Broadly, geoeconomics is the study of the spatial, temporal, and political aspects of economies and resources. However, there is no widely accepted singular definition of geoeconomics as distinct from geopolitics. The distinction of geoeconomics separately from geopolitics is often attributed to Edward Luttwak, an American economist and consultant, and Pascal Lorot, a French economist and political scientist. Azerbaijani economist Vusal Gasimli defines geo-economics as the study of the interrelations of economics, geography and politics in the "infinite cone" rising from the center of the earth to outer space.
"The logic of conflict in the grammar of commerce"
Luttwak argues that the same logic that underlies military conflict also pertains to international commerce:
States seek to collect as much in revenue as their fiscal codes prescribe and are not content to let other states tax commercial activity in the former’s purview. This is a zero-sum situation.
States predominantly regulate economic activity to maximize outcomes within their own borders, rather than for a disinterested transnational purpose, even when the outcome is suboptimal for other states. The logic of state regulation then conforms, in part, to logic of conflict.
States and blocs of states strive to restrict their payouts and services to their own residents. Moreover, states design their infrastructure projects to optimize domestic utility, regardless of how other states are affected, as opposed to the transnational utility.
States or blocs of states promote technological innovation to maximize benefits within their own boundaries, rather than for the sake of innovation itself.
Geo-economics vs mercantilism
Geo-economics is not to be confused with mercantilism or neo-mercantilism. Under mercantilism, the goal of which was to maximize national gold stocks, when commercial quarrels evolved into political quarrels, which could then lead to military conflicts. Therefore, mercantilist competition was subordinate to military competition, as the former modality was governed by the ever-present possibility that the ‘loser’ in a commercial quarrel could then challenge the outcome militarily. For example:
"Spain might decree that all trade to and from its American colonies could only travel in Spanish bottoms through Spanish ports, but British and Dutch armed merchantmen could still convey profitable cargoes to disloyal colonists in defiance of Spanish sloops; and, with war declared, privateers could seize outright the even more profitable cargoes bound for Spain. Likewise, the Dutch sent their frigates into the Thames to reply to the mercantilist legislation of the British Parliament that prohibited their cabotage, just as much earlier the Portuguese had sunk Arab ships with which they could not compete in the India trade."
In the new era of geo-economics, however, there is no superior modality: Both the causes and the instruments of conflict can be economic. When commercial disagreements do lead to international political clashes, the disputes must be resolved with the weapons of commerce.
The "Weapons" of geoeconomics
States engage in geo-economic competition through both through assisting or directing domestic private entities, or through direct action opposing foreign commercial interests:
States assist private entities through supporting high-risk research and development, initiating overseas market-penetrating investments, and through production over-investment for market-share forcing.
More directly, states impose taxes and quotas on foreign products, bolster regulatory or covert impediments to imports, engage in discounted export financing, initiate national technology programs, and collect economic and technical intelligence.
According to Luttwak, offensive weapons are more important in geo-economics, as they are in war. Moreover, state-sponsored research and development is the most important of these weapons.
"Just as in war the artillery conquers territory by fire, which the infantry can then occupy, the aim here is to conquer industries of the future by achieving technological superiority."
The “infantry” in this analogy corresponds to commercial production, which can also be supported by the state through various forms of subsidies. Yet another geo-economic weapon is predatory finance. If operation subsidies are insufficient to allow domestic exporters to overcome strong competitors, states can offer loans at below-market interest rates. The United States’ Export-Import, for example, provides loan guarantees to finance exports, and equivalent institutions exist across all major industrial countries.
"Thus foreigners routinely pay lower interest rates than local borrowers, whose taxes pay for the very concessions that foreigners receive. That already amounts to hunting for exports with low-interest ammunition, but the accusation of predatory finance is reserved for cases where interest rates are suddenly reduced in the course of a fought-over sale. Naturally, the chief trading states have promised to each other that they will do no such thing. Naturally, they frequently break that promise."
“The laws of geo-economic gravity”
economist M. Nicolas J. Firzli has argued that “adhering to the laws of geo-economic gravity” including financial self-sufficiency and the existence of advanced, diversified transportation infrastructure are now essential to ensure the effective sovereignty of a state: "the government of Qatar is now paying an incommensurate price for having thought it could defy forever the laws of geo-economic gravity " From that perspective, investment attractiveness and the capacity to project soft power across considerable distance as China has done through its Belt and Road Initiative are also viewed as a key determinants of geo-economic strength. Here, large private sector asset owners such as pension funds are expected to play an increasingly important part, alongside US and Chinese state actors:
Geoeconomics superseding geopolitics?
At the end of the Cold War, Richard Nixon predicted that geoeconomic considerations could eventually supersede classical geopolitics amongst US policy makers, a trend he viewed as problematic: “Still others contend that, as the cold war weaned, the importance of economic power and ‘geo-economics’ has surpassed military power and traditional geopolitics. America, they conclude, must beat its swords not into plowshares, but into microchips.”."
