Geoeconomics Defines a New Phase of International Competition

Geoeconomics is a distinctive feature of contemporary international relations. The policy community understands geoeconomics as the study of how countries leverage trade and technology to gain power and influence. Instead, observers of international relations should define geoeconomics as a systemic framework for understanding how economics, technology, and geography affect the international system as a whole, going beyond a study of individual states themselves.

Wealth and Power in International Relations

The connection between wealth and power has been recognized since Ancient Greece and the writings of Thucydides. Today, geoeconomics figures prominently in the study of strategy because of the convergence of three trends in world politics.

First, rivalry between the United States and China is heating up. The United States has seen China become a near-peer competitor in part by exercising influence through economic tools such as the Belt and Road Initiative and technological assets held by companies such as ZTE and Huawei. Second, the advent of the Fourth Industrial Revolution—a transformative moment in economic history heralded by emerging technologies such as artificial intelligence (AI) and next-generation telecommunications—is raising the stakes in the geopolitical competition to assert leadership in critical technologies for determining the international distribution of capabilities. Finally, a backlash against globalization is fueling calls to reshore production within national borders in the name of economic and national security, pouring fuel on the fire of great power strategic rivalry.

Why We Need to Define Geoeconomics—and How

Geoeconomics can provide context to an evolving global system. Previous ways of understanding international relations have a limited ability to explain the intersection between intensifying strategic competition and transformative technological change, when individual companies—and not just states—can dominate the manufacturing and development of critical technologies. For example, the Taiwan Semiconductor Manufacturing Company (TSMC) accounts for a preponderant share of global revenue in manufacturing advanced semiconductors, and OpenAI has been spearheading recent advances in generative AI.

By analyzing such developments through a framework focused on the international system, rather than distinct actors within that system, geoeconomics can further our understanding of how international security simultaneously shapes and feeds on the international political economy.

For geoeconomics to put global geostrategic shifts in context, a clear definition of what geoeconomics is—and what it is not—is required. Drawing on my contribution to the Oxford Handbook of Geoeconomics and Economic Statecraft, in this commentary, I define geoeconomics in a way that emphasizes the international system rather than the strategies of individual states. Geoeconomics, then is “how economics, technology, and geography affect the distribution of capabilities in the international system.”

A New Word for an Old Phenomenon?

There are, however, competing definitions, and geoeconomics is frozen in a state of conceptual limbo. New words take time before they are generally accepted, and geoeconomics can be easy to dismiss as the latest Washington, D.C. buzzword rather than a concept with real analytical value.

But the main reason why geoeconomics doesn’t have a generally accepted definition is that it is used to refer to issues that political scientists already have concepts for. For example, Robert Blackwill and Jennifer Harris call 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.” That is what political scientists call economic statecraft, a concept that has existed since the 1980s.

If economic statecraft has been around for decades, why do we now need the term geoeconomics? Geoeconomics as a concept can only be justified if it is distinguished from economic statecraft and can provide real analytical value that other international relations concepts do not.

The Distribution of Capabilities

Geoeconomics is a systemic theory, in that it examines the properties of a group of states based on the claim that they are more than the sum of their parts. One property highlighted in Kenneth Waltz’s 1979 book Theory of International Politics—which advanced the concept of systemic theory—was the distribution of capabilities: where power is concentrated and how many great powers there are in the system.

This essay proposes a definition of geoeconomics that is systemic insofar as it is concerned with the distribution of capabilities. Geoeconomics, therefore, is about how the world order is evolving, in terms of the relative capabilities of the great powers.

The global distribution of capabilities has clearly changed as the United States’ “unipolar moment” has come and gone. The idea that China is catching up to the United States is now commonplace and implies movement toward something like the bipolarity of the Cold War. Yet China does not expect to have a military capable of challenging the United States on a global scale until 2049.

China for now may still be a near-peer competitor of the United States, rather than a true peer; but the fact that China is a rising power is still an important issue for both theory and policy. In that context, it is worth asking what kinds of factors—economic, technological, or geographic—are enabling China’s rise, and could enable China to rise even further.

Political scientists consider economic growth to be a factor in shifts of the distribution of capabilities, but systemic analyses often treat it as an independent variable determined outside the scope of political science. While growth itself may remain the domain of economists, to the extent that political factors influence growth and that growth produces structural change, it also falls within the purview of geoeconomics.

In addition to economic growth, technology and geography are also important factors in determining the structure of the international system. The Fourth Industrial Revolution is producing changes in both the civilian and defense economy that could alter the distribution of capabilities. China’s ability to project power is constrained geographically by the First Island Chain; but if China seizes control of Taiwan, then the distribution of capabilities would be altered—perhaps decisively so.

Firms Influencing the Distribution of Capabilities

Despite its concern with relative capabilities among the great powers, geoeconomics is not limited to the study of the great powers—or even necessarily states. The unit of analysis in geoeconomics can include firms that have an impact on the distribution of capabilities. Taiwan is home to 92 percent of the world’s manufacturing capacity for the most advanced semiconductors, the lion’s share of which is held by TSMC. Given the importance of emerging technologies in the U.S.-China strategic rivalry, TSMC’s position makes it a structural player with the potential to alter the distribution of capabilities if China seizes Taiwan.

This may be exceptional, but there are parallels in other strategic emerging technologies. A small number of companies are spearheading innovation by developing infrastructure, platforms, and capabilities with structural consequences: companies such as OpenAI in generative AI; ASML in extreme ultraviolet lithography used in advanced semiconductor manufacturing; and Huawei, ZTE, Nokia, and Ericsson in next-generation telecommunications.

Firm-level analysis can be just as important for geoeconomics as the grand strategy of a particular state. This aspect of geoeconomics is one of its most theoretically novel characteristics; international relations does not have an established framework for understanding how individual firms can impact the distribution of capabilities.

Bridging the Divide

For the study of geoeconomics to have maximal impact, it must overcome a persistent disconnect between the academic community and policymakers. The concept is well suited to provide both a bridge between theory and policy and a distinctive way of thinking about international relations.

Defined as a structural concept focusing on the economic, technological, and geographic determinants of shifts in the distribution of capabilities, geoeconomics considers the international system as a whole rather than the strategy of any individual state. It is distinct from economic statecraft in that it is not state-centric. Geoeconomics’ dependent variable is the system, but its independent variables encompass a range of factors, including structurally significant firms. It is defined in a way that offers novel insights into international relations theory, especially the multifaceted nature of power in the contemporary period of strategic competition, and takes into account the economic and technological trends that have contributed to the Fourth Industrial Revolution.

For policymakers, the contribution of geoeconomics is to shift the analytical lens from the policies of individual states and adopt a big-picture perspective on the impact of trade, technology, and geography. It is not the study of statecraft, but rather the study of long-term trends and shifting power balances on a global scale.

James Lee is an assistant research professor at the Institute of European and American Studies at Academia Sinica in Taiwan, an affiliated researcher at the UC Institute on Global Conflict and Cooperation (IGCC), and an associate fellow within the research division of NATO Defense College. The views in this commentary do not necessarily reflect the view of NATO or the NATO Defense College.

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