Geopolitical conquest of the economy
By Jean Pisani-Ferry / Paris
From the Huawei affair to the Aukus feud and beyond, a new reality is shaking the global economy: the generally hostile takeover of the international economy by geopolitics. This process is probably only just beginning and the challenge now is to learn to live with it.
Of course, economics and geopolitics have never been completely separate fields. The liberal postwar economic order was designed by economists, but on the basis of a master plan devised by foreign policy strategists. Postwar American policymakers knew what they wanted: what a 1950 National Security Council report called a “global environment in which the American system can survive and thrive.” From their perspective, the prosperity of the free world was the (ultimately successful) conduit to contain and possibly defeat Soviet communism, and the liberal order was the conduit to that prosperity.
But while the ultimate goal was geopolitical, international economic relations have been shaped for 70 years by their own rules. On occasion, concrete decisions have been skewed by geopolitics: for the United States, providing financial assistance from the International Monetary Fund to Mexico has never been the same as providing it to Indonesia. However, the principles governing trade or exchange policy were strictly economic.
The end of the Cold War temporarily put economists in the lead. For three decades later, finance ministers and central bankers thought they were running the world. As Jake Sullivan (now national security adviser to US President Joe Biden) and Jennifer Harris pointed out in 2020, the management of globalization had been entrusted to “a small community of experts”. Again, there was an underlying geopolitical goal: In the same way that economic openness contributed to the collapse of the Soviet Union, it was to bring about China’s convergence towards the Western model. But for the rest, the interference remained limited.
The rise of China and its growing rivalry with the United States ended this era. With the failure of convergence through economic integration, geopolitics is coming back to the fore. Biden’s focus on the Chinese challenge and his decision not to dismantle the trade restrictions put in place by his predecessor, Donald Trump, confirms that the United States has entered a new era in which foreign policy has taken hold. relay of the economy.
In China, such a buyout was not necessary. Although the country’s leaders regularly honor multilateralism, both its historical tradition and its governance philosophy emphasize the political control of national and especially foreign economic relations. The transnational Belt and Road initiative embodies this model: as Anna Gelpern of Georgetown University and her co-authors recently documented, Chinese loan deals to finance infrastructure projects in developing countries are opaque. , involve political conditionality and explicitly exclude debt restructuring through multilateral procedures.
Even in Europe, where the belief in the primacy of the economy was most entrenched, things started to change. “The beating heart of the globalist project is in Brussels”, declared with contempt the American populist agitator Steve Bannon in 2018. It was indeed true: the primacy of the common rules on the discretion of the State is part of the DNA of Europe. But the European Union, too, is now awakening to the new reality. Already in 2019, the President of the European Commission, Ursula von der Leyen, spoke of leading a âgeopolitical commissionâ.
The question is to know what this geopolitical refocusing really implies. Most foreign policy experts view international relations as a power game. Their implicit models often assume that one country’s gain is another’s loss. Economists, on the other hand, are more interested in promoting the gains that cross-border transactions or joint action bring to all parties. Their benchmark concept of international economic relations envisions independent actors entering into mutually beneficial agreements voluntarily.
In a 2019 article, Sullivan and Kurt Campbell (who now lead Asian policy at Biden’s National Security Council) laid out a plan for âdisaster-free competitionâ between the United States and China. Their scheme combined comprehensive trade reciprocity with China, the formation of a club of deeply integrated market democracies (whose access would be conditioned on economic alignment), and political sequencing in which competition with China would be the default option, with cooperation conditional on China’s good behavior. They also rejected any link between US concessions and cooperation in the management of global commons such as the climate.
It would be a clear strategy, but the Biden administration has yet to say whether it intends to pursue it. The economic woes of America’s middle class and the resulting persistent domestic reluctance to open trade contradict geopolitical goals and make U.S. intentions hard to read. The types of foreign policy may have prevailed over economists, but domestic policy reigns supreme and lucidity is not what guides action.
China, meanwhile, has categorically refused to exclude climate cooperation from the broader US-China discussion, and recently upset the US by asking to join the Global Accord. and Progressive Trans-Pacific Partnership, a regional trade pact that President Barack Obama designed to isolate China but which Trump chose to resign. Instead of being isolated, China is trying to outsmart the United States.
Paradoxically, Europe is getting closer to defining its position. He still believes in global rules and prioritizes persuading partners to negotiate and enforce them, but he is ready to act alone. âOpen strategic autonomyâ – his new buzzword – seemed like an oxymoron. But the EU now seems to know what that means: in the words of Sabine Weyand, the EU’s top trade official, “work with others wherever we can and work independently wherever we need to”. In a more geopolitical world, this could well become Europe’s credo. – Project union
* Jean Pisani-Ferry, senior fellow at the Brussels-based think tank Bruegel and senior non-resident fellow at the Peterson Institute for International Economics, holds the Tommaso Padoa-Schioppa chair at the European University Institute.