Economy, explained.
Carrots – incentives – refer to policy measures that create or expand the flow of resources between countries (Getty Images)
The power of carrots and sticks in the world of geoeconomics.
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The Translator: What is “economic statecraft”?The Translator: What is “economic statecraft”?
Heard diplomats or analysts using a new turn of phrase only to wonder, “What does that mean?” Today we ask …
Economic statecraft refers to a state’s use of economic policy instruments to achieve foreign policy objectives.
Australia uses various tools of economic statecraft – including development assistance, loans, work visas, investment incentives and travel restrictions – as foreign policy levers to achieve its aims.
Another term that is frequently used interchangeably with economic statecraft is geoeconomics. Geoeconomics focuses on the broad strategic interplay between economics and geopolitics, encompassing a wide range of economic policies and global power dynamics.
A useful way to think about economic statecraft is in terms of carrots and sticks or, more formally, incentives or inducements versus coercion or sanctions.
Carrots – incentives – refer to policy measures that create or expand the flow of resources between countries, whether it be goods, services, people, money, information or ideas.
An example is the Pacific Australia Labour Mobility (PALM) Scheme, which connects Australia with the Pacific region through people-to-people links as well as economic ties. The economic benefits of the scheme flow both ways: Pacific Island economies benefit from remittances sent home by workers, and Australia benefits from a labour force in industries where it has been difficult to attract workers.
There is no strict delineation between carrots and sticks, and what may start as a carrot can end up a stick.
Sticks, by contrast, are actions that seek to halt or restrict these flows. Sticks aim to have a punitive effect on another country or countries. Another way to describe this is economic coercion – or coercive economic statecraft – where an imposing country or countries implement measures against a target country or countries that are intended recipients of coercive economic statecraft.
Some sticks may be transparent, such as multilaterally agreed sanctions in response to specific actions. In other cases, such as with China’s imposition of measures on Australia from 2020, they may be masked as standard and reasonable regulatory behaviour and may never be acknowledged as sanctions. To distinguish, the latter behaviour is best referred to as “trade restrictions”.
There is no strict delineation between carrots and sticks, and what may start as a carrot can end up a stick. For example, China’s Belt and Road Initiative has been characterised as both a carrot and a stick, while the United States’ Inflation Reduction Act can be seen as a stick for China and a carrot for others.
Policy discussions are now often framed in terms of economic security as an essential part of a state’s national security.
The current conception of economic statecraft challenges two traditional separations – between economics and security, and between domestic and international. Perceptions that economic statecraft need be confined to external acts have changed as countries implement domestic policies to strengthen specific industries for geostrategic purposes.
For example, the Future Made in Australia plan is designed to compete with industry incentives offered by other countries and nurture the development of new industries stemming from the sustainable energy transition. It not only seeks to promote the transition to a green energy future but also aims to address security concerns that have emerged as a result of global economic integration. It has arguably brought Australia into a new era of economic statecraft, seeking to best place Australia within the changing and churning global economy.
In this new global paradigm, Australia must treat its deployment of and response to economic statecraft with a sense of urgency. This includes devising structured policy responses to acts of negative economic statecraft and forging a coherent vision when it comes to the practice of positive economic statecraft. These responses must form part of a broader integrated foreign policy architecture. This includes maintaining close relationships with regional partners through acts of positive economic statecraft – especially development assistance – and through assisting partners that are susceptible to acts of economic coercion.
About the author
Melissa Conley Tyler
Melissa Conley Tyler is Program Lead with the Asia-Pacific Development, Diplomacy & Defence Dialogue.
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