Interdependence and economic statecraft
When economic ties create both mutual benefit and leverage.
Conceptual diagram, not data.
Economic interdependence describes situations in which states are mutually affected by one another's economic decisions through trade, finance, supply chains and infrastructure. A long liberal tradition expects such ties to raise the cost of conflict. Other scholars stress that interdependence is rarely symmetrical, and that asymmetry creates power.
Key thinkers. Robert Keohane and Joseph Nye's Power and Interdependence (1977) distinguished sensitivity (how quickly and how much one is affected by change elsewhere) from vulnerability (how costly it is to adjust). It is vulnerability that gives one party leverage over another. David Baldwin's Economic Statecraft (1985) analysed economic instruments of foreign policy, including sanctions, tariffs, aid and embargoes. He argued that their success should be judged against the costs and likely results of the alternatives, not merely by whether they achieve every aim. Henry Farrell and Abraham Newman's 'Weaponized Interdependence: How Global Economic Networks Shape State Coercion' (International Security, 2019) showed how states that sit at central hubs of global networks, such as financial messaging or internet infrastructure, can monitor others or deny them access.
Applying it today. Export controls on advanced technology, sanctions packages and concerns about concentrated supply chains are all forms of economic statecraft. Trade concentrated in a narrow set of goods, such as AI-related equipment, also shows how interdependence can be both a source of growth and a channel of exposure. See MER/26/N01, Trade Under Strain.
References
- Keohane, R. O. and Nye, J. S. (1977) Power and Interdependence: World Politics in Transition. Boston: Little, Brown. https://openlibrary.org/works/OL4629903W
- Baldwin, D. A. (1985) Economic Statecraft. Princeton, NJ: Princeton University Press. https://openlibrary.org/works/OL4619559W
- Farrell, H. and Newman, A. L. (2019) "Weaponized Interdependence: How Global Economic Networks Shape State Coercion", International Security, 44(1), 42–79. https://doi.org/10.1162/isec_a_00351