Mikael Wigell: Geoeconomic Trend Outlook

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

2. 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

3. 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

4. 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

5. 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)

6. 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

7. 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

8. 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

9. The EU’s
securitization
of its
economy

10. 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

11. 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!

12. 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

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

14. 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

15. 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

16. Thank you!
mikael.wigell@fiia.fi