The Banking Executive Magazine, Issue 154, October 2021

New Geopolitical Economics From the Huawei affair and beyond, a new de-facto is shaking up the global economy: the takeover, usu- ally hostile, of international econom- ics by geopolitics. This process is probably only just beginning, and the challenge now is learning how to live with it. Of course, economics and geopoli- tics have never been completely sep- arate domains. The post-World War II liberal economic order was de- signed by economists, but on the basis of a master plan conceived by foreign-policy strategists. Postwar US policymakers knew what they wanted: what a 1950 National Secu- rity Council report called a “world environment in which the American system can survive and flourish.” From their perspective, the free world’s prosperity was the (ultimately successful) conduit to containing and possibly defeating Soviet commu- nism, and the liberal order was the conduit to that prosperity. But although the ultimate objective was geopolitical, international eco- nomic relations were shaped for 70 years by their own rules. On occa- sion, concrete decisions were skewed by geopolitics: for the United States, providing International Mon- etary Fund financial assistance to Mexico for example, was never equivalent to providing it to Indone- sia. The principles governing trade or exchange-rate policy, however, were strictly economic. The end of the Cold War temporarily put economists on top. For three decades afterward, finance ministers and central bankers thought they were running the world. As Jake Sul- livan (now the national security ad- viser to US President Joe Biden) and Jennifer Harris pointed out in 2020, management of globalization had been deferred to “a small community of experts.” Again, there was an un- derlying geopolitical aim: in the same way that economic openness had contributed to the Soviet Union’s collapse, it was expected to bring about China’s convergence toward the Western model. But for the rest, interference remained limited. The rise of China and its growing ri- valry with the US brought this era to an end. With the failure of conver- gence through economic integration, geopolitics has returned to the fore. Biden’s focus on the Chinese chal- lenge and his decision not to disman- tle the trade restrictions put in place by his predecessor, Donald Trump, confirm that the US has entered a new era in which foreign policy has taken over from economics. In China, there was no need for such a takeover. Although the country’s leaders routinely pay lip service to multilateralism, both its historical tra- dition and governance philosophy emphasize political control of do- mestic and especially foreign eco- nomic relations. The transnational Belt and Road Initiative embodies this model: as Georgetown Univer- sity’s Anna Gelpern and co-authors recently documented, Chinese loan contracts to finance infrastructure projects in developing countries are opaque, involve political condition- ality, and explicitly rule out debt re- structuring through multilateral procedures. Even in Europe, where belief in the primacy of economics was most en- trenched, things have begun to change. “The beating heart of the ISSUE 154 OCTOBER 2021 the BANKING EXECUTIVE 19