The world is entering a new era of economic security, where geopolitics and economics are closely linked. Policymakers and business leaders must adjust their strategies accordingly.
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This article is a part of the essay series “Budapest Edit”
The world is undergoing a profound transformation, marking the dawn of the age of economic security.
Three pivotal trends define this era. First, the integration of geopolitics and economics has intensified, driven by events such as the COVID-19 pandemic and the Ukraine-Russia conflict, which have exposed vulnerabilities in the global ecosystem. Second, economic statecraft has taken centre stage, with major powers like the United States (US), the European Union (EU), and China leveraging trade and investment policies to ensure strategic autonomy in critical sectors, particularly with advanced technologies like semiconductors. Lastly, there has been a renewed focus on industrial policies that are reshaping economic landscapes, as governments revive state-led initiatives to strengthen key industries and build resilience against future shocks. It's time for policymakers and business leaders to rethink their strategies and decide according to these emerging realities.
Geopolitical risks are increasingly shaping the economic and business landscape, creating new challenges and opportunities.
Let’s start with the first trend. Geopolitical risks are increasingly shaping the economic and business landscape, creating new challenges and opportunities. For businesses, these risks are no longer peripheral concerns but are central to strategic planning. Recent findings from the McKinsey Global Survey on economic conditions reveal that business leaders now regard geopolitical tensions as the most significant threat to economic growth, followed by changes in trade policy and/or relationships.
Source: McKinsey
Examples of economic statecraft illustrate how nations are using sanctions, trade restrictions, and investment screening to protect their interests. The US has implemented extensive sanctions against Russia, targeting financial institutions and key individuals to weaken its economy in response to the Ukraine conflict. Similarly, the EU has restricted its trade with Russia, banning critical imports like oil and natural gas to reduce its dependence and exert economic pressure on Moscow. On the other hand, China has used trade restrictions strategically, by limiting exports of rare earth elements crucial for high-tech industries to assert its dominance. Investment screening has also become a vital tool; the US has expanded its Committee on Foreign Investment in the United States (CFIUS) to scrutinise Chinese investments in sensitive technologies, while the EU has introduced its own framework to monitor foreign investments in critical sectors.
The EU has restricted its trade with Russia, banning critical imports like oil and natural gas to reduce its dependence and exert economic pressure on Moscow.
Last but not least, the renaissance of industrial policies highlights a strategic shift in how nations approach economic resilience. Industrial policy, defined as targeted government interventions to support specific industries, has gained renewed prominence as countries aim to bolster their competitive edge. According to the International Monetary Fund (IMF), in 2023, over 2,500 new industrial policy measures were implemented globally, with their combined value exceeding US$1.3 trillion. Advanced economies, particularly the US and the EU, have led this trend, focusing on sectors like semiconductors and green energy. Notable examples include the US Inflation Reduction Act (IRA), which provides substantial incentives for clean energy technologies, and the CHIPS and Science Act, aimed at boosting domestic semiconductor production and reducing the reliance on foreign suppliers. The European Union has similarly introduced measures under its Green Deal Industrial Plan to promote sustainable technologies and energy independence.
Policymakers and business leaders must adopt new strategies to navigate these shifts effectively. For governments, this involves fostering cross-border cooperation while simultaneously building more domestic resilience in critical sectors. Policymakers need to create robust frameworks for industrial policies that balance innovation with sustainability, ensuring long-term competitiveness. For businesses, agility and foresight are of paramount importance in the boardroom. Companies must diversify supply chains, invest in risk management, and engage in public-private partnerships to align with evolving regulations and incentives.
The age of economic security is just beginning, and it's time for decision-makers to adapt to this new reality.
Ceyhun Emre Dogru is a Managing Partner with CORPERA Consulting.
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Ceyhun Emre Doğru is the Managing Partner of CORPERA Consulting, specializing in corporate affairs and public policy. He serves as an adjunct professor at Boğaziçi ...
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