GEOECONOMICS CENTER
ISSUE BRIEF
The GeoEconomics Center develops data-driven programs, publications, and thought leadership at the nexus of economics, finance, and foreign policy. The Center aims to bridge the divide between these oftsiloed sectors with the goal of helping shape a more resilient global economy. Our work is built on the idea that the United States must lead with allies or risk becoming a bystander in a reshaped international financial system. The Center is organized around three pillars – the Future of Capitalism, the Future of Money, and the Economic Statecraft Initiative. This issue brief is launched in January 2024 as part of the Atlantic Council GeoEconomics Center’s Bretton Woods 2.0 Fellowship. This Fellowship aims to cultivate a new generation of economists to help reimagine the shape of the international financial system. The GeoEconomics Center’s Bretton Woods 2.0 Project examines the challenges facing the Bretton Woods Institutions and leverages data, research, and convenings to propose new solutions for the future of the IMF, World Bank, and World Trade Organization. The goal of the project is to deliver a blueprint for reforms in four key areas: governance and parallel institutions; macro-critical global trends; future of money and fintech; and non-state and quasistate actors.
Geoeconomic Fragmentation and Net-Zero Targets APRIL 2024
SHIRIN HAKIM and AMIN MOHSENI-CHERAGHLOU
Introduction The second half of the twentieth century experienced significant economic integration. International trade, cross-border migration, capital flows, and technological diffusion increased per capita incomes across countries and reduced global poverty.1 However, events such as the global financial crisis of 2007 to 2009, Brexit, and the COVID-19 pandemic—all against the backdrop of escalating great power rivalry and tensions between the United States and China—have demonstrated the rise of geoeconomic fragmentation (GEF). Since the 2022 Russian invasion of Ukraine, a growing number of world leaders have addressed the impacts of GEF on global energy and agricultural markets.2 For one, higher and increasingly volatile food and energy prices have made it increasingly difficult for developing nations to prioritize environmental concerns and implement sustainable development initiatives. 3 The International Monetary Fund (IMF) describes GEF as a pattern of “policy-driven reversal of global economic integration” that threatens capital flows to low-income countries, hinders innovation in emerging markets, and discourages cooperation on international crises.4 Stemming from the prioritization of national security objectives, GEF takes the form of policies that reduce reliance on other countries by incentivizing domestic production and employment. In our increasingly fragmented world, nations have focused on reshoring essential goods and supply chains, including minerals crucial for green technologies, semiconductors, and military hardware due to concerns over national security and geopolitical motives.5 These transformations are in
1
Aiyar et al., Geo-economic Fragmentation, 2023.
2
Alvarez et al., Geoeconomic Fragmentation and Commodity Markets, 2023; and Hakim and Makuch, “Conflicts of Interest,” 2022.
3
Mohseni-Cheraghlou and Evans, “Climate Change Prioritization,” 2024.
4
Aiyar et al., Geo-economic Fragmentation.
5
Alvarez et al., Geoeconomic Fragmentation and Commodity Markets.