What Is Geoeconomics, Really? How Money Became a Weapon


Published by Wolf Street Economics
Serious Economics. No Hype. Just Signals.


Why did the U.S. freeze Russia's central bank reserves? Why did China hit Australia's wine exports with a 200% tariff? And why is the U.S. banning AI chips to China?

These aren't just trade disputes or diplomatic spats. This is geoeconomics, the modern battlefield where money, not missiles, is the primary weapon.


What Exactly Is Geoeconomics?


Coined by strategist Edward Luttwak in the early 1990s, geoeconomics refers to the use of economic instruments, like trade, finance, currency, and technology, as tools of national power.

If geopolitics is war by other means, geoeconomics is peace by coercion.

It's the merger of markets and strategy; where sanctions, supply chains, export bans, and tariffs serve the same role as aircraft carriers once did.


Tools of the Geoeconomics Arsenal


Governments today use an expanding toolkit to exert pressure or project power:
  • Sanctions and financial blockades
  • Tariffs and trade restrictions
  • Export controls
  • Infrastructure and debt diplomacy
  • Currency weaponisation
  • Investment screening and capital controls
In every case, the goal isn't efficiency; it is strategic leverage.


From Cold War to Cold Currency


Power used to be measured in warheads and tanks. Now, in addition, it's measured in:
  • Control over supply chains
  • Access to digital infrastructure
  • Dominance of critical materials
  • Financial surveillance via the dollar
The 2022 freezing of Russia's foreign currency reserves redefined the rules of global finance; and made clear that even central bank money can be weaponised.


China's Playbook: Asymmetric Geoeconomics


Lacking U.S. military dominance, China plays a different game:
  • Controls global rare earth exports
  • Builds influence through Huawei and digital tech
  • Uses Belt and Road for infrastructure leverage
  • Deploys consumer nationalism to punish critics
  • Enforces capital controls to limit external pressure
Example: When Australia called for a COVID investigation, Beijing responded with massive tafiffs on wine and barley.


The Geoeconomics Faultlines Today


  1. U.S.-China Tech War. The U.S. aims to freeze China's progress in chips and AI. China is doubling down on domestic alternatives and retaliatory bans.
  2. Weaponisation of the Dollar. U.S. dominance in finance has created backlash; from yuan-settled oil contracts to gold reserve accumulation.
  3. Supply Chain Realignment. Everyone talks about "friendshoring." But in practice, companies are still split across two ecosystems: East vs. West.

Geoeconomics vs. Economics


Economics asks: What's cheapest?
Geoeconomics asks: What gives us power?

Where economists optimise for growth, geoeconomists optimise for leverage.


Final Thoughts


Geoeconomics is now the language of power.

Markets no longer just respond to policy; they are the policy.

Understanding this shift is essential to making sense of trade, conflict, inflation, and global realignments.



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