Geoeconomic Trend Outlook
Mikael Wigell
Research Director
The Finnish Institute of International Affairs

The rise of geoeconomics
• Great-power rivalry accelerating in the economic domain
• Economic interdependencies seen as vulnerabilities
• States gearing up for this rivalry by new means for economic intervention
• Economics and security thinking increasingly intertwined putting pressure on the norms
and rules that govern the global economy
• From market capitalism to strategic capitalism

From market capitalism
to strategic capitalism
market
capitalism
strategic
capitalism
state capitalism
state intervention
scope Limited Selective Broad
goal
orientation
Economic Security Political
state-corporate
relations Distant Varied Close

Weaponization of the economy
Economic policy used as a strategic weapon
 New financial sanctions with extraterritorial
effects
 Sanctions against companies and individuals
 Companies used for espionage
 Strategic corruption
Vulnerability to sanctions, corruption and espionage
increasing
 Depending on China-Russia relationship -
sanctions spiral

Accelerating use of sanctions
0
50
100
150
200
250
300
1950 1960 1970 1980 1990 2000 2010 2019
The Use of Sanctions (1950-2019)

Financial sanctions key, less use of trade sanctions
0
20
40
60
80
100
120
140
160
180
1990 1995 2000 2005 2010 2015 2019
Type of Sanctions (1990-2019)
Trade Sanctions Financial Sanctions

Sanctions as a strategic weapon
Instruments
• Trade sanctions – export-, import controls
• Financial sanctions – debt-, investment restrictions,
financial embargoes (eg. De-swiftization)
• Currency warfare
• Asset seizures
Usage
• Three stages: (1) threat (2) limited use (3) economic
warfare
Aims
• Primary vs. secondary aims
Effects
• Extra-territorial/secondary effects
• Decoupling effects

Securitization of the economy
 Security-sensitiveness increasing
 FDI screening
 Export controls
 Science and technology cooperation restrictions
 Data localization regulations
 Critical infrastructure protection regulations
 Reshoring subsidies
 Leading to broader state control in security-
sensitive sectors
 Contingent on China-Russia relationship

The EU’s
securitization
of its
economy

Balkanization of the
global economy
Disintegration of global economic
networks into smaller ecosystems
 Decoupling of global value and
supply chains
 Competition over technical
standards and norms
 Competing economic and
technological ’spheres of interest’
 De-globalization?
 China-Russia relationship as accelerator

A New Cold War?
US-China decoupling concentrated
to the technological domain
Russia facing economic isolation and
economic collapse
• China’s position key – will it
shelter Russia or not?
• If it does – global cold war!

West-Russia Economic Warfare
Western sanctions
 Russian central bank (done)
 Swift (almost complete)
 Banking (partial)
 Export controls (tech almost complete)
 Foreign investment (broad)
 Airspace (almost complete)
 Individual (Putin and big oligarchs)
 Oil and gas (partial)
 Minerals and timber (not yet)
Effects on Russia
 Russia decoupled from global economic networks
 Brain drain and exodus of skilled labour
 Massive corporate flight and private sector divestment
 Technological backwardness

The Global Economic Toll
 Russian response effects
 Spillover effects
 Systemic effects

Russian response effects
 Foreign portfolio capital locked up
 Broad asset seizures
 Commodity export restrictions
 Fertilizer exports (done) – hitting global food production
 Energy exports (expected)
 Critical minerals (expected) – hitting car, aerospace and semiconductor manufacturers and
especially European tech production (fuel cell, hydrogen, 3D printing, robotics)
 Other minerals (expected) – third biggests supplier of nickel used in electronic vechicle
batteries and stainless steel
 Nota bene – China controls similar (and more) mineral supply bottlenecks, which it can use to
amplify its supply dominance
 Threat to EU’s ability to deliver on its green and digital transformations

Spillover and systemic effects
 International commodities markets
 Price increases in oil, gas, wheat, metals, fertilizers and gold
 Shortages of grain, metals and gas
 Accelerating inflation (Global)
 Reduced remittances (Central Asia)
 Increased poverty (Developing Countries)
 Reduced growth (Europe)
 EU (except France) heavily trade-reliant, export-oriented growth model, so ill-suited to prolonged
trade-reducing sanctions
 Increased state intervention to be expected

Thank you!
mikael.wigell@fiia.fi