The Age of Geoeconomics is Here to Stay: Blame it on Revenge of Geopolitics

“There are decades where nothing happens; and there are weeks where decades happen” – a quote often widely attributed to Vladimir Lenin that has become in vogue.

While the attribution of this quote may not be certain, what is undoubtedly, and unmistakably, clear is that we today are in one such paradigm.

Geopolitics is back with a bang

The world of international relations and geopolitics has, and continues to – almost on a daily basis – be fundamentally transformed in the post-COVID period. Major powers have discarded long-standing principles of global integration, rules-based order and norms of behaviour for a more nationalistic, insular approach characterised by short-term, transactional mindset.

In this emerging, zero-sum game of geopolitics, the post-Cold War era of a unipolar world order is crumbling, leading to a volatile, fractured global environment where frameworks such as multipolarity and strategic autonomy are increasingly on the agenda of many small and medium-sized countries.

Resiliency over efficiency

As a result, resiliency and de-risking have replaced efficiency and agility as the primary currencies and drivers of public policy and corporate decision making worldwide, as governments and businesses step up efforts to reduce concentration risks around supply chains, human talent, technology, capital and other key vectors.

With key multilateral platforms and institutions such as the World Trade Organisation (WTO) and United Nations (UN) becoming ineffective and paralysed amid big-power competition, bilateralism and regionalism are gaining traction across the board.

Several countries and regional blocs have either finalised, or are in late-stage negotiations to conclude, free trade agreements (FTAs) with counterparts in order to secure market access, and more importantly, reduce overdependence on any single source of demand for their goods and services.

This dynamic of both public and private sector participants seeking to hedge against security, economic, commercial and other major risks will only accelerate in the years ahead, as the world keeps fragmenting, and back-in-fashion 19th-century geopolitics concepts like “spheres of influence” prompt radical rethinking in C-suite and boards.

Industrial policy overtaking free markets

The era of globalisation, laissez-faire free markets and private sector-led economic growth – unleashed in the late 1970s and early 1980s by Ronald Reagan and Margaret Thatcher – is also facing significant headwinds, having already come under strain during the 2007-08 global financial crisis (GFC).

Governments in leading developed and developing countries are embracing wide-spread industrial policy in a bid to address growing domestic political discontent over rising income inequality, lack of economic and social mobility, as well as to build domestic capacity in strategic sectors deemed vital to national security.

Companies and investors are being forced, in many cases, to align themselves with the respective national industrial policy of their base jurisdictions, failing which they risk punitive measures in various forms.

Weaponising geopolitics with geoeconomics

Not surprisingly, then, we today are staring at a perfect storm where big powers increasingly weaponise trade, commerce and other economic instruments to further their geopolitical goals. This trend has major ramifications for private companies and investors, who are having to fundamentally reorient their business and operating models in this emerging volatile, uncertain environment.

Be it ensuring continued market access, protecting capital and investments on the ground, or not getting caught in the cross-fires of geoeconomics rivalry, enterprises and their boards need to reimagine their playbooks for meeting these dynamic challenges.

The world as we knew it for much of the past three decades is over. Geopolitics is long dead, long live geopolitics. And, the age of geoeconomics is here to stay.