Introduction
Have you ever wondered about the movements in the stock and bond markets?
Conventional economic theory is no longer able to explain contradictory phenomena such as ‘share prices continuing to rise despite a “risk-on” environment’ and ‘bond yields also rising’.
The very foundations of the global economy are currently on the verge of being fundamentally reshaped. Traditional concepts such as the ‘free market’ and ‘globalisation’, which have dominated for decades, are being severely shaken by geopolitical factors.
In this article, we will provide a detailed explanation of the concept of ‘geo-economics’ and explain how it influences our business strategies and investment decisions.
With the rise of ‘geo-economics’, the traditional economic foundations have begun to crumble
Over the past few decades, the global economy has been driven, broadly speaking, by the principle of the ‘free market’.
The Washington Consensus and globalisation were the two pillars of this approach. It was believed that deregulation and trade liberalisation would lead to prosperity for all.
However, the changes currently taking place are dramatic. Domestic and geopolitical factors are beginning to have a direct impact on economic policy. This is the very essence of ‘geoeconomics’.
In the past, politics and national security were regarded as secondary factors rather than the driving forces behind the economy. However, the situation has now changed significantly. Not only in the United States but across the globe, economic policy and geopolitics are becoming increasingly intertwined, and the outcome of this development remains to be seen.
Understanding this shift has become an essential skill in modern business and investment decision-making. The paradoxical phenomenon of ‘risk-off’ bond markets and ‘risk-on’ equity markets simultaneously reaching record highs can only be understood through the lens of geo-economics. This is evidence that the traditional correlation between market dynamics and political factors has broken down.
Amid concerns over the political independence of central banks, non-commercial factors may also influence the government bond yield curve. In particular, remarks by senior US government officials that they ‘wish to flatten the curve’ indicate an intention to push down interest rates across the board—not just ultra-short-term rates, which the Federal Reserve cannot directly control. This is aimed at lowering mortgage rates and has become one of the Trump administration’s key policies.
In summary, the ‘expansion of geo-economics’ signifies that the very foundations of the global economy are being rewritten. It is no longer sufficient to analyse the situation using economic theory alone; there is now a need to incorporate political and geopolitical factors into strategic planning.
Specific facts and background:
Why is ‘geoeconomics’ important right now? Five key points
There are specific facts and underlying factors behind the rise of geo-economics. Understanding the following five points will reveal the essence of contemporary economic trends.
Point 1: The US government is stepping up its intervention in the yield curve
An intriguing tug-of-war is unfolding in the government bond market. Whilst conventional wisdom had predicted that ‘the US Treasury yield curve would steepen (with yields rising)’, central banks and senior government officials are attempting to curb this trend.
‘Steepening’ refers to the phenomenon whereby long-term bond yields exceed those of short-term bonds, resulting in a steeper yield curve, reflecting the increased risk associated with holding bonds for longer periods. The government’s involvement stems from the policy objective of ‘pushing down interest rates’, which has become one of the Trump administration’s key policies in order to lower mortgage rates.
Point 2: The political independence of central banks is under threat
The nomination of the American economist Stephen Milan as a member of the Federal Reserve Board effectively amounts to appointing a second Chair of the Federal Reserve. Having stepped down as Chair of the US President’s Council of Economic Advisers upon taking up his new role as a Federal Reserve Board member, many believe that Mr Milan is voicing the Council’s views.
The traditional premise of ‘central bank independence’ is crumbling, and it is becoming clear that political forces are influencing economic policy. This can be seen as a challenge to the fundamental principles of the free market.
Point 3: Growing trends towards weaponizing trade and finance
Since the start of 2025, there has been a growing trend towards weaponizing trade and finance to exert pressure on allies and rival nations regarding issues beyond the economic sphere. Industrial policies aimed at securing critical supply chains are becoming more widespread, whilst export controls on cutting-edge technologies are also being tightened.
These trends are no longer confined to the United States but are gradually becoming evident worldwide, signalling that we have entered an era in which geopolitical tensions are having a direct impact on the economy.
Point 4: The effectiveness of the Washington Consensus is being undermined
Both the Washington Consensus—which emphasized domestic deregulation, trade liberalization, fiscal discipline, privatization and tax reform—and globalization, which promotes the close integration of trade and capital flows, are reaching their limits due to political and geopolitical factors.
Although these approaches were based on sound economic theory, the premise that free markets and economic efficiency would naturally lead to prosperity for all is beginning to waver. As their effectiveness wanes, issues such as inequality and disparities are coming to the fore.
Point 5: The collapse of the principle of separation between the market and politics
In the financial markets of 2025, we are witnessing the paradoxical situation where ‘risk-on’ assets (shares) and ‘risk-off’ assets (bonds) are simultaneously reaching record highs. This is a shift in market dynamics that cannot be understood without viewing it through the lens of geo-economics.
This phenomenon is evidence that the traditional correlations, which were based on a clear separation between market dynamics and political factors, have broken down. The world is becoming increasingly complex, and some of the key rules governing the behavior of markets and economies are being rewritten in real time.
Additional information and points to note:
Three perspectives for understanding geo-economics
To gain a deep understanding of geo-economics, it is important to adopt the following three perspectives. These will lead to practical application in terms of ‘work ethic’ and ‘business strategy’.
First perspective: Building strategies on the premise of uncertainty
As one economist wryly observed, ‘the only certainty today is uncertainty’. Even that uncertainty is changing day by day, taking on a form different from what we have seen before.
Policy-makers, businesses and market participants must consider a wider range of possible outcomes than ever before. Recognizing that the range of possible outcomes has widened to an unprecedented extent, it will be necessary to incorporate both geopolitical and domestic factors into their strategies.
A second perspective: re-evaluating our reliance on traditional correlations
We are now in an era where the conventional rule that shares and bonds move in the same direction no longer necessarily holds true. It is essential to acquire the skills to analyze the market through the ‘new lens’ of geo-economics.
When making investment decisions or formulating business strategies, it is necessary to train oneself to analyze the reasons behind developments from multiple angles. A perspective that integrates multiple factors—such as the political situation, economic indicators and social changes—is required.
A Third Perspective: Understanding the Limitations of the Free Market Assumption
It is important to recognize that the free-market premise is beginning to break down. We are seeing signs of political forces intervening in the economy, such as the tug-of-war in the government bond market and challenges to the independence of central banks.
Once this is understood, it becomes possible to take geopolitical risks into account not only in equity and bond investments, but also in all business activities, including corporate management and supply chain management.
Summary: What is the new concept of ‘work’ in an age of uncertainty?
In the past, global prosperity was built on the premise of a free market. Under the banner of the Washington Consensus and globalization, deregulation and trade liberalization were pursued, and privatization and tax reforms were implemented. These measures were based on sound economic theory, whilst politics and national security were regarded as secondary considerations.
However, that foundation is now undergoing significant change. Domestic and geopolitical factors are beginning to have a direct impact on economic policy. Challenges to central bank independence, political wrangling in the government bond market, and the use of trade and finance as weapons—all of these must be understood within the new context of ‘geoeconomics’.
In the stock market, a paradox arose whereby ‘risk-on’ assets reached record highs at the same time as ‘risk-off’ assets. This is evidence that, as geo-economics has expanded, the correlation between traditional market dynamics and political factors has broken down. The world is becoming increasingly complex, and the rules governing markets and economies are being rewritten in real time.
In our line of work, it may well be a matter of accepting this uncertainty as a given and incorporating geopolitical and domestic factors into our strategy.
We need to train ourselves to develop a multifaceted perspective in response to the question, ‘Why is this happening now?’ We are required to adopt a perspective that integrates multiple factors—such as the political situation, economic indicators and social changes.
