From Tanks to Tariffs: The Rise of Geoeconomics
Janice Goh
In April 2025, President Trump took the world by storm by introducing a whole spate of tariffs on many countries. From threatening a 100% tariff on China’s rare earth exports to 41% reciprocal tariffs on Syria, the “Liberation Day” tariffs prompted diplomatic outreach from many countries to the United States in an attempt to negotiate better terms. Albeit shocking, this weaponisation of economic policies for political goals signifies the rise of geoeconomics. Traditionally, geopolitics is characterised by military strength, territorial influence, and national sovereignty. Yet, globalisation has resulted in countries being so economically intertwined through trade routes and economic dependence. Now, global influence and power to shape global affairs do not merely lie in the control of armies and borders. Rather, they hinge on the capacity to control supply chains, capital flows, and trade routes – the very crux of geoeconomics.
In this article, I will break down how economic policies have been wielded as a punitive tool of coercion and negotiation, and a mechanism to broaden a country’s sphere of influence. I argue that the weaponisation of economic policies is ultimately harmful, despite its efficacy in attaining desired political outcomes.
Economic Policies as an (Un)Diplomatic Tool
A natural intuition of geoeconomics is to weaponise economic policies as a punitive tool of coercion – compelling other countries to oblige by certain rules. This was observed most prominently during Russia’s invasion of Ukraine. In response to Russia’s military aggression, governments across the board imposed sanctions on key economic sectors. Notably, the United States, Australia, Canada, and the United Kingdom banned imports of Russian oil, coal, and liquefied petroleum. Such trade restrictions shrank the Russian economy, which relied heavily on the extractive energy industry – in 2022, its Gross Domestic Product fell by 2.2%. Moreover, the US Department of Commerce restricted Russia’s access to technology crucial to warfare (e.g., communications and semiconductors) through export controls. At the core of sanctions, the intention was to shrink Russia’s economy and limit its capacity to finance the war. Furthermore, targeting strategic industries cuts off access to advanced military technology, preventing further aggression. Therefore, economic policies, specifically sanctions, have been employed to cripple and compel states into desired actions.
Beyond its punitive function, economic policies have been used as a bargaining chip between countries. Given the crippling effect economic sanctions can have, the mere threat of possibly implementing tariffs can strong-arm a country to concede on bilateral matters that political agreements fail to address. We see this most acutely during the spate of Trump’s on-and-off tariffs. With the existing United States-Mexico-Canada Agreement (USMCA), the US is the biggest customer of Canada and Mexico – making up 76% and 72% of their respective exports. Capitalising on their economic dependence on the US, President Trump threatened to impose a 25% tariff on imports from Canada and Mexico if they refused to clamp down on fentanyl trafficking and illegal immigration. Similarly, to bolster domestic supply chains, the US initially threatened to impose a 25% tariff on Japan’s critical automotive sector. However, this evolved into negotiations that enabled the US to extract $550 billion worth of investment pledges from Japan, in exchange for a tariff reduction to 15%. By leveraging threats of sanctions, countries can be pressured into making compromises to avoid an economic fallout, allowing the imposer of the tariff to achieve a desired political outcome.
Lastly, economic policies have become a means of increasing a country’s sphere of influence. Through investments, countries can embed themselves in foreign soil and forge stronger bilateral relationships, allowing them to exercise greater power and influence across the globe. An example is China’s Belt and Road Initiative. As an ambitious infrastructure project, the project sought to link East Asia and Europe through development and investment initiatives. For example, China embarked on the $62 billion China-Pakistan Economic Corridor – a collection of projects connecting China to Pakistan’s Gwadar Port on the Arabian Sea. By developing a trans-regional network, China is effectively increasing its economic engagements with emerging economies and standing out as a leader in global affairs. Such economic ties and international recognition are highly critical as China engages in a hegemonic trade war with the United States.
Impacts of Geoeconomics
While weaponising economic policies on foreign countries is arguably effective in forcing political concessions, they are undesirable given the economic toll. For the tariffed country, export tariffs reduce the foreign demand for goods. This results in a lower demand for domestic currency, causing it to depreciate. As there is an appreciation of foreign currency relative to domestic currency. This makes it more expensive for affected countries to import foreign goods. The increased production costs lead to higher goods prices transferred onto consumers. As for countries utilising geoeconomics, the pivot from free trade to increased dependence on domestic industries shields them from foreign competition, creating less competitive and efficient industries. With less incentive to lower prices, consumers suffer from welfare loss. Moreover, leveraging on sanctions may invoke an economic retaliation, spiralling into a trade war as observed in the case of US and China. Ultimately, sanctions are economically undesirable despite their political advantages.
Yet, it seems unlikely that countries will wane off economic policies as a negotiation and punitive political tool. It is, therefore, critical for countries to build resilience against any threats of geoeconomics. A potential solution is to diversify trade partners. Given the volatility of geoeconomics, having multiple trade partners allows one to de-risk and fall back on other countries even in the midst of sanctions. By spreading eggs in different baskets, countries can maintain their supply chains and mitigate any impacts to the trade balance. This offers a greater level of economic stability by dampening the effects of reduced exports and rising prices.
The age of tanks and territorial conquests has given way to an era where tariffs and sanctions are the main instruments of power. The rise of geoeconomics marks a transformation in how countries exert influence. Yet, this comes at significant economic costs of inflation and retaliatory trade wars. Going forward, the challenge for policymakers is to strike a balance between economic security and global openness. Rather than relying on punitive tools, nations should invest in resilient and diversified trade networks that reduce vulnerability to coercion.
References:
1. https://www.tradecomplianceresourcehub.com/2025/11/20/trump-2-0-tariff-tracker/
2. https://www.consilium.europa.eu/en/infographics/impact-sanctions-russian-economy/
5. https://www.reuters.com/world/us/trump-promises-25-tariff-products-mexico-canada-2024-11-25/