Are only the US and China left? –An Update on Economic Security and Geopolitics

Are you interested in the interaction between geopolitics and economics?Then you should read these reflections on how much the geopolitical situation has changed in a single year. Here I confront my views from my very first Observator article with the reality a year later. The article is written in October 2024.

LAST YEAR: Geoeconomic policy making is on the rise. Since geopolitics and geoeconomics were rather new last year, I started my article with an introduction to both concepts. To give a quick recap, geopolitics refers to how all sorts of policies (from defence to trade policy)are being determined by geography. Geoeconomics addresses how specifically economic policymaking is influenced by geographic factors.

TODAY: Geoeconomic policy making is the new reality. What I called on the rise, is one year later the determining reality. This year I would probably not have to explain those concepts in detail since they have been repeatedly used in the media. The European Union took an official stance by reorganising itself as a «geopolitical commission» after the 2024 elections. Priorities have been shifted from social issues to security and trade policy. EU officials themselves characterize trade policy in combination with economic security as geopolitics.

But what made it change that much in one year? There are multiple reasons, but the increased tensions between democratic and authoritarian states seems to be one of the most significant for this development.

Since Biden’s China policy was only slightly softer than Trump’s, the tensions between US and China further rose. Both sides see themselves as «systematic competitors» and constantly discriminate against each other economically. While these two states seem to be positioning themselves at the forefront of the global political order, they have also awakened other parts of the world to actively pursue industrial policy.

This past year, the first relocation of production plants took place to the US since they launched a huge subsidy program called Inflation Reduction Act in 2022. Since the fear of losing investments grew within the European Union, the Commission and also other member states like Sweden further implemented new industrial policies. The newly proposed EU competitiveness report by Mario Draghi, which is covered by Alexander in the next article, is just one of multiple examples.

2023: The future of trade is at risk. Especially global supply chain disruptions due to the war in Ukraine as well as blocked sea routes had made headlines when I wrote my article last year. Also the awareness of trade dependencies rose significantly such that countries started to «de-risk». This effectively means that big trade tendencies should be detected in order to then diversify by finding multiple new trading partners.

TODAY: Trade policy is security policy and political power. The European Union started to make trade policy security policy. They launched new instruments inspired by the US policy kit. «Open strategic autonomy» is the new thing to do. While the US is actively «decoupling» from China, the EU is «de-risking» from China. While «decoupling» is seen as stronger and more confronting, the EU chose a more diplomatic way to do so. Questioning with whom we trade is increasingly determined by shared common values. Policies towards China, Russia and the Middle Eastern countries deliver a basic understanding with who we feel morally aligned with and thus with whom we want to trade.

In the entire geopolitical setting, new tendencies show up. While the US started with «pivot to Asia» under the Obama administration, they are continuously pursuing the Indopacific area. The US even formed the Regional Comprehensive Economic Partnership (RCEP) which is supposed to deepen trade ties in the Asia-Pacific region. This partnership is accounting for nearly one third of global GDP. Transforming RCEP to a binding free trade agreement is not concluded yet. If they would, it would

be the most powerful free trade zone in the world even passing the European Union which would give them enormous (geo-)political leverage.

But where does the European Union want to position themselves in this changing geopolitical order? Does the EU want to stand somewhere in-between the US and China? Will the EU then be extorted by both sides? With Donald Trump running again for the presidency of the United States, the difficult relationship with China is likely to continue. Right now the US is trying to catch-up with Asian countries. However I question what will happen when after a catching-up process, we are both of same relevance for the US. Do they have the (monetary) capacity and will to cooperate to the same extent with Europe and Asia?

2023: Protectionist policy making is rising in the US and China. Last year I wrote that the U.S. Inflation Reduction Act and Chinese sanctioning shows increasingly protectionist policy making which started off under the Trump administration.

2024: Protectionist trade policy is everywhere. One year later, we face a new US election with Trump running for presidency again. This time it seems like he already has a proper trade policy campaign before even being elected. One of his election promises includes the raise of tariffs. By the end of September 2024, he promised 60 percent tariffs on Chinese imports and up to 20 percent on all other imports. What I however personally did not believe last year to happen that fast, is that the EU is now also taking an active stance on sanctioning. Just recently they started to introduce import tariffs on Chinese electric vehicles to strengthen domestic industries. Preparing for a possible new Trump presidency, there seems to be consensus among EU officials to then retaliate back. The new

geopolitical toolbox is a starting point to do so: The EU launched different instruments like an investment screening mechanism and an anti-coercion instrument to be prepared. Luckily, the EU is now more aware of their strengths and weaknesses.

Protectionism hurts especially when countries depend highly on each other like for example smaller countries do. As I highlighted in point two, over the past years the awareness of dependencies has risen. While we focus in Europe majorly on the fact that we are dependent on the transatlantic and the Chinese trade relations, the public debate often forgets that they are also dependent on us. But is the European Union willing to use mutual dependence as a leverage? Where will smaller countries like

Norway position themselves in this geopolitical triangle?

2023: China is preparing for possible economic sanctioning in case they invade Taiwan. Russia and China got closer over the past years. While Russia faced multiple sanction packages due to their invasion of Ukraine, the worldwide fear grew that China would invade Taiwan. A leaked document from the German government even reported that they expect it to happen by 2027. Therefore, last year it seemed as if China would prepare for economic sanctioning in case of an invasion by diversifying its trade relations to Africa.

2024: The European Union is stronger than ever. Today, China and Russia still seem closer to each other than in the past years. China is importing huge amounts of Russian gas in order to substitute for the European demand. However, China now faces a united European Union that is largely sticking to its line despite the economic problems caused by the sanctions. This is something which China has not expected. The EU might sanction China the same way or even more drastically then they did when Russia invaded Ukraine. I also wrote last year that the battle for semiconductor companies had begun in order to reduce dependence on Taiwan before a possible Chinese invasion. Taiwan has a global production share of nearly 90 percent of semiconductors. Semiconductors still play a decisive role in industrial policy making one year later. Many European countries (with Germany, France and Netherlands at its front) managed to attract high investments and new factories to their countries, a development which China is closely observing. However, these newly built factories can still not substitute enough in case Taiwan has to stop exporting.

2023: Russia‘s full-scale invasion of Ukraine is harmful. Last year I made the point that the Russian invasion of Ukraine was, despite its humanitarian burden, also responsible for a huge economical damage worldwide with global headline inflation rising significantly.

2024: Western countries counteracted the persistent inflation. Unfortunately this point did not change to the humanitarian extent that I hoped for. When this magazine will be published, we will probably be close to three years of Russia‘s invasion of Ukraine which happened February 24, 2022.

Also inflation is still persistent three years later, but declining. Central Banks in the US, European Union and Sweden started to cut down interest rates.

Summary

Last year I made a prognosis that trade policy, geography and politics will be increasingly intertwined. Even though I do not have the perfect foresight of a rational agent, I was right about that. Economic policy making on international as well as on domestic level is nowadays barely possible without geographical influence. This is why I highlighted that diplomacy must be economically determined while economic research on the intersection with geopolitics must also be extended.

One year later we live in an increasingly polarized world in which more wars, more civil attacks and an increase in right-wing as well as authoritarian policy making led to a further rise in geopolitical tensions. However, the European Union seems to be more aware than ever of its

strength and weakness. They adapt with their new «geopolitical commission» to this changing order. The new designated foreign commissioner Kaja Kallas, former first female prime minister of Estonia, should due to her geographical closeness to Russia know how to build a common security policy. For me it remains open how smaller European countries that are not part of the EU, like Norway, will position themselves economically and politically in the long-run if three major forces like the US, China and the EU dominate this geopolitical game.

October 2025 (Brief comment from the editor):

In October 2025, geopolitics and economics are inseparable. Trade policy has become security policy, and protectionism dominates. The United States and China remain locked in rivalry, escalating tariffs and sanctions while competing for technological and industrial power. Washington pursues full-scale decoupling, while Brussels frames its approach as “de-risking,” but both increasingly judge trade partners by political alignment and shared values. The EU, now calling itself a “geopolitical commission,” has armed itself with new tools—tariffs, investment screening, and anti-coercion measures—to protect economic security. Despite progress in attracting semiconductor production and energy diversification, Europe remains vulnerable if Taiwan’s chip exports were disrupted.

The global order is polarized into competing blocs. The U.S. deepens its Indo-Pacific strategy through regional trade agreements, while China relies on closer ties with Russia and Africa to shield itself from sanctions. Russia continues to destabilize Europe by sending drones and fighter jets across NATO and EU borders, testing air defenses and political unity. Still, the EU has shown more cohesion than in previous crises, maintaining sanctions on Moscow and preparing for possible confrontation with Beijing. Inflation is finally easing, allowing central banks to lower rates, yet economic efficiency now comes second to strategic security. For smaller countries like Norway, the pressure to define a position between the three dominant powers—the U.S., China, and the EU—has never been greater.