Geoeconomic Disruption: A Comment on the Causes, Consequences and Policy Responses
Notes for the Workshop on “The Shape of Geoeconomics to Come” Cato Institute, Washington DC, 26 March 2019
11 Pages Posted: 9 Apr 2019 Last revised: 21 Aug 2019
Date Written: March 14, 2019
Abstract
The global economy is being reshaped through the overt use of economic power. This marks a point of rupture with the geoeconomic framework of the postwar period, which was largely built on the legalistic rules-based system that grew up under and around the GATT/WTO. In this essay, I interpret the developments through two inter-related lenses: trade and technology. I argue that geoeconomics is endogenous to the underlying economic conditions of the day. In the present instance, the driving force of change is the emergence of a new form of economy based on big data, artificial intelligence (AI) and machine learning (ML), which creates powerful incentives for strategic trade and investment policy to capture the vast benefits at stake. This disrupts a geoeconomic order whose creation was predicated on the win-win benefits of trade in an era dominated by industrial production. To shed light on the evolution of the conflict between China and the United States, the principal antagonists in the trade conflict to date, in terms of how power is being applied and with what consequences, I discuss the metrics of economic power. I identify four key metrics; the present episode of geoeconomic conflict features capabilities in all four areas being deployed based on the economic power assets of the conflicted economic powers. Finally, I discuss the implications of this outbreak of conflict for the geoeconomic order going forward in light of economic history, which suggests that geoeconomics is episodic in nature, that episodes feature often radically different behaviours from predecessors and successors, and that the characteristic institutions of each episode are creatures of their age. This prepares us for pervasive institutional change as the transition in geoeconomic orders unfolds.
Keywords: geoeconomics, data-driven economy, great power rivalry, economic power, WTO reform, China's rise
JEL Classification: F13, F15, F51, F55, K21, K24
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