The summer of 2024 will go down in history as the time when traditional allies of the United States discovered the price of economic interdependence. The speed with which asymmetric trade agreements were signed marked the «summer of humiliation». What explains this wave of «economic capitulations»? The response is not found in traditional international trade models, but in geoeconomy, a term coined by Edward Luttwak in 1990 that describes how states use economic instruments – commercial, finance, industrial policies – to project their geopolitical power. What we are living is not a simple commercial war, but the systematic subordination of the economy to politics and assumptions national security objectives. Evidence is overwhelming. According to the World Trade Organization, between October 2023 and October 2024, restrictive measures were adopted that affect commercial flows for 887.6 billion dollars, an increase of 160% compared to the previous year. World trade subject to restrictions already reaches 11.8% of the global total. Tariffs are just the tip of the iceberg. The true revolution includes regulatory restrictions, financial interventions, sanctions and control of critical nodes of the global economic system. When Trump ordered to fire the governor of the Lisa Cook Federal Reserve, the message was clear: institutional independence is an inadmissible «luxury». To understand this new era it is convenient mergers on competition. Its intuition- when there are high market quotas, power does not grow linearly but exponentially- is the key to understanding the new times. That idea is the one that underlies the works of the Global Capital Allocation Project (GCAP), an initiative of Yale, Stanford and Columbia to study the emerging geoeconomic power. The second of his ideas is more restless: power is the ability to inflict welfare losses to your rivals and allies by cutting their access to markets and critical supplies. When this methodology applies to today, the results are revealing: the United States can impose losses of 5.8% of GDP to China and 8.6% to the European Union, while its vulnerability is minimal. China can only generate 0.9% losses to American GDP. This disparity is explained by the asymmetric structure of the global economic system. The United States dominates international financial services with fees that exceed 80% -90% in entire segments of the system. The dollar represents 60% of world reserves, 88% of foreign exchange transactions and 40% of Swift payments. Literally the dollar is «its currency, but our problem.» China controls approximately 30% of world manufacturing production and dominates the supply chains of critical supplies such as rare earths. But this advantage is neutralized by the low substitute for US financial services against the relative ease to relocate manufacturing production. Europe is in fragile position, dependent on the United States in technology, energy and without autonomous financial system. These vulnerabilities explain Turnberry. In that golf course, 100% of what could be made. Hirschman’s mathematics returns some hope: Marginal losses of the American power quota can have nonlinear effects on their coercive capacity. If the United States went from 80% to 70% share in certain financial segments, its power of coercion would also be dramatically reduced. That is why they are so worried about Chinese attempts to create alternative payment systems to the dollar. Europe should take good note. Proposals such as Blanchard and Ubide to create a five billion Eurobones market through national debt exchange, rather than financial engineering, is a creative way to create “soft coercion” that balances existing asymmetry. Europeans must understand that there has been a fundamental transformation in international economic rationality. While traditional economic logic requires net profits for all, geopolitical rationality justifies strategies that generate global net losses, provided that the losses of the «attacked» exceed those of the «aggressor.» The sooner we understand that the Trump administration does not seek to maximize US growth, but the relative advantage over its competitors, the better we will go. Geoeconomy is not an academic fashion, but the new reality of the international system. Understanding the mathematics of economic coercion has become as important as understanding the military strategy in the 19th or 20th century.
