Christopher Clayton researches international finance and macroeconomics at the Yale School of Management. Speaking with Srijana Mitra Das in ET Evoke, he discusses key pillars — and players — of geoeconomics:
Q. What is the core of your research?
A. This is currently on geoeconomic policies, which is basically looking at how hegemonic countries — like the United States and China — use their economic leverage from trade, financial or other relationships to achieve geopolitical and economic goals. I look at the strategic use of sanctions, tariffs, foreign aid and other eco-nomic tools for foreign policy goals as well as study how firms and governments in the world are responding to these.
Q. So, is geoeconomics a strategy that branches out from geopolitics?
A. Geoeconomics is essentially a form of geopolitics that centres around the use of economic tools to pursue it — hence, it’s in contrast with more traditional tools of influence, like military power.
Q. What basic pillars must a nation have in place to deploy geoeconomics?
A. At its core, being able to deploy geoeconomics typically comes down to having access to or production of relatively specialised goods that are hard to obtain elsewhere. Right now, we see the US has those characteristics in its centrality in the international financial system and pro-vision of the dollar as well as its dominant position in a lot of technology — we also see that for China through rare earths and traditional manufactured goods. Essentially, it comes down to having some central role or key input in the global economic network that makes it attractive for other countries to continue dealing with you economically.
Q. Has the US-China competition brought geoeconomics to the fore now — or has it always been there but under the radar?
A. It’s always been there. There’s a long history of geoeconomic policies. Way back in 1945, Albert Hirschman, the economist, was writing about it, largely in the context of interwar Germany. Since then, it’s been developed intellectually in international political economy, often through the lens of Cold War relations, with policies like the Marshall Plan and the deployment of sanc-tions by the US. I think now, with the kind of policies targeted against Russia, Iran, and increasingly, China, we are seeing a resurgence of interest in it.
Q. In the Trumpian era, geoeconomics is being used by the US also against its own allies — will this strategy create a whole new world?
A. There are some senses in which what the US is doing vis-a-vis its allies could be seen as an extension of the alliance era — an exa-mple would be trying to use tariff policies to induce greater military spending in NATO. I think that’s arguably overcoming the free rider problem in defence provision. We also frequently see the US using threats of second-ary sanctions to get Europe and other coun-tries to join export control coalitions with it.
These are instances where I think this is a natural continuation of US leadership. On the other side, we are also seeing the increasing use of these instruments against our allies to negotiate trade deals or get other concessions. I think it’s an open question what the mix of policies looks more like at the moment.
Q. Are only hegemonic powers using geo-economics today — or do smaller nations have such strengths as well?
A. There are instances of the latter, which again evokes the idea that what you need is a specialised product which is hard to get elsewhere. An example would be Taiwan with the Taiwan Semiconductor Manufacturing Company (TSMC). Today, TSMC has significant control over the world’s semiconductor manufacturing — that’s given it quite a central position between the US and China and helped it maintain some security which comes from the fear that if China invaded, the access to those production facilities would be disrupt-ed. It’s harking back to the old idea that trade between countries can potentially promote peaceful relationships. So, geoeconomics is not only a game of the great powers, although it is, by and large, mostly pursued by them.
Q. Is there such a thing as using too much geoeconomic heft?
A. Absolutely. If you have, say, a trading partner who makes new demands very often and threatenes to terminate relationships or impose tariffs, suddenly the counterparty has to start assessing if the benefits of the relationship are actually outweighing the costs of either switching to home production or finding another seller. In our work, we highlight how there is value for even a hegemon of maintaining some discipline or rules of the game because this gives secu-rity to counterparties if they know they can remain under its influence.
Q. How would you critique Trumpian geoeconomics in that context?
A. A successful geoeconomic strategy needs to be predictable and measured in its application. I don’t get the sense that is what we are seeing in how the current administra-tion is employing policies.
Q. How do you analyse India in a wider geoeconomic landscape?
A. While this is from an entirely foreign perspective, my sense is that India is posi-tioned between the two great powers, which gives it the ability to play them off against each other and get better terms from each. That’s a position we may find more countries situated in soon. It is an open question to see how more neutral countries like India fare relative to traditional allies like Western Europe and Japan — as well as whether they benefit or are harmed differently by the rising alternative of China.
Views expressed are personal
Q. What is the core of your research?
A. This is currently on geoeconomic policies, which is basically looking at how hegemonic countries — like the United States and China — use their economic leverage from trade, financial or other relationships to achieve geopolitical and economic goals. I look at the strategic use of sanctions, tariffs, foreign aid and other eco-nomic tools for foreign policy goals as well as study how firms and governments in the world are responding to these.
Q. So, is geoeconomics a strategy that branches out from geopolitics?
A. Geoeconomics is essentially a form of geopolitics that centres around the use of economic tools to pursue it — hence, it’s in contrast with more traditional tools of influence, like military power.
Q. What basic pillars must a nation have in place to deploy geoeconomics?
A. At its core, being able to deploy geoeconomics typically comes down to having access to or production of relatively specialised goods that are hard to obtain elsewhere. Right now, we see the US has those characteristics in its centrality in the international financial system and pro-vision of the dollar as well as its dominant position in a lot of technology — we also see that for China through rare earths and traditional manufactured goods. Essentially, it comes down to having some central role or key input in the global economic network that makes it attractive for other countries to continue dealing with you economically.
Q. Has the US-China competition brought geoeconomics to the fore now — or has it always been there but under the radar?
A. It’s always been there. There’s a long history of geoeconomic policies. Way back in 1945, Albert Hirschman, the economist, was writing about it, largely in the context of interwar Germany. Since then, it’s been developed intellectually in international political economy, often through the lens of Cold War relations, with policies like the Marshall Plan and the deployment of sanc-tions by the US. I think now, with the kind of policies targeted against Russia, Iran, and increasingly, China, we are seeing a resurgence of interest in it.
Q. In the Trumpian era, geoeconomics is being used by the US also against its own allies — will this strategy create a whole new world?
A. There are some senses in which what the US is doing vis-a-vis its allies could be seen as an extension of the alliance era — an exa-mple would be trying to use tariff policies to induce greater military spending in NATO. I think that’s arguably overcoming the free rider problem in defence provision. We also frequently see the US using threats of second-ary sanctions to get Europe and other coun-tries to join export control coalitions with it.
These are instances where I think this is a natural continuation of US leadership. On the other side, we are also seeing the increasing use of these instruments against our allies to negotiate trade deals or get other concessions. I think it’s an open question what the mix of policies looks more like at the moment.
Q. Are only hegemonic powers using geo-economics today — or do smaller nations have such strengths as well?
A. There are instances of the latter, which again evokes the idea that what you need is a specialised product which is hard to get elsewhere. An example would be Taiwan with the Taiwan Semiconductor Manufacturing Company (TSMC). Today, TSMC has significant control over the world’s semiconductor manufacturing — that’s given it quite a central position between the US and China and helped it maintain some security which comes from the fear that if China invaded, the access to those production facilities would be disrupt-ed. It’s harking back to the old idea that trade between countries can potentially promote peaceful relationships. So, geoeconomics is not only a game of the great powers, although it is, by and large, mostly pursued by them.
Q. Is there such a thing as using too much geoeconomic heft?
A. Absolutely. If you have, say, a trading partner who makes new demands very often and threatenes to terminate relationships or impose tariffs, suddenly the counterparty has to start assessing if the benefits of the relationship are actually outweighing the costs of either switching to home production or finding another seller. In our work, we highlight how there is value for even a hegemon of maintaining some discipline or rules of the game because this gives secu-rity to counterparties if they know they can remain under its influence.
Q. How would you critique Trumpian geoeconomics in that context?
A. A successful geoeconomic strategy needs to be predictable and measured in its application. I don’t get the sense that is what we are seeing in how the current administra-tion is employing policies.
Q. How do you analyse India in a wider geoeconomic landscape?
A. While this is from an entirely foreign perspective, my sense is that India is posi-tioned between the two great powers, which gives it the ability to play them off against each other and get better terms from each. That’s a position we may find more countries situated in soon. It is an open question to see how more neutral countries like India fare relative to traditional allies like Western Europe and Japan — as well as whether they benefit or are harmed differently by the rising alternative of China.
Views expressed are personal
