Last weekend in Washington, near the White House, dozens of economists from universities and the International Monetary Fund gathered to discuss the situation of "geoeconomics."
geographyWhat? Some readers may ask. No wonder: until recently, the word has not been used, as it seems to be different from modern norms.
This is because the phrase describes how governments use economic and financial policies to play electric games. But in the 20th century free market knowledge framework (which is the framework for most Western professionals to build careers), it is often believed that rational economic self-interest ruled the habitat, not dirty politics. Politics seems to be the derivative of economics, not the other way around.
no longer. The trade war launched by U.S. President Donald Trump shocked many investors because it seems so unreasonable by the standards of neoliberal economics. But whether “rational” or not, it reflects the transition to a world where economics is in the United States and in many other places, it also ranks second in the political game.
So universities like John Hopkins, Dartmouth, Kiel and Stanford are looking to expand their “geoeconomics” program (the latter using machine learning, as well as entities like the IMF, Milken Institute and Atlantic Institute. Former U.S. Treasury official Dane Alivarius is now urging companies to create a new role of “CGOs” or chief geopolitical officer, or “a increasingly blurred line between business and judicial Craft,” where “the referee (IE government) has changed the rules.”
It is not clear whether the company will actually adopt the idea. But at the same time, investors and business leaders will be well aware of the five key points about this geo-economic debate.
First, this phenomenon is not just one person (Trump), but a larger turning point among intellectual epochists, which we have seen several times before.
This shift occurred more than a century ago when globalists’ vision of capitalism that ruled before World War I was displaced by nationalists, protectionist policies. After World War II, Keynesian economics occupied after World War II. Then, in the 1980s, the neoliberal idea of the free market replaced Keynesianism.
The intellectual pendulum is now swinging again, spinning towards more nationalist trade protectionism (with military Keynesianism), so this fact fits in the historical pattern, although few have predicted that such swing will take this form in this form.
Second, an important aspect of this epochist shift is that governments no longer focus “only” on the absolute well-being of their country, but on the same side, on its relative position. This difference sounds subtle. But that's important, as a paper written by World Bank economist Aaditya Maddoo, along with Michele Ruta and Robert Staige.
This is because the "absolute welfare" mentality supports trade cooperation, but "if competition makes any consideration for the well-being of one's own country," said the author. Trump’s anger at the time of the United States being “deprived” by its competitors reflects a larger psychological shift.
Third, the (obvious) factor behind this competition is that China is now challenging the current dominance of the United States. This pattern was often seen as Ray Dalio, the luminous substance of Hedge Funds noted in the provocative foreclosed book. Investors should also point out that Dalio shows that such conflicts rarely resolve quickly or smoothly - at least in cases involving debt cycles.
Fourth, as a lawsuit against the United States and China for adopting a Earth economic strategy, other countries are following the lawsuit. Just look at how the European Central Bank develops a digital euro, Saudi Arabia is developing its own technology stack, or Japan uses its finance ministry as a "card" in trade negotiations. This means that technology, trade, finance and military policies are mixing in ways not seen in the neoliberal era.
Fifth and finally, industrial policy is back. It started with President Joe Biden’s presidency. But Trump's tariffs are doubling. To understand this, read a new book called US industrial policy Written by Marc Fasteau and Ian Fletcher, two of the Maga crowd's beloved economists. They advocate tariffs but also emphasize the need for other industrial policies, citing South Korea, Japan, China and Germany as examples of following.
It is unclear whether Trump will follow their advice. But it is obvious that recognition that the U.S. government should shape trade in national interests is increasing. This always follows the effect of Europe and so on.
All of this scares many observers, especially those raised in that neoliberal era. But don't expect the wobble of intellectuals to quickly retreat - even if the United States cuts some trade deals, Trump's love for tariffs is deep, as Pimco's Dan Ivascyn points out. For better or worse, we need to learn to browse the geoeconomics. We can't just hope it.
gillian.tett@ft.com