In an era often defined by the weaponized interdependence of superpowers and global supply chains, economic power no longer follows linear rules. The global system has entered in what we can call a 'nonlinear geoeconomic phase', in which small shifts in control over critical sectors can trigger disproportionate geopolitical consequences. Especially financial networks, semiconductor ecosystems, and rare earth supply chains have become strategic battlegrounds where influence is amplified or lost at tipping points rather than through gradual change. Recent literature on the topic reveals that this dynamic reshapes the logic of hegemony itself: power now depends less on scale and more on things such as structural positioning, credibility, and coordination.
Understanding the new rules of this nonlinear geopolitical battle is key to explaining both the fragility of US financial dominance and the rise of China’s manufacturing leverage, as well as Europe’s potential to carve out its own strategic niches.
Recent studies explore the rise and impact of geoeconomic power in the global economy, examining how leading countries like the United States and China strategically use their economic influence for geopolitical purposes. A key insight is the nonlinearity of geoeconomic power — meaning that small changes in control over critical sectors can dramatically amplify a hegemon’s coercive capabilities. As a hegemon approaches monopolistic control over a key input or sector, its leverage over others increases disproportionately.
This dynamic is most visible in areas where sectoral dependencies are high. For the United States, financial services are the primary source of power; for China, it’s manufacturing—particularly in critical sectors like rare earth elements. According to a 2025 study titled Geoeconomic Pressure, both countries are the dominant "senders" of geoeconomic pressure, targeting each other and third-party states using tools like sanctions, export controls, and tariffs. These tools have varying effects: tariffs mainly lead to price adjustments, while export controls stimulate R&D investment as firms and states seek to innovate around bottlenecks.
Another study, A Theory of Economic Coercion and Fragmentation, adds that hegemonic power is not just about coercion, but also about shaping the very structure of economic networks. Gains from integration, such as specialization and scale, make relationships with the hegemon hard to substitute, thus increasing its leverage. For smaller countries, this creates a dilemma: efforts to insulate themselves from foreign influence via economic security policies may improve national resilience, but if done in an uncoordinated fashion, these moves lead to inefficient fragmentation of the global trade and financial system. The study underscores that while economic security can be increased with limited fragmentation through modest diversification, overly fragmented strategies undermine the global gains from trade.
Importantly, the paper The Political Economy of Geoeconomic Power shows that coercive capacity is not simply a matter of economic size. State control mechanisms — such as ownership or regulatory authority — play a key role in making threats or promises credible. Democracies tend to face greater institutional constraints and rely more on persuasion, whereas autocracies can more easily impose direct penalties on noncompliant firms. Moreover, the distributional consequences of coercive actions affect domestic political feasibility: private firms often bear the economic costs while the broader public gains, complicating policymaking in democratic contexts. The study highlights how these dynamics often unfold through coalitions, for example, the US successfully pressuring the Dutch government to restrict ASML’s exports of advanced semiconductors to China.
Thus, geopolitical power, in economic terms, functions through a system of incentives and punishments orchestrated by dominant economies or hegemons that leverage control over trade, finance, and industrial supply chains. Smaller states, embedded in these networks, are often forced to comply with hegemonic demands because the cost of defection is high. However, if weaker countries respond by aggressively decoupling, the value of hegemonic networks may deteriorate, triggering further fragmentation.
That’s why, paradoxically, hegemons may bind themselves to credible international rules, not out of altruism but strategic self-interest — to make their dominance more attractive and less threatening. However, these efforts are under increasing strain. As firms adapt their supply chains in response to geoeconomic pressure, heterogeneous responses among third countries complicate collective action. Some diversify quickly, while others deepen dependency.
The nonlinear nature of geoeconomic power also means that relatively small shifts in supply chains or coalitions can disproportionately erode or enhance global leverage. For instance, modest steps like adding a minor ally to a trade bloc, or increasing the use of yuan-based finance as an alternative to the dollar, can reshape the geopolitical balance. This suggests that fragmentation is not binary; even partial diversification may achieve significant economic security.
Yet this system also brings risks. If countries pursue economic security in a disjointed, uncoordinated manner, it can accelerate the breakdown of global integration — damaging not only the hegemon’s power, but also the efficiency and stability of the global economy. Fragmentation, once it reaches a tipping point, becomes hard to reverse.
Concluding, geoeconomic power in today’s world is not just about economic size or trade volume, but about strategic control, institutional capacity, and credible coordination. As both the US and China deploy these tools across finance, manufacturing, and technology, the global system finds itself in a delicate balance: between resilience and fragmentation, between interdependence and coercion. That shows the fragility of American geoeconomic influence: because US geoeconomic dominance rests disproportionately on financial services and the network effects of dollar-based transactions, even small-scale diversification away from the dollar could erode American influence faster than expected. If more states begin experimenting with alternatives such as yuan-based settlement, CBDCs, or commodity-linked contracts, the nonlinear nature of geoeconomic power means that credibility in the US financial system could unravel rapidly. Unlike manufacturing dominance, which erodes gradually as capacity shifts, finance depends on trust and liquidity, both highly sensitive to tipping points. This makes US influence more fragile than it appears: what looks like a minor shift today (e.g., a handful of major bilateral trade agreements bypassing the dollar) could cascade into disproportionate loss of leverage tomorrow.
On the other hand, Europe’s strategic play should target geo-economic niches. For Europe, catching up with both the US and China requires avoiding the trap of fragmented, defensive “economic security” policies that reduce efficiency. Instead, a coordinated geo-economic strategy could focus on high-value chokepoints rather than replicating entire industrial or financial ecosystems. This might mean doubling down on sectors where Europe already has unique leverage, such as semiconductor lithography (ASML), green tech standards, aerospace, pharmaceuticals, or advanced materials. By internationalizing these strengths through trusted supply-chain partnerships and setting regulatory standards, Europe could create its own form of nonlinear influence. That means a “selective monopoly” strategy dominating a few critical nodes rather than chasing comprehensive breadth. This would allow Europe to exert disproportionate leverage while remaining integrated into global networks.
Lastly, China could have a kind of ‘nonlinear power potential’ in the long-run: In the longer run, China’s manufacturing-based geoeconomic strategy risks creating feedback loops that reshape global governance. If smaller states hedge against Chinese coercion by modestly diversifying inputs (e.g., sourcing rare earths elsewhere, investing in reshoring), China’s leverage may erode nonlinearly, even if its aggregate market share remains high. This dynamic could force Beijing to shift from coercive strategies toward building coalitions or offering positive incentives (infrastructure, technology transfer, security guarantees). Over decades, this would transform China from a unilateral manufacturing hegemon into the hub of a network of “mutual dependence” agreements, blurring the line between coercion and cooperation. The higher-order effect is that geoeconomic competition will not only fragment global trade but also redefine the very structure of hegemony: power will depend less on raw dominance and more on the ability to shape alternative coalitions and institutional frameworks.
