Architectures of Geoeconomic Influence and Trade Fragmentation
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| Baron de La Brède et de Montesquieu BnF |
The global economy has entered a phase in which networks themselves have become instruments of power, and the management of trade, finance, and technology now sits at the core of grand strategy.
This shift marks the maturation of geoeconomics: the use of economic tools to achieve geopolitical ends. Once regarded as a supplement to diplomacy or military force, geoeconomic statecraft has become a first-order mechanism of influence. Its rise reflects not only geopolitical rivalry, but also structural changes in the global economy—above all, the increasing centrality of complex, highly concentrated networks.
Geoeconomic Power in Theory and Practice
At its most basic level, geoeconomic influence operates along three dimensions. Unilaterally, it reflects a state’s aggregate position in the global economy—its market size, technological frontier, and financial depth. Bilaterally, it appears as asymmetric dependence between specific pairs of states. Multilaterally, it emerges from control over networks that bind many actors simultaneously.
It is this multilateral dimension that has become decisive. Recent work in international political economy, particularly the literature on weaponized interdependence, shows that power flows not simply from ownership of resources but from positional advantage within networks. States that occupy central nodes—whether in financial messaging, digital infrastructure, or high-end manufacturing ecosystems—can extract informational and coercive benefits far exceeding their share of global output.
This insight bridges classical realist concerns with power and contemporary institutionalist accounts of interdependence. Where earlier theories emphasized either coercion or cooperation, network-based approaches reveal how interdependence itself can be selectively exploited.
Network Topology and the Exercise of Power
Two mechanisms translate network position into influence. The first is informational. States that host or regulate critical hubs gain visibility into global flows, enabling surveillance, enforcement, and agenda-setting. In 2020, for example, a single financial messaging network processed roughly 90 percent of global payment messages, illustrating how concentration produces oversight capacity at scale (World Economic Forum, 2025).
The second mechanism is coercive. Control over chokepoints allows states to disrupt flows on which others depend. Physical chokepoints—shipping canals, ports, pipelines—remain important, as illustrated by the 2021 blockage of a major canal that disrupted nearly $10 billion in daily trade. Yet digital and technological chokepoints have become more strategically consequential. Export controls on advanced semiconductors or manufacturing equipment do not merely deny access to a product; they interrupt learning curves, slow diffusion, and compound technological gaps across generations.
Importantly, network structure shapes outcomes. In bipolar or multipolar configurations, secondary states can exploit competition between hubs to preserve autonomy. Recent research shows that so-called “spoke” states may enjoy greater bargaining power in rivalrous network systems than in unipolar ones, complicating simple hierarchies of dependence.
Production, Service Hubs, and Asymmetric Leverage
Geoeconomic power concentrates where networks thin out. On the production side, dominance over strategically vital inputs—critical minerals, advanced chips, energy technologies—can yield substantial leverage. China’s control over roughly 70 percent of global rare-earth refining capacity exemplifies this logic. Export restrictions can trigger immediate price spikes and supply shocks.
Yet such leverage is often fragile. Repeated use accelerates diversification and substitution elsewhere, eroding influence over time. Historical episodes—from rare earths after 2010 to energy markets more recently—suggest that coercion based on fungible inputs tends to be self-limiting.
More durable influence resides in complex technological ecosystems. Controls that target design software, specialized manufacturing equipment, or tacit knowledge embedded in firms and institutions are harder to replicate. They can be renewed as innovation advances, creating what some analysts describe as a “renewable choke point.”
Service hubs amplify these effects. Global finance depends on interoperability and trust. Studies estimate that deep fragmentation of the financial system could reduce global GDP by up to 6 percent, a cost that renders even geopolitically motivated decoupling economically hazardous (SWIFT/Economist Impact, 2025).
The Participation Constraint and the Limits of Coercion
Despite its growing prominence, geoeconomic power is constrained by what can be termed a participation constraint. Pressure is effective only up to the point at which the target prefers exit over compliance. Recent quantitative work operationalizes this intuition by measuring bilateral dependencies weighted by substitution elasticities. The results suggest that leverage depends less on headline dependence than on the availability of exit options.
Empirically, the record is sobering. Comprehensive studies find that economic coercion succeeds in fewer than half of cases, with diminishing returns as targets adapt. Sanctions imposed on Russia after 2021 sharply reduced trade with several advanced economies, but also accelerated efforts to develop alternative payment systems and reduce reliance on the dollar—steps that may permanently weaken future leverage (Chatham House, 2025).
These feedback effects underscore a central dilemma of geoeconomic statecraft: the more aggressively it is used, the more it encourages resilience, diversification, and institutional innovation among its targets.
Trade Fragmentation and the Montesquieu Revisited
These dynamics are reshaping global trade. The liberal assumption that commerce naturally promotes peace has given way to a more conditional relationship. Recent theoretical work revisits an insight associated with Montesquieu: trade and conflict are jointly determined rather than monotonically related.
Highly integrated partners tend to avoid conflict, locked into a virtuous circle of mutual dependence. At the opposite extreme, minimally integrated rivals may also avoid confrontation by limiting exposure. It is the intermediate zone—partial integration amid strategic mistrust—that proves unstable. Empirical analysis of bilateral trade flows over five decades shows that country pairs rarely remain in this middle ground; instead, they gravitate toward either deep integration or pronounced fragmentation (Adolph, Kohler, and Müller, 2025).
This framework illuminates the fragmentation paradox. Reducing dependence on a rival lowers the economic costs of conflict but can also weaken incentives for restraint, increasing the probability of escalation. Recent models demonstrate that when the likelihood of peaceful de-escalation is high, aggressive trade barriers are suboptimal even on strategic grounds; only when escalation risks rise sharply do tariffs beyond traditional economic optima become rational (Mayer, Méjean, and Thoenig, 2025).
Friend-Shoring, Rerouting, and Hidden Dependence
Policy responses have increasingly converged on “friend-shoring”—redirecting trade toward politically aligned partners. Headline figures suggest success: direct trade between geopolitical rivals has declined sharply in sensitive sectors since 2017.
Yet supply chains have not disappeared so much as rerouted. Connector economies such as Mexico, Vietnam, and several ASEAN members have absorbed and redirected flows. Between 2017 and 2024, ASEAN’s share of U.S. electronics imports roughly doubled, even as direct imports from China fell. Value-added data reveal persistent dependence beneath the surface, highlighting the limits of rapid disentanglement (McKinsey Global Institute, 2025).
Currency patterns reinforce this picture. The U.S. dollar remains dominant in trade invoicing, but its use has declined at the margins among geopolitically distant states. The renminbi’s share remains modest—around 1.5 percent of covered global imports in 2023—but its growth has been rapid and increasingly correlated with political alignment since 2022 (Boz et al., IMF WP 2025/178).
Policy Implications: Managing Interdependence, Not Escaping It
For policymakers, the implications are sobering. The choice is not between globalization and autarky, but between different forms of interdependence—some more brittle than others.
First, geoeconomic tools should be treated as exhaustible assets. Overuse accelerates adaptation and erodes leverage. Second, resilience strategies must account for indirect dependencies and network effects, not just bilateral trade flows. Third, preserving interoperability in core systems—particularly finance—should be treated as a strategic objective in its own right.
Finally, states must recognize the security externalities of fragmentation. Efforts to reduce vulnerability can, under certain conditions, increase the risk of conflict. Managing this trade-off requires coordination among allies and a clearer understanding of where decoupling enhances security and where it undermines it.
The age of frictionless globalization has ended. What replaces it is a more contested and politicized system, in which power flows through networks and economic decisions carry strategic consequences. The central challenge of geoeconomics is not to dismantle interdependence, but to govern it without destroying the foundations of global stability.
References
Adolph, J., Kohler, W., & Müller, G. (2025). Geopolitical Conflict and Trade: Montesquieu Revisited. CESifo Working Paper. https://www.cesifo.org
Boz, E. et al. (2025). Patterns of Invoicing Currency in Global Trade in a Fragmenting World Economy. IMF Working Paper 2025/178. https://www.imf.org
Chatham House (2025). Understanding and Improving Sanctions Today. https://www.chathamhouse.org
McKinsey Global Institute (2025). Geopolitics and Global Trade: A 2025 Update. https://www.mckinsey.com/mgi
Mayer, T., Méjean, I., & Thoenig, M. (2025). The Fragmentation Paradox: De-risking Trade and Global Safety. https://voxeu.org
SWIFT & Economist Impact (2025). Growth at a Crossroads: The High Cost of Financial Fragmentation. https://www.swift.com
World Economic Forum (2025). The Global Risks Report 2025. https://www.weforum.org
Additional Contemporary Sources (2024-2026)
Geoeconomic Theory & Network Power:
Lehdonvirta, V. (2025). “Weaponised interdependence in a bipolar world.” Review of International Political Economy - Analyzes how third countries navigate competing hubs in bipolar networks
Schmitz, L. (2025). “Hierarchies of Adaptation.” Columbia SIPA - Network topology and state power in supply chains
Trade Fragmentation & Empirics:
McKinsey Global Institute (2025). “Geopolitics and global trade—a 2025 update” - Comprehensive trade reconfiguration analysis with 2024 data
Bonadio, B. et al. (2024). “The Empirical Landscape of Trade Policy Uncertainty.” VoxEU/CEPR
Security Dilemma & De-risking:
Mayer, T., Méjean, I., & Thoenig, M. (2025). “The Fragmentation Paradox: De-risking Trade and Global Safety.” - Critical contribution showing decoupling increases conflict risk
Critical Technologies & Export Controls:
Financial Infrastructure:
World Economic Forum (2025). “Navigating Global Financial System Fragmentation”
SWIFT/Economist Impact (2025). “Growth at Crossroads: High Cost of Financial Fragmentation”
Sanctions & Coercion Effectiveness:
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