Executive Summary
This paper develops a theory of economic coercion where hegemonic powers, like the U.S. and China, leverage economic dependencies to influence other countries. It models the tradeoff countries face between the gains from integration and the need for economic security. Uncoordinated attempts by countries to insulate themselves from coercion lead to inefficient fragmentation of the global system. The authors estimate that U.S. power relies on financial services, while Chinese power relies on manufacturing, and highlight the nonlinear nature of this power.
Why It Matters
This document provides a theoretical framework for understanding how economic dependencies are weaponized by hegemonic powers and how states respond, which is crucial for defense analysts to grasp the evolving landscape of geoeconomic competition and its impact on national security.
Key Takeaways
- Hegemonic powers weaponize economic dependencies (e.g., financial services, manufacturing) to exert influence over other nations.
- Countries face a critical trade-off between economic integration gains and the need for economic security against coercion.
- Uncoordinated economic security policies by multiple nations can lead to inefficient global fragmentation, creating a 'fragmentation doom loop.'
Strategic Relevance
The paper offers a foundational understanding of geoeconomic power dynamics, explaining how economic integration can paradoxically increase a hegemon's leverage and how states' responses to this coercion can reshape global economic architecture. This directly impacts strategic planning, alliance structures, and national resilience.