Page 12 - Echoes of the Global South V2

Understanding Geoeconomics in a
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Multipolar World

Geoeconomics intersects the domains of economics and geopolitics, traditionally focusing on how economic tools and
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strategies can be employed to by advanced economies to achieve geopolitical objectives. Over the last few decades, as the
global economic landscape became increasingly intertwined with international power dynamics, the strategic use of economic
power to influence or control international outcomes gained prominence over concerns relating to resource allocation and
maximising efficiency and welfare within individual markets. At the core of this idea, geoeconomics enabled using economic
instruments such as trade policy, investment flows, financial aid, sanctions, and infrastructure projects to exert influence
over other states or achieve specific geopolitical goals. In essence, geoeconomic approaches are, therefore, not merely
about economic growth or development but are instead focused on leveraging economic power as a tool of statecraft. It
acknowledges that economic relationships are often a means to broader political ends, such as enhancing national security,
expanding territorial influence, or shaping international norms and institutions.

In contrast to the more univariate view of traditional economics, which often assumes that economic interactions are
largely apolitical and driven by rational actors seeking to maximise utility, geoeconomics explicitly incorporates power,
strategy, and political objectives into economic analysis. It views economic interactions as deeply embedded within
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the broader context of international relations and strategic competition. However, the Global South perspective on
geoeconomics recognises that states may pursue economic policies not just to enhance their own economic well-
being but also to build partnerships that can reshape global governance structures. In some instances, geoeconomic
strategies may also involve state-directed economic policies prioritising strategic goals over market efficiency. This can
include the strategic deployment of State-owned enterprises, using sovereign wealth funds to acquire strategic assets
abroad, or providing subsidised loans and aid to cultivate political alliances. These practices highlight the role of the
State as an active agent in shaping economic outcomes for geopolitical purposes, in contrast to the more market-driven
approach.

Power is a central concept in geoeconomics, as it determines the ability of states to shape economic outcomes in their
favour. In the context of the Global South, power is often exercised through a combination of economic, political,
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and military means. However, economic power has become increasingly prominent as countries seek to achieve
their geopolitical objectives through non-military means. Economic power is typically manifested in several ways.
First, larger economies with significant market access can influence global trade patterns and set the terms of trade.
For instance, India and China's massive domestic markets and the latter’s role as a global manufacturing hub give it
significant leverage in trade negotiations and allow it to exert influence over supply chains. 15,16 Secondly, countries
that control critical resources, such as oil, rare earth metals, or agricultural commodities, can use these resources as
leverage in international relations. For example, Saudi Arabia's control of oil supplies has historically given it significant
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geopolitical influence, particularly in its relations with the West. Third, countries with large financial reserves or
investment funds can use these resources to build alliances, gain influence, or create dependencies. China's use of
state-owned enterprises and sovereign wealth funds to invest in infrastructure projects abroad is a key example of this
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form of economic power play. Fourth, free trade agreements (FTAs) are a classic tool of economic diplomacy and
cooperation that enables countries to collectively shape trade terms and generate economic dependencies. India’s
continued engagement in FTAs with Australia, members of the European Free Trade Association (EFTA), and the United
Arab Emirates (UAE) are initiatives to further its geoeconomic influence over global markets. Fifth, lending money to
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12. Christopher Clayton, Matteo Maggiori and Jesse Schreger, “A Framework for Geoeconomics”
13. Mikael Wigell, “Conceptualizing regional powers’ geoeconomic strategies: neo-imperialism, neo-mercantilism, hegemony, and liberal institutionalism”, Asia
Europe Journal, 14, 135–151 (2016), November 2015, https://doi.org/10.1007/s10308-015-0442-x
14. Krysten Crawford, “Geoeconomics Explains How Countries Flex Their Financial Muscles, Insights by Stanford Business, March 15, 2024, https://www.gsb.
stanford.edu/insights/geoeconomics-explains-how-countries-flex-their-financial-muscles
15. Shifting Global Value Chains: The India Opportunity, World Economic Forum, White Paper, June 2021, https://www3.weforum.org/docs/WEF_Shifting_
Global_Value_Chains_2021.pdf?nt=1
16. Walid Hejazi and Bernardo Blum, “What makes China so attractive to manufacturers?”, World Economic Forum, June 16, 2023, https://www.weforum.org/
agenda/2023/06/what-makes-china-major-manufacturing-hub/
17. Tobias Borck, “Saudi Arabia: The Kingdom of Oil”, RUSI Occasional Papers, November 7, 2023, https://www.rusi.org/explore-our-research/publications/
occasional-papers/saudi-arabia-kingdom-oil
18. James Reilly, “China’s economic statecraft: turning wealth into power”, Lowy Institute, November 26, 2013, https://www.lowyinstitute.org/publications/
china-s-economic-statecraft-turning-wealth-power
19. “Explained: India’s recent push in free trade agreements (FTAs) - signings, types, and benefits”, The New Indian Express, March 10, 2024, https://www.
newindianexpress.com/nation/2024/Mar/10/explained-indias-recent-push-in-free-trade-agreements-ftas-signings-types-and-benefits

12 ECHOES OF THE GLOBAL SOUTH