Geoeconomic Recalibration: Risks and Opportunities for EMDEs

This chapter examines the rise of geoeconomic fragmentation as a defining feature of the contemporary global economy. Following the peak of globalization in the mid-2000s, a combination of political backlash, the Global Financial Crisis, the Covid-19 pandemic, Russia’s invasion of Ukraine, and renewed economic nationalism—particularly under the second Trump administration—has shifted policy priorities from efficiency to resilience and national security. The chapter analyzes the expanding geoeconomic toolbox, including trade and investment restrictions, export controls, foreign funding, and financial sanctions, and assesses their implications for global trade and finance. While aggregate trade has remained resilient, underlying patterns reveal growing fragmentation along a US-centered and China-centered bloc, especially in sectors of strategic importance. The chapter further explores the economic costs of fragmentation, its uneven impact on EMDEs, and the heightened risks arising from great-power rivalry, gray-zone operations, and potential military escalation, notably around Taiwan, Ukraine, and the Middle East. Finally, it outlines the implications for investors, highlighting both new risks and relocation-driven opportunities in a fracturing world economy.