Geopolitics is “realism.” Geoeconomics is its “economic means.” Understanding the complexity of the world

The U.S.-China conflict and the invasion of Ukraine heightening interest in geopolitics

As did the old Cold War between the U.S. and the Soviet Union, the current “New Cold War” between the U.S. and China is dividing the world. Then in February 2022, Russia invaded Ukraine, a conflict that is also having major impacts on the global economy.

Against this backdrop, “geopolitics” is attracting renewed attention. Geopolitics is the analysis and study of relations between countries and national strategies that centers on geographical conditions. For example, landlocked countries such as those in Europe are easily affected by bordering countries, while island nations such as Japan focus on maritime trade.

Such global trends cannot be ignored now by Japanese executives, businesspeople, consumers, or students, as the situation in Ukraine, more than 8,000 kilometers away, is impacting household utility bills.

JBIC conducts an annual survey on Japanese companies with operations overseas. In the latest edition, released in December 2022, 85 percent of companies said geopolitical risks were significant (see the graph below).

Some 90 percent of companies responded that the invasion of Ukraine had a negative impact, despite the fact that very few of them operate in Russia or Ukraine.

To start with, what is geopolitics? And how does geoeconomics differ from geopolitics?

AMANO Tatsushi, Director General of the Strategic Research Department at JBIC, is also engaged in research on geopolitics. In 2022, he participated in “Strategic Japan,” a research program of the Center for Strategic and International Studies (CSIS) U.S. think tank, where he presented a paper on Japan’s economic and security policies. According to AMANO, the 19th-century geographer and biologist Friedrich Ratzel is considered the father of geopolitics. Ratzel saw the state as a physical organism with its territory, its “body.”

As this was associated with Nazi Germany’s expansionism, use of the term “geopolitics” was avoided after World War II. “That is why it has not been established as a discipline in Japanese universities, despite the fact that ‘study’ is inferred in the Japanese word for geopolitics,” explains AMANO.

However, in the 1970s, geopolitics reemerged as a term to describe relations among states. According to AMANO, “You could say that contemporary geopolitics is almost synonymous with ‘realism’ in international politics.”

Interdependence prevents conflict? That illusion has been shattered

Along with geopolitics, recent years have seen growing interest in “geoeconomics.” A portmanteau of geography and economics, this word has no established definition. According to AMANO, “Geoeconomics is often used in the sense of ‘using the economy for geopolitical aims,’ with more emphasis on policy implementation than analysis of the current situation.” Economic sanctions against Russia are a case in point.

Reflecting on historical experience, international politics since 1945 had sought to limit sovereignty and avoid armed conflict. “Most illustrative of this trend is the EU. Reflecting on the numerous wars fought during the 19th and 20th centuries, Europe worked to strengthen economic interdependence after World War II.”

But Russian invasion of Ukraine shattered illusions that economic interdependence would lead to peace. The economic ties between the two countries had been extremely strong, and until Russia’s annexation of Crimea in 2014, Ukraine’s largest trading partner was Russia. “Broadening our perspective even more, do frameworks increasing economic interdependence, such as the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), RCEP (Regional Comprehensive Economic Partnership), and IPEF (Indo-Pacific Economic Framework), also lead to less conflict? Not necessarily so.”

Such partnerships naturally have major economic significance, but when it comes to conflict prevention, that comes down to international realpolitik, comments AMANO.

He explains that there are two types of economic interdependence: “sensitivity” and “vulnerability.” Even if a country is heavily dependent on another for a certain commodity, if it can easily procure a substitute, it is “sensitive” and not “vulnerable.”

“As in the case of China’s restrictions on Australian wine imports, countries sometimes implement policies that exploit vulnerability. When deepening economic integration, the key point is how to overcome vulnerabilities caused by interdependence.”

Globalization and the pandemic make economic security Japan’s key challenge

This is precisely the kind of geopolitical risk that is of concern to corporate management. In this respect, what cannot be overlooked is the relation between China and Taiwan.

China insists Taiwan is part of its territory ― its “One China” policy ― while support for independence rises in Taiwan, with the U.S. also involved. From a geopolitical perspective, the reason China is now adamant on integrating Taiwan, even if it means regional disruption, lies in Taiwan’s geographical importance.

China and Russia can be categorized as land powers maintaining border security, while the U.S. and Japan can be categorized as maritime powers controlling certain areas of the ocean. According to geopolitical theory, land and sea powers are likely to clash.

“China, which regards itself as being surrounded and threatened by sea powers, aspires to maritime expansion,” explains AMANO. “Taiwan of course has historical relevance in the formation of China, but its strategic importance in access to the Pacific Ocean cannot be overlooked.”

So how should Japan’s position be considered?

Amid the increasingly tense international situation, a key policy of the KISHIDA cabinet is economic security. Economic security basically means “protecting the country from what could be economic existential threats.”

Specifically, securing semiconductors, food, oil, iron, and other resources necessary for economic independence. AMANO points out that economic security is an important issue because “greater economic interdependence resulting from globalization after the end of the Cold War has increased vulnerability.”

The U.S.-China struggle for hegemony and the loss of free economic exchange due to the coronavirus pandemic have undermined the U.S.-led liberal international order. Japan is now tasked with bolstering supply chains disrupted by the pandemic and overcoming economic vulnerability.

*"Black swan" refers to an event that is difficult to foresee and unlikely to occur, but has extreme consequences if it happens. "Gray rhino" is a risk that has a high possibility of creating serious problems but tends to be neglected.

Southeast Asia, caught between China and the U.S., holds expectations for Japan

In October 2022, the Biden administration’s first National Security Strategy named China a key competitor.

“I believe that for the time being, U.S. strategy toward China will be based on ensuring strategic stability while avoiding unintended and accidental conflicts. In other words, backed by military power, the U.S. and China will be antagonistic to each other, but will not fight,” comments AMANO.

Meanwhile, Chinese President Xi Jinping was elected to a third consecutive term at the Communist Party Congress that same October. China is also emphasizing the need for economic resilience. Both the U.S. and China are placing importance on internal balance, but the U.S. is also emphasizing cooperation with Japan and other allies.

One of Japan’s strengths is its close alliance with the U.S., but this is not its only advantage. According to an opinion poll conducted on ASEAN member states by a Singapore-based research institute in 2022, in answer to the question, “How confident are you that Japan will ‘do the right thing’ to contribute to global peace, security, prosperity, and governance?” 54 percent answered “very confident” or “confident.” This level of trust surpassed that for China, the U.S., and the EU.

Since the start of the second ABE administration in 2012, Japan has been pursuing unique diplomatic strategies including “diplomacy that takes a panoramic perspective of the world map” and “proactive contribution to peace.” It could be said that these are now being put to the test.

According to AMANO, “Southeast Asian countries, caught between China and the U.S., and unwilling to side with either, have high expectations for Japan. Japan’s challenge is whether it can live up to these expectations and more effectively utilize its economic capabilities.”

Do not think these are matters of international politics of no concern to ordinary people. Not only governments, but also companies and individuals need to take a realistic geopolitical and geoeconomical view of the world.

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