Descriptions, explanations, and recommendations regarding foreign policy as well as foreign trade policy increasingly refer to the concept of geoeconomics. In fact, the use of economic and technological measures in foreign policy practice is becoming more frequent and intensive, especially in those countries that have the necessary resources of power at their disposal, such as the United States and the People’s Republic of China. This poses a particular political challenge for Germany and Europe, where the focus of economic value creation lies in industrial processing. Europe and Germany are therefore heavily dependent on rules-based access to global supply and markets, and are thus vulnerable economically.
The undifferentiated use of the term “geoeconomics” is quite problematic in this context. In most cases, it is unclear whether it is being used as an analytical framework, a model, an instrument, or a strategy. Furthermore, the underlying normative and theoretical assumptions remain unclear, as do the differences and similarities to related concepts such as geopolitics. The dilemmas and costs associated with the use of economic and technological measures are all too often ignored. These conceptual ambiguities and inconsistencies carry the risk that foreign policy instruments will lose coherence, credibility, and legitimacy. For the purposes of analysis and practical policy-making, it is therefore necessary to clearly conceptualise geoeconomic thought and action, not least so that the costs and benefits of such measures can be weighed in a well-founded manner and their prospects for success assessed more realistically.
In view of this state of affairs, this research paper examines the fundamental assumptions and practices associated with the increasing permeation of power politics into international economic relations. The growing interconnectedness of world politics and the global economy can be understood as a return of power politics to the market. It has brought renewed attention to the long-standing insight that economic activity not only generates prosperity but also promotes foreign and security policy objectives. However, when foreign economic relations are primarily driven by political interests, the potential gains in efficiency and prosperity through free trade, cross-border division of labour, and rules-based competition take a back seat.
Although pursuing political objectives through economic means is a centuries-old practice, the high degree of digital and economic interconnectedness distinguishes today’s globalised world from that of earlier eras. The extent of cross-border flows of goods, services, capital, information, and people has resulted in complex interdependence. If such connections are selectively restricted or suspended altogether, this can pose an existential threat, particularly to companies, but sometimes also to entire economies and societies. Moreover, digitalisation and technological developments not only open up more opportunities for the instrumentalisation of economic ties for the purpose of power politics, but they also create specific vulnerabilities and risks.
In view of these challenges, the pursuit of economic security has become an integral part of the national foreign trade policy of all major economic powers. The most important goals here are to secure supply chains for critical inputs, protect critical infrastructure, and prevent unwanted technology outflows. The European Union (EU) and its member states do not have sufficient decision-making structures and defensive instruments at their disposal to respond adequately to such risks and ward off potential dangers. On the other hand, the offensive use of economic or technological (coercive) measures is problematic. However, the prospects for the success and political effectiveness of such measures appear rather uncertain.
Against this backdrop, the contributions to this research paper focus on the fundamentals and characteristics of geoeconomic thought and action. The overarching aim is to derive practical guidance and knowledge that can be put into action by foreign and security policy decision-makers in Germany and Europe. In the first part, four contributions examine both the theoretical and conceptual foundations of geoeconomic thought and the key categories of space, the international order, and technology. In the second part, nine contributions build on the conceptualisations of geoeconomic thought developed in the first part. Here, selected empirical case studies of geoeconomic action in different regional contexts are examined in functionally defined policy areas.
Based on the respective findings, three overarching recommendations are formulated for geoeconomic action addressed to the German government. First, this cross-cutting task should be institutionally anchored within the National Security Council in the Federal Chancellery and supported by an interagency structure in order to break down institutional silos and ensure coherence and decision-making capabilities in view of different ministerial responsibilities at the German and European levels. Second, existing communication channels should be further expanded, and even closer coordination with relevant stakeholders from business and academia should be facilitated. Third, cooperation with like-minded partners such as allied states and international institutions should be intensified.
About the author :
Hanns Günther Hilpert is a Visiting Fellow in the Asia Research Division at SWP, specializing in East Asian trade and monetary policy, with prior leadership of the institute’s Asia division and extensive experience on the intersection of economics and geopolitical power.
Sascha Lohmann is a Senior Associate in the Americas Research Division at SWP and co-chair of its Economic and Technological Transformations working group, specializing in U.S. foreign policy, international sanctions, and the domestic drivers shaping transatlantic economic statecraft.