On April 2, President Donald Trump announced sweeping tariffs on goods from friends and foes alike, a dramatic escalation of a broader shift away from decades of American-led policy that had prioritized open markets and cooperative trade relationships.
“This is the biggest rethink of the international order that we’ve seen, certainly in my lifetime, and probably since at least the ’80s, if not the ’50s,” noted Matteo Maggiori, a professor of finance at Stanford Graduate School of Business.
Maggiori, director of the Global Capital Allocation Project and a senior fellow at the Stanford Institute for Economic Policy Research, studies geoeconomics, or how large countries use financial and trade relationships to achieve economic or political goals. While the Trump Administration’s attempt to reconfigure the international economic order isn’t the first shakeup of this kind, its intensity has captured the attention of scholars, policymakers, and the general public alike.
“Our job is to try to understand it, make sense of it, and figure out if we can get policy to go in the right direction — and hopefully get to better outcomes,” Maggiori said in an interview before he delivered the Dr. Sam-Chung Hsieh Memorial Lecture at Stanford GSB last week.
As the world scrambles to respond to Trump’s tariffs, have we reached a fundamental inflection point? “I have no idea,” Maggiori said. “What I can tell you is that the world I grew up in as a teenager, the 1990s, when you look at the long span of history, that’s the exception rather than the norm.”
“A lot of what we’re seeing with great power competition and the real exertion of economic power has been the norm for a very long time. Now we can all decide whether we would like to go back or not, but I don’t favor the presumption that we can do nothing and we’ll naturally settle in that state again.”
Defining Economic Power
Economic power, Maggiori has written, is about coercion: “the ability to induce an entity, be it a foreign government or firm, to take an action that it would otherwise not want to take.” How this coercion is practiced and why it works was the subject of much of Maggiori’s 2025 Hsieh lecture, titled “Geoeconomics and the U.S.-China Great Power Competition.”
“Power is very nonlinear,” he explained. “Where I really have you is when I control almost everything” — resources like a payments system or oil — “and it’s extremely difficult to rearrange production away from it.”
China’s influence is rooted in manufacturing, Maggiori said, while the United States derives its strength from its outsize role in global finance and a still-formidable industrial base. These spheres of influence — and the choke points they create — enable the two powers to bend the world to their will — for now.
“I’ve come to think of these large countries [as] coordination devices,” Maggiori said. By aligning enormous national institutions and private sector action, they can exercise considerable leverage over smaller nations, industries, and businesses.
Over the past few decades, for example, the U.S. has focused on building partnerships — with a catch, Maggiori said. “If you’re the U.S., you’re trying to muster an alliance, you’re saying, ‘Come into the club, come into my economic network — and you have to take some actions and play by some rules. And if you actually deviate, if you don’t comply, I will retaliate across the board.’”
Maggiori began exploring these questions — and developing the tools to investigate them — several years ago, with his collaborators Christopher Clayton of Yale University and Jesse Schreger of Columbia Business School.
An examination of global investment data had revealed that state-owned companies and governments were becoming a bigger presence in global finance, particularly in offshore tax havens like the Cayman Islands. “It was clear that their motivations weren’t necessarily the ones that we normally associated with private investors: They were playing some other game, and so we started thinking about what the game was,” Maggiori said.
This inquiry led to a series of papers, beginning with the theoretical “A Framework for Geoeconomics,” which sought to define the concept and explore how states exert power through economic policy. Subsequent research tested and expanded on those ideas, layering in financial and trade data. More recently, the team has used large language models, which make it possible to parse hundreds of thousands of documents, from earnings calls to shareholder letters.
Initially, the trio wasn’t sure whether the term geoeconomics, which Maggiori attributes to author Edward Luttwak, was worth resurrecting. “It was out of fashion,” he reflected, “which sounds kind of funny given that this is in the headlines every day now.”
Coercion and Fragmentation
In his lecture, Maggiori described three fundamental insights into how countries and companies can most effectively play this game of global strategy.
First: Building power is a meaningful policy rationale that may shed light on the current rearrangement of the world economy. If a country aims to build power, for example, it might consider making its resources inexpensive.
“Kill the ability of the rest of the world to produce these things, make them very dependent on you — and then exert power,” Maggiori said. “Think of the dollar payment system: The U.S. doesn’t want [this system] to be expensive. The U.S. wants it to be cheap, because the threat of kicking any one party out is extremely powerful.”
Another insight: When countries marshal their economic might against nations, businesses, or organizations, the targets typically move to protect themselves, disrupting the global economy. “The risk is that we become overly secure at the expense of fragmenting globalization,” Maggiori said. “ Globalization is a little bit like social media: You want to be on this global system because everybody else is on it.… So as we all start to move away, the global system becomes less and less appealing, and we get a fragmentation doom loop.”
Finally, limited coercion is the most effective form of coercion. “If you’re one of these big, powerful countries and you bully the rest of the world all the time, they’re going to react, and they’re going to react by moving away from you, by not wanting to deal with you, because they’re constantly afraid of being bullied,” Maggiori said. “Ultimately, that dissipates your own power.”
After World War II, the system of international agreements and organizations established by the United States represented an offer, Maggiori explained: “It’s saying, ‘Come into my network. I’m going to tie my hands a little bit. I’m not going to bully you that hard. I’m going to ask you for some stuff — but not all the time and not very aggressively. And ultimately, because you participate, I end up with more power, not less.’”
For Maggiori, the immediacy of this work is difficult to overstate. “ I cannot think of a more pressing global challenge that economists and social scientists in general should be working on,” he concluded. “We have to get answers. We have to try to provide information and provide ways to think about optimal policy. It really matters for the world, and [we] hope to make a positive difference.”
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