Understanding Geoeconomics: How Global Economics Shape International Relations

Geoeconomics involves hegemonic powers leveraging trade and financial relationships to exert influence, moving beyond traditional market power toward structural control of global equilibria. Power manifests as the gap between a firm's inside option—accessing global markets while accepting coercive wedges—and its outside option, which is often intentionally degraded by the hegemon. This dynamic creates a deep trade-off between the efficiency gains of specialization and the risks of economic dependency. While traditional trade theory focuses on welfare maximization, geoeconomic strategy often prioritizes building dependencies, even at the cost of aggregate efficiency. Emerging empirical methods, such as using large language models to analyze corporate transcripts, allow for the systematic tracking of these coercive pressures, revealing how firms navigate export controls and tariffs through R&D shifts or supply chain reconfiguration.