July 11, 2025

The new age of geoeconomics

Donald Trump’s tariff threats are just part of a much wider

Gillian Tett

In January 2008, during the World Economic Forum’s annual meeting in Davos, I was summoned to a
conference room to meet Ray Dalio, founder of the mighty Bridgewater hedge fund.
His team handed me a vast report, the size of a bible. This, I was solemnly told, represented Dalio’s views
on the credit cycle.
I duly skimmed it -and then dumped it into a bin, since it was so heavy. That turned out to be a big mistake.
When the great financial crisis exploded later that year, Dalio was hailed as one of its prophets, in large part
because of the forecasts in that report I discarded.
“I calculated the rate at which debt growth [is] going to occur and the supply and demand for credit, relative
to economic fundamentals,” he recently told me by way of explanation.
Fast-forward 17 years and Dalio is wielding more analysis in his new book titled How Countries Go Broke.
This essentially argues that the US must cut its $36tn debt or risk another financial crisis.
But a subtle -and crucial- shift has occurred. In 2008, Dalio fashioned his forecasts primarily by studying
economic and financial cycles. The new book, like 2021’s The Changing World Order, analyses not just
credit cycles but the “domestic political and geopolitical orders” too.
The reason? Foreign relations are fuelling the US’s debt spiral, since the country feels under threat and
keeps spending; meanwhile, domestic polarisation prevents it from enacting fiscal reform. “It used to be that
money mattered most, but now politics and geopolitics have got more important,” he explains. “They are
affecting money in ways we could not imagine before -there is populism from left and right that looks a lot
like the 1930s.”
Some social scientists might scoff, pointing out that politics has always shaped economics to some degree;
indeed, academics have been studying this for decades. But Dalio’s intellectual journey is echoed by many
others in the financial, corporate and government spheres.
“I spend most of my days [now] advising my clients on how to navigate the onslaught of geopolitical risk challenges
-that’s new,” says Daniel Tannebaum, a partner at management consultant Oliver Wyman in New York.
Or as Jonathan Black, Britain’s deputy national security adviser, recently observed: “This intersection
between economic and security interests [ie geopolitics] is the systemic policymaking challenge of our
time . . . It increasingly dominates the agenda around the table not just at international summits, but in
individual country cabinet rooms and indeed company boardrooms.”
Indeed, the shift is so pronounced that a word is being revived to describe it: “geoeconomics”. This was
arguably coined in a 1990 essay by Edward Luttwak, the military strategist, to describe “the admixture of the
logic of conflict with the methods of commerce”.
More recently Paul Tucker, the former deputy governor of the Bank of England, citing Robert Blackwill’s and
Jennifer Harris’s 2016 definition of the term as “the use of economic instruments to promote and defend
national interests”, notes in his book Global Discord that such instruments include tariffs, regulatory
constraints, aggressive currency devaluations, foreign asset purchases, and controls over the export of
energy and rare earths.
Either way, it is clear that President Donald Trump is already deploying many of the tools on Tucker’s list:
just look at the threatened tariffs against the EU and countries such as South Korea, Japan and Brazil; or the
prospective ban on Chinese purchases of US farmland. Or take note of how China is using rare earth
exports to retaliate. The new age of geoeconomics, in other words, now seems to be upon us. The question
is how we will all respond.
When western observers such as Tucker try to explain this development, they sometimes attribute it to
the rise of China. No wonder: as Graham Allison, the Harvard political scientist, has noted, history is replete
with examples of the so-called “Thucydides Trap”, where a hegemonic power is threatened by a fast-rising
rival and the two are set on a collision course to war. The term has been used most often in connection with
China’s rivalry with the US and, as Luttwak noted, China has been using geoeconomic and mercantilist
policies for years.
However, there is another way to frame it: what we are seeing today is an intellectual pendulum swing. For
while it is human nature to assume that the ideas we absorb about how the world works from our upbringing
and early professional lives are “normal” and permanent, our vision of the political economy has actually
fluctuated several times since 1900, as one mode of thought reacts to another.
The first of these -which has great relevance for today- occurred in 1914. Before that pivotal date, there had
been decades of globalisation in the west, coupled with increasing market competition and technological
progress (albeit under the ugly banner of imperialism). And during that period, most elites assumed that this
state of affairs was entirely normal, beneficial and permanent.
“What an extraordinary episode in the economic progress of man that age was which came to an end in August
1914!” the economist John Maynard Keynes wrote in his 1919 tract The Economic Consequences of the Peace.
Globalisation was so well entrenched that “the inhabitant of London could order by telephone, sipping his
morning tea in bed, the various products of the whole Earth”, and freely invest and travel around the world too,
seemingly without worrying about “racial and cultural rivalries”. Economic logic had trumped politics.
However, the first world war smashed that complacency apart. Protectionism, populist politics and
nationalism exploded, causing globalisation and free-market ideas to unravel. Instead, in the interwar years
commerce became subordinated to statecraft. As the German economist Albert Hirschman noted in his
classic 1945 book National Power and the Structure of Foreign Trade, looking back at the interwar period,
“the contest for more national power permeate[d] trade relations”.
After 1945, there was another pendulum swing. Western governments embraced the ideas advanced by
Keynes that the state should use public finances and institutions to manage domestic demand cycles — and
allies collaborated around institutions such as the IMF and World Bank to boost global trade and financial
links. This rejected the zero-sum vision of commerce and finance that had dominated in the interwar years;
instead of focusing on relative welfare (ie, who is winning), it was about absolute welfare.
Then, in the 1980s, another shift occurred: leaders such as Margaret Thatcher and Ronald Reagan rejected
the domestic agenda of Keynes and instead embraced the free-market ideas espoused by politicians such
as Jack Kemp and economists such as Eugene Fama and Milton Friedman. These assumed that markets
and money were shaped by “laws” of supply and demand so consistent and universal that they could be
modelled using tools from physics and maths.
It was a wildly attractive concept for the fast-swelling financial industry, whose professionals needed a story
to “sell” to their clients -doubly so since the late-20th-century tech revolution suddenly gave financiers the
ability to perform ultra-complex maths, first with the pocket calculators that replaced slide rules, then desktop
computers.
Financial models proliferated in a way that encouraged financiers and economists to conceive of “the
economy” as a quasi-scientific sphere that should be ringfenced from cultural issues or messy politics. Thus
when Dalio’s team presented me with his chart-laden “bible” in Davos, he was not just selling his own
intellectual insight; he was inadvertently symbolising the wider worldview of finance when it imagined “the
economy” and “rational” policymaking.
Now, with Trump, we see a backlash against 1980s neoliberal economics, coupled with a rejection of the
spirit of internationalism that Keynes upheld in reaction to war. To be fair, not all of this can be blamed on
Trump. For one thing, as economists such as Marc Fasteau and Ian Fletcher have observed, the idea that
global markets were really “free” after the neoliberal revolution is an illusion: although much of the western
world embraced these ideas in relation to trade, countries such as China have long been mercantilist. And
there were signs that the US was drifting away from globalisation and free markets long before Trump
arrived in office.
Over two decades ago, say, leftwing protests erupted in Seattle against neoliberal ideals and globalisation.
Such sentiments have spread more recently, on both right and left, as technology and trade displaced jobs.
State economic intervention started rising in the west in 2008, when governments bailed out their banks and
used quantitative easing to shape money markets, and further intensified during the Covid-19 pandemic and
then the energy crunch that followed Russia’s all-out invasion of Ukraine.
Thus when Joe Biden became president in 2021, he not only retained many of Trump’s tariffs but embraced
activist industrial policy with the Inflation Reduction Act. IMF research shows that such measures have
surged in the developed world in recent years.
The Trump team, however, is taking this to new extremes. They operate with a “zero-sum” mentality and an
obsession with power politics that was arguably last seen in the 1930s. And this is not just playing out with
tariffs but could soon affect the sphere of finance too.
The White House has suggested imposing taxes on investors from rivals such as China; it wants to screen
cross-border investments; Stephen Miran, a top Trump economic adviser, has authored a “Mar-a-Lago” plan
that floats the idea of charging other countries for the privilege of using dollar-based finance; Scott Bessent,
the Treasury secretary, has suggested forcing countries that use the US military umbrella to buy long-dated
US bonds; and Trump has threatened massive sanctions against nations that try to move away from using
the dollar as reserve currency.
As other countries consider how to respond, we are seeing “fragmentation in the global financial system”,
says Tannebaum, who is also part of the GeoEconomics Center created by the Atlantic Council think-tank to
monitor these trends. Or as Elmar Hellendoorn, another member of this GeoEconomics group, puts it, we
are seeing the “domination of geopolitics by financial motives, markets, institutions and players” -not just
“geoeconomics” but “geofinance too”.
This can be jarring for those who built their career in the neoliberal era. As Keynes wrote, “The power to
become habituated to his surroundings is a marked characteristic of mankind.” So just as the elites of 1913
were shocked when their assumptions about globalisation collapsed, many western business leaders,
financiers and government officials find Trump’s approach disorientating and potentially very damaging.
Indeed, some deride suggestions that Trump’s team has any kind of “plan” as “sane-washing” since his
actions seem so chaotic and, at times, contradictory.
However, there is an argument that while Trump may lack a “plan” in the normal sense of policymaking, he
has instincts that people around him are fashioning into a rough strategic direction and then using tactics
such as threats, bullying, uncertainty and “flood the zone” messaging to support that strategy. It is crucial, in
other words, to distinguish the chaotic tactics (such as tariffs) from a wider agenda (to remake the global
order to bolster US power).
Moreover, even amid this sometimes contradictory chaos, I would argue that there are at least two
frameworks that can help make sense of this Trump “instinct” on a macro and micro level. One is to borrow
the ideas from Hirschman about hegemonic power, which assert that countries that control key “nodes” in
certain sectors can end up with real dominance.
A group of economists at Stanford and Columbia have set up the so-called Global Capital Allocation Project
(GCAP) to conduct research that “leverages recent advances in large language models to identify the areas of
the global economy that are particularly vulnerable to geoeconomic pressure”. Their core thesis is that China
today has hegemonic control of manufacturing (via its dominance of key supply chain nodes such as rare earth
minerals) but the US has hegemonic control of finance (because of the dollar’s reserve currency status).
Hence one way to make sense of White House actions is that America is trying to undercut China’s industrial
hegemony while also protecting its own financial dominance, and vice versa. Tech hegemony, in my view, is
still being contested.
Such thinking not only explains US-China relations; it also sheds light on how other countries are reacting,
since the priority for them now is to create “anti-coercion” strategies, as the GCAP says. Unsurprisingly, this
is sparking intense debate in places such as Britain. In Whitehall, Jonathan Black has told colleagues that
they should re-read a so-called “Handbook of Economic Warfare” that the UK government wrote in 1938, to
help them think about how to deal with threats from, say, Russia. “Geopolitical competition means we are
seeing a return to strategic statecraft,” he notes. “All countries are going to need to get much better at
thinking strategically, about . . . their approach to using every lever of the state”.
The second key framework, particularly for companies, is to think about stakeholders. This might seem
surprising, given that the ugly word “stakeholderism” first became truly fashionable back in 2019 (when groups
such as the Business Roundtable adopted the concept in explicit opposition to the neoliberal idea advanced by
Friedman that companies should “just” serve shareholders). Thus it was initially linked to the environmental,
social and governance movement, or ESG, which is now under fierce attack from rightwing politicians.
But what is intriguing is that attacks on ESG are not really leading to an explicit call to return to Friedman’s
shareholder-only mantra. Instead, rightwing voices want business to respect different stakeholder interests -
national security concerns, energy needs, patriotic cultural values and so on. So one way to frame the rise of
geoeconomics and geofinance is to “think through the implications of how government and business work
together”, as Black says. In other words, ask which stakeholders matter, and how might this change.
Some observers would question whether this mental shift is truly needed. Many cling to the hope, after all, that
the eruption of geoeconomics in the west will be a temporary phenomenon, likely to end when Trump leaves
office. And it is far from clear that the rest of the world will follow the US into greater mercantilism and
isolationism.
After all, as economist Neil Shearing writes in a new book The Fractured Age, one crucial detail about today’s
world is that in places such as Asia, cross-border trade is still rising; for many countries globalisation is far from
dead. And regions such as Europe remain determined to protect liberal ideas.
However, the problem with geoeconomics is that it is contagious: if one country adopts it, others face pressure
to respond. And while 20th-century history shows that intellectual pendulum swings occur -suggesting that the
Trumpian mindset might not be permanent- eras of political thought usually last for years, not months. The
geoeconomics of the early 20th century lasted more than a decade, and was only ended by war.
Dalio, for his part, thinks that the problems besetting America today are part of a multiyear debt, geopolitical
and political cycle, of the sort that has undermined other imperial powers before. Thus while he has recently
outlined some eminently sensible ideas about how to break that cycle (say, with a multiyear three-part debt
reduction plan), Congress cannot seem to act, he laments. “It’s like being on a boat heading for the rocks
and everyone keeps fighting about whether to turn left or right.”
Politics, in other words, keeps poisoning the well -not just for Dalio’s formerly neat economic models, but for
the wider policymaking world too. Consider that the defining feature of geoeconomics; and the serious threat
that it now poses too.

www.ft.com/content/762c79d2-f9c9-4e68-9a9c-bcfd443ad63e