From Economic Warfare to a Generalised War Economy: A Fatal Trajectory?

Are we heading towards a generalised war economy, as states devote ever more resources to defence and as security risks are used as a pretext to circumvent international law and to encourage impunity?

In any case, geo-economics has returned to the centre of the global stage: sanctions and embargoes, controls on foreign investment, restrictions on semiconductor exports, trade barriers and currency wars. Through economic statecraft, states are deploying their commercial, financial and monetary levers for geostrategic ends rather than in the service of economic efficiency. Washington is using the dollar and access to its financial system as a weapon; Beijing is capitalising on its partners’ dependence on rare earths; Europe is rearming and striving to secure its strategic supplies.

Does this resurgence of geostrategic tensions herald the end of the liberal paradigm and its replacement by a new form of mercantilism? Trade liberalisation, based on the theory of comparative advantage, is giving way to selective reshoring, energy security strategies and proactive industrial policies. International trade is no longer seen as a vehicle for peace-promoting interdependence, but as an instrument of power and sovereignty.

This “mercantilism 2.0” is no longer based solely on the accumulation of wealth: it also aims to control supply chains, cutting-edge technologies, infrastructure and digital data. These efforts are unfolding in a context of hybrid warfare: cognitive and informational manipulation, cyber-attacks, sabotage of critical infrastructure, exploitation of agricultural and water dependencies, and the instrumentalisation of migration. Less costly and more difficult to attribute, these attacks blur the boundaries between situations of peace, crisis and armed conflict. From the perspective of international law, these new means and methods of warfare make it more difficult to distinguish between military objectives and civilian property, as well as between combatants and civilians – for example, when engineers and IT specialists from a private firm directly participate in hostilities conducted remotely.

Defence investment has not lagged behind. After eleven consecutive years of growth, global military expenditure reached a record high of USD 2,887 billion in 2025, representing 2.5% of global GDP, according to the Stockholm International Peace Research Institute (SIPRI). The United States alone accounts for a third of the total, far ahead of China (12%) and Russia (6%). Europe became the leading growth centre in 2025, with a 14% increase, followed by Africa with 8.5%.

Geo-economic instrumentalisation, mercantilism 2.0 and widespread rearmament — this unprecedented combination is bolstering war economies. Such economies benefit a small minority while the majority of the population loses out, through four main drivers:

• The mobilisation of resources for defence. A growing proportion of economic activity and scientific research is directed, directly or indirectly, towards the defence and security sectors.
• The erosion of international law. In the name of security and national interests, the major powers are flouting the rules they themselves helped to establish in the wake of the Second World War – WTO rules, the Geneva Conventions and non-proliferation regimes. This erosion is accompanied by growing impunity, due to a lack of political will to sanction violations.
• The confinement of entire populations to a subsistence economy, particularly in armed conflicts and fragile contexts. Redistribution mechanisms – official development assistance and social security – are being eroded by current budgetary pressures.
• The intertwining of war economies with global financial markets and trade networks. Private and public interests come to share incentives to prolong and multiply conflicts. As long as a few actors profit from protracted wars, the chances of reaching lasting peace agreements are low.

Geo-economic instrumentalisation, mercantilism 2.0 and widespread rearmament — this unprecedented combination is bolstering war economies.  Yet this trajectory is by no means inevitable: it is the result of cumulative political choices that serve the interests of a tiny minority but not those of any state, including the major powers.

As indicated by international scientific studies and the annual Global Risks Report published by the World Economic Forum, the real challenge of our time lies elsewhere: preserving the global commons, starting with the climate, biodiversity, and water and other natural resources. Ignoring these only fuels future insecurity and geopolitical tensions, perpetuating a vicious circle whose ultimate outcome would be a predictable collective suicide.

Breaking free from this circle does not require new players on the chessboard, nor even new rules of the game, but rather new leadership endowed with a clear vision and political will centred on the primacy of international norms as a frame of reference — not as an option to be invoked or revoked at the whim of shifting power dynamics (i.e. double standards). This entails reinvesting in multilateral cooperation on trade, finance and the environment rather than succumbing to the logic of blocs alone. Finally, it entails “demonetising war” itself: imposing transparency on its financing and its human and economic costs, and tracking down the profits generated by its prolongation. It is a matter of rearming — figuratively speaking this time — the instruments for the prevention and peaceful resolution of disputes. Otherwise, history will record that today’s geo-economic rivalty was nothing more than a prelude to a generalised war economy.