of economic and military prowess. In his 1618 work A Discourse of the Invention of Ships, Anchors, Compasse &c, the explorer Sir Walter Raleigh, a theorist and practitioner of English mercantilism, opines, “Whosoever commands the sea commands the trade; whosoever commands the trade of the world commands the riches of the world, and consequently the world itself.”
Mercantilist policies used military control over shipping routes and colonies to extract resources from trading partners and overseas possessions and used those resources to finance additional military spending. For several hundred years, the major powers’ conflicts and alliances were reflected in both their military and economic relations.
As Britain led the rich countries of Europe away from mercantilism and toward freer trade and financial flows in the early 19th century, the European powers increasingly separated economic policymaking from great-power politics. There were still occasional blockades and embargoes, and economic policies were often used as an instrument of colonial control. But the prevailing ideology and practice tended to keep economic and military policies relatively separate. This era of free trade saw very rapid economic growth by historical standards, which seemed to confirm the wisdom of divorcing economic from diplomatic relations.
However, as countries strove to catch up to Britain in the late 19th and early 20th centuries, geopolitical contention and a race for colonies brought geoeconomics back to the fore. Colonial powers tightened their control over their empires, Germany carved out a sphere of economic and political interest in central Europe, and the United States cemented its predominance in the Western Hemisphere during a period of rising economic nationalism that has parallels today.
The Cold War reinforced the connection between geopolitics and economics: The Western powers largely sealed off the Soviet Union and its allies from international trade and investment even as Western international economic integration grew dramatically. For their part, the Soviets and their allies, along with China, showed little interest in the world economy.
The end of the Soviet Union and the Cold War, along with the onset of full-scale globalization in the late 1980s and early 1990s, led most governments to conduct their international economic relations with little concern for military or other geopolitical considerations. As China and Vietnam, and later the former Soviet republics and their allies, joined the world economy, it seemed that global acceptance of economic integration had overcome the worst features of great-power politics.
Expectations at the start of the new millennium that international politics and international economics would stay separate have turned out to be wrong. Renewed competition among the major powers has encompassed their economic relations—think Western sanctions on Russia and ongoing trade conflicts between China and the United States. The global pandemic highlighted fears that long and complex supply chains could jeopardize countries' access to essential goods. The full-scale Russian invasion of Ukraine has brought major military conflict to Europe in ways that many considered unthinkable. It is hardly surprising that governments are using economic policies to address the rising geopolitical tensions they face.
Benefits of coercion
Governments have good reasons to use economic policies for geopolitical purposes. Sanctions, embargoes, tariffs, and other such measures can coerce adversaries without the threat or use of force. They can impose costs on target countries and governments, induce powerful groups abroad to pressure their own governments to change course, and persuade allies to collaborate in compelling an adversary to make concessions.
The appeal of geoeconomic policies can be clear, although they may be difficult to measure. Many geopolitical goals are hard to quantify, and hard even to think of in monetary terms. How much is national security worth? What is the value of isolating an adversary, cementing an alliance, staving off a potential attack, avoiding a disastrous war?
While the benefits of geoeconomic policies may be intangible, many of the costs are more directly economic and amenable to analysis. Policymakers, analysts, and constituents should think about the trade-offs involved, about what a country may be giving up when it imposes sanctions or tariffs for geopolitical purposes. This does not mean that such policies should be avoided—only that both their benefits and their costs should be considered.
