Economic Diplomacy

Introduction • DOI: 10.2478/ecdip-2023-0006 | CC-BY-NC-ND 4.0

Economic Diplomacy

Introduction: Now is the Time

Introduction

Zhang Xiaotong1
1 Editor-in-Chief, Economic Diplomacy

Economic diplomacy, which uses economic means to achieve diplomatic purpose or the other way around, is an important
component of diplomacy. As Robert Rogowsky and Thomas Hout well said in their paper for this inaugural issue,

China’s remarkable rise to Great Power status—the first nation to achieve this based on economic strength rather than military
power— sets the global stage for two conflicting paths. The first is the path of productive wealth generation and technological
advance from collaborative interdependence. The second is an economic cold war…Which (path) prevails will depend on the quality
of the economic diplomacy.1

For Rogowsky and Hout, economic diplomacy is not only shaped by the global environment, but also shaping the milieu where
great powers co-exist.
One the one hand, the global environment is fast changing. Globalization is facing increasing resistances. The Covid-19 has
made every economy worried about their supply chain resilience. As a result, economics is increasingly politicized and economic
diplomacy is increasingly used as a response to the changing international and domestic environment.
On the other hand, economic diplomacy, as an economic dimension of statecraft, is increasingly practiced by all major powers
as a means to purposefully shape the global environment. Even small and medium-sized states are equally in dire need
of mastering the art of economic diplomacy and navigate the murky waters of international politics as their economy and
international standing are comparatively weaker and fragile.
Against this background, we launch the Economic Diplomacy journal, aimed at filling up the vacuum of a major research need for
such an important science, art and statecraft.
This Introduction for the inaugural issue consists of the following three parts.

1 My Understanding of Economic Diplomacy

Economic diplomacy can be dated back to ancient times. The History of the Peloponnesian War by Thucydides mentions a
trade boycott imposed by Athens against Sparta’s ally Megara. Trade boycott, an expression of sanctions, is part of economic
diplomacy which links economics with politics.
In modern times, economic diplomacy was practiced as a regular foreign policy instrument by great powers. Bonaparte Napoleon
imposed the Continental Blockade on 21 November 1806, which brought into effect a large-scale embargo against British trade.
In the nuclear age, great powers, fully aware that they could not afford a nuclear war, have to rely on economic means to achieve
what they originally achieved in battlefields.

1 Robert A. Rogowsky and Thomas Hout, “US-China Economic Statecraft: Turning Cold War into Negotiation,” Economic Diplomacy, Issue 1, 2023.

* E-mail: [email protected]

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Based upon google scholar research, I find that the origin of economic diplomacy studies started from 1950s. Economic
diplomacy first appeared in the English academic journal in 1959, when Robert B. Wright, Chief of Economic Defense Division of
Department of State of the US., published a paper titled “American Economic Diplomacy and the Soviet Bloc” in Social Science
for October 1959.2 In this paper, Wright states, “The major problem for American economic diplomacy today is the challenge
posed by the Sino-Soviet bloc’s economic offensive in free world countries, particularly the less industrialized countries.” He
quoted the words of Under Secretary of State Douglas Dillon on May 21, 1958, “the most important economic question facing
the United States is ‘What economic system will the one billion people of the lesser developed countries choose in their struggle
with poverty?’”. Wright concludes, “The waging of this competitive economic war in cooperation with the free world countries is
the task of American economic diplomacy”.
In the 1960s and 1970s, there is a slowly growing publications on economic diplomacy.
1980s witnessed a “big bang” in American research on economic diplomacy. Economic statecraft, a similar but different
concept to economic diplomacy, was proposed by David A. Baldwin single-handedly in his influential book “Economic Statecraft”
published in 1985. Baldwin defines economic statecraft as “influence attempts relying primarily on resources which have a
reasonable semblance of a market price in terms of money”.3 Baldwin started his book of economic statecraft by stating that the
utility of economic techniques of statecraft has been systematically underestimated by most analysts since 1945.4 Therefore,
Baldwin focuses largely on techniques of economic statecraft, in particular, positive and negative sanctions.
Since then, the US policy-makers and academic community use more and more “economic statecraft” instead of “economic
diplomacy”. The defining moment is that Hillary Clinton, the then secretary of state, gave a keynote speech on economic
statecraft in 2011. She put economic statecraft at the heart of American foreign policy agenda. For her, “economic statecraft
has two parts: first, how we harness the forces and use the tools of global economics to strengthen our diplomacy and presence
abroad; and second, how we put that diplomacy and presence to work to strengthen our economy at home.”5
While the US uses more and more the concept of economic statecraft, the EU, Japan, China use more economic diplomacy
instead of economic statecraft.
Europe’s preference for the term “economic diplomacy” vis-à-vis the U.S. reflects different perceptions, understandings, and
applications of the concept of power. The U.S. places greater emphasis on power, and the U.S. strategic community is chiefly
concerned with the transformation between economic resources and power in “economic statecraft”, which is increasingly
becoming an essential building block of U.S. grand strategy. European countries (and EU institutions), however, emphasize the
process of diplomatic negotiation and disfavor the use of power. Sir Nicholas Bayne, former Economic Director at the British
Foreign and Commonwealth Office, and Dr. Stephen Woolcock, of the London School of Economics and Political Science (LSE)
define economic diplomacy as, “the methods and process of decision-making and negotiation,” emphasizing that economic
diplomacy is about, “how they make decisions domestically, how they negotiate with each other internationally, and how these
two processes interact.” 6 It is thus clear that Sir Nicholas Bayne and Dr. Stephen Woolcock, in their study of economic diplomacy,
focus primarily on the process and institution of economic diplomacy and less so on the deployment and transformation of
power embedded in the negotiation process of economic diplomacy.
According to Maaike Okano-Heijmans, a senior research fellow at the Netherlands Institute for International Relations
(Clingendael), there are two main reasons why “economic statecraft” was favored by Secretary Clinton and a significant number
of U.S. scholars and officials: 1) the U.S. was paying more attention to the economic factors in diplomacy. Secretary Clinton
elevated economic statecraft to one of the pillars of U.S. foreign policy, proposing that, “Increasingly, economic progress
depends on strong diplomatic ties, and diplomatic progress depends on strong economic ties” 7; 2) those who use the term
economic statecraft tend to accentuate the element of power-play, which is consciously or unconsciously deemphasized in
scholastic and practical references to economic diplomacy. 8
China is a late comer for economic diplomacy studies, but a quick learner. Professor Zhou Yongsheng is the first Chinese author
who systematically studied economic diplomacy and published the book “Economic Diplomacy” in 2004.9 The research on
economic diplomacy conducted by Chinese scholars since the start of reform and opening-up in 1978 can be summarized as a
three-stage journey of development economics, economic diplomacy, and economic statecraft.

2 Robert B. Wright, “American Economic Diplomacy and the Soviet Bloc”, Social Science, vol.34. No.4 (October 1959), p. 200.
3 David A. Baldwin, Economic Statecraft (Princeton NY: Princeton University Press, 1985), pp. 13-14.
4 David A. Baldwin, Economic Statecraft (Princeton NY: Princeton University Press, 1985), p. 4.
5 Hillary Clinton, Secretary of State, “Economic Statecraft”, Economic Club of New York, New York City, October 14, 2011.
6 Bayne, N., & Woolcock, S. (Eds.). (2017). New Economic Diplomacy: Decision-Making and Negotiation in International Economic Relations (4th
Edition). New York: Routledge, p. 1.
7 Clinton, H. (2011). America’s Pacific Century. Foreign Policy, October 11.
8 Okano-Heijmans, M. (2013). Economic Diplomacy: Japan and the Balance of National Interests. Leiden and Boston: Martinus Nijhoff Publishers,
footnote 4, p.18.
9 Zhou Yongsheng, “Economic Diplomacy”, Beijing: China Youth Publisher, 2004.

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The first stage in this journey was the research and practice of development economics. Development economics has gained
popularity in China in the four decades following the start of reform and opening-up, with the main purpose of providing a
roadmap for China’s economic and social progress. A parallel, but somewhat later development, is the study known as
economic diplomacy, which aims to examine the interactions between economic development and diplomacy. From the 1990s
(when Chinese economic diplomacy research began to emerge) to 2013 (when China Society of Economic Diplomacy was
established), a large body of excellent research findings and a number of top-notch, well-trained scholars emerged.
Around 2012, there was a new shift in Chinese economic diplomacy research. Some scholars, seeing the paradox of “China’s
rising economic power versus diminishing diplomatic capital”, defined economic diplomacy as, “the transformation of wealth
and power.” 10 They began to study the strategies, tactics, and transformative mechanisms of economic power. This group of
scholars either consciously or unconsciously expanded the realm of China’s economic diplomacy research. They extended
the reach of economic diplomacy from mere diplomacy to all aspects of statecraft and governance focused on the generation
of and interactions between a nation’s wealth and power. They also examined the relationship between the supply of wealth
and the rise and fall of great powers from the broader historical perspective. This pivot to economic statecraft extends and
complements traditional economic diplomacy research.

2 Economic Diplomacy: From Global Context to State Agency

In the inaugural issue, some papers focus on the global context while others focus on state agency, i.e. the practice of economic
diplomacy with an aim of shaping the milieu at bilateral, regional and global level. It remains a puzzle: to what extent, the global
context determines the outcome of inter-state relationships, and to what extent, the interactive economic diplomacy among
states, shape the global context.

2.1 Setting the Global Context

The inaugural issue starts with Governor Matolcsy’s paper on long-term economic and geopolitical cycles. It sets the global
context, in which, diplomacy is practised. Governor Matolcsy argues that the 2008 great financial crisis and the rise of China
proved that cycles had not cease to affect us. Actually, the contrary is true: we are witnessing (at least) a rerun of the 1970s with
all the implications of energy shocks and geopolitical tensions.11
Governor Matolcsy goes further by stating that cycles are not just about history. They are also about geopolitics, or more
precisely, the fusion of geopolitics, economy, technology, environment and all aspects of human development, which Governor
Matolcsy labels as the “fusion of megatrends”. 12
Governor Matolcsy poses a key question: [W]ill that DNA of the 21st century be a spiral of cooperation or rivalry? His answer is
an open one – “It largely depends on how the U.S., the European Union, China and other emerging power hubs in Eurasia and
elsewhere can agree on the rules, systems and resource allocation of the new markets in our current Kondratieff “A” phase-
like decades.” 13 For Governor Matolcsy, the state agency by all the major players in Eurasia and elsewhere is essential and
potentially able to offset the negative impacts of cycles.
In Conclusion, Governor Matolcsy suggests that downward spirals of hegemonic cycles can be escaped. Eurasia as a deep-
rooted concept can further catalyse global development and the much-needed cooperative policies towards long-term
sustainable growth. The East and the West should be focused on benchmarking the best solutions in the fields of technology,
money and the green transition so that a fusion of megatrends benefits each community. 14
The second paper, written by Alicia García Herrero and Haoxin Mu, focuses on the economic impact on Asia of the War in
Ukraine. This War is indeed a vivid manifestation of the dramatic changes in the global context and having profound implications
throughout the whole world. Asia might look more shielded than other parts of the world from the war in Ukraine. But the indirect

10 Zhang, X. et al. (2013). On the Use of China’s Economic Strength. Northeast Asia Forum, 22(1), pp. 91-98.; Zhang, X. (2013). Theoretical
Construction of China’s Economic Diplomacy: a Preliminary Attempt. Foreign Affairs Review, 30(6), p. 49.; Zhao, K. (2014). What is the Strategic
Goal of the Great Power Economic Diplomacy? –US Economic Diplomacy and the Collapse of the British Empire. Chinese Journal of European
Studies, 32(4), pp. 63-75.; Zhang, X. (2014) China’s Great Power Economic Diplomacy with its Own Characteristics. Chinese Journal of European
Studies, 32(4), pp. 76-87.
11 György H MATOLCSY, “Long-Term Economic and Geopolitical Cycles: A Compass to Multilateral Cooperation in Our Age”, Economic Diplomacy,
Issue 1, 2023.
12 György H MATOLCSY, “Long-Term Economic and Geopolitical Cycles: A Compass to Multilateral Cooperation in Our Age”, Economic Diplomacy,
Issue 1, 2023.
13 György H MATOLCSY, “Long-Term Economic and Geopolitical Cycles: A Compass to Multilateral Cooperation in Our Age”, Economic Diplomacy,
Issue 1, 2023.
14 György H MATOLCSY, “Long-Term Economic and Geopolitical Cycles: A Compass to Multilateral Cooperation in Our Age”, Economic Diplomacy,
Issue 1, 2023.

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impact of the war on Asia is bound to be bigger. The most obvious channel is the sudden increase in commodity prices for the
region which happens to be the largest importer in the world. The second relates to disruptions from Western sanctions. This is
particularly true for China. In fact, China’s pro-Russia ambiguity regarding its position on this war is bound to bring China closer
to Russia with some clear benefits in terms of energy security. 15

2.2 US-China Economic Statecraft

After setting the global context, our Inaugural Issue moves to the thorny US-China relations. For Robert Rogowsky and Thomas
Hout, the U.S-China relationship is moving distinctly on two paths - integrating deeply and dividing belligerently. They are more
nuanced than what “Thucydides Trap” theory predicts. On the one hand, US multinationals with few exceptions have not moved
operations out of China or given up their Chinese suppliers. In fact, foreign direct investment into China continues. China has also
made some progress on international economic policy such as the negotiations on Comprehensive Agreement on Investments
(CAI), which is symbolic of China’s market opening. But on the other hand, there emerges the US-China manufacturing
battleground. The Chinese and American industries are competing fiercely. The tipping point is reached at different times
depending on the industry, based on the American technology edge and the rate of product advancement relative to China’s rate
of technology and production improvement coming from behind.
Based upon a future scenario, Rogowsky and Hout gives the prescription of economic statecraft 2.0. It includes: [A]side from
its relations with China, positive statecraft for the US must include long-overdue measures to improve US competitiveness
at home. The US and China should re-establish a new form of the Strategic and Economic Dialogue (S&ED) and the Joint
Committee on Commerce & Trade (JCCT).
In Conclusion, Rogowsky and Hout suggest, “Hard choices are needed to design and implement policies that create the right
leverage required for the tough negotiation needed to preserve the system. One might label this a “new Cold War,” but at its heart
it is a hard negotiation that cannot and should not be avoided.”
As an editor and an IR scholar, I’m impressed by a puzzle implicitly expressed in Rogowsky and Hout’s paper. That is, when
facing a difficult global context driven by the change in relative strengths of the US and China (often expressed in a simplistic
term – “the Thucydides Trap”), how could the agency (the US’ and China’s economic diplomacy) play a role. For neo-realists such
as Kenneth Waltz, the systemic structure determines the agency.16 Rogowsky and Hout obviously does not buy this. For them,
China and the US are treading upon simultaneously two different paths: one is collaborative interdependence and the other is
new Cold War. But which path prevails depends on the quality of the economic diplomacy.17 That is to say, the future of US-China
relations is not only subject to the changes in relative strengths between the US and China, but also subject to the diplomacy
practiced by the diplomats on both sides. Diplomacy matters! High quality diplomacy may stop the self-fulfilling prophecy of the
Thucydides Trap. However, we could also say, low quality diplomacy may enable the Thucydides Trap.

2.3 Small State Economic Diplomacy

After the great power diplomacy, we move to small state diplomacy. Professor Winston Dookeran, former Minister of Foreign
Affairs of Trinidad and Tobago, provides us with a unique perspective of small state economic diplomacy.
As stated in the abstract of his paper, Professor Dookeran emphasizes that Caribbean economic diplomacy is at a crossroad,
not knowing where and how to turn. He continued to argue, “in this post- hegemonic cycle of international relations, geo-
strategic choices facing small States are blurred, and diplomacy must be practiced during a period of flux in power relations and
a changing political geography among nations.”18 The advent of the COVID-19 pandemic has created a political stress test for
small countries, those who can reset will survive, as the premises in the world order of things are shaken.
Dookeran was impressed by the visits by global Leaders in the Caribbean. As he said, “The focus of global leaders was highlighted
by historic visits of world leaders to the Caribbean and to Trinidad and Tobago. In 2013, President Xi Jinping of the People’s
Republic of China came to Trinidad in his first visit to the Western Hemisphere after his assumption of office, setting the big
stage for global diplomacy in the region. This was followed by the United States of America (USA) then Vice President, Joe
Biden, and the late Prime Minister Shinzo Abe of Japan. Other world leaders and representatives joined in with their own visits
around that time.”
For Dookeran, these official visits by global leaders reflected and signaled the importance of the Caribbean to their country’s
own strategic interest and a recognition of the Caribbean’s importance in global diplomacy. But Dookeran further finds that,

15 Alicia García Herrero and Haoxin Mu, “The War in Ukraine: Economic impact on Asia”, Economic Diplomacy, Issue 1, 2023.
16 Kenneth Waltz, “Theory of International Politics”, McGraw-Hill, 1979.
17 Robert A. Rogowsky and Thomas Hout, “US-China Economic Statecraft: Turning Cold War into Negotiation,” Economic Diplomacy, Issue 1, 2023.
18 Baldacchino, G. & Wivel, A. (Eds) (2020). Small States & Territories. In the Handbook on the Politics of Small State. (pp. 379-384). Cheltenham,
UK: Edward Elgar. ISBN 978-1-7881-1292-5.

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diplomacy is interconnected. Great powers and small states are interwoven in a global diplomatic network. Increasingly, small
states are practicing multi-track diplomacy and microlateralism. Small states are exploring power capabilities.
In a dramatically changing global context, small states, like great powers, are practicing proactive diplomacy. Again, agency
matters. Diplomacy matters.

3 From Economic Diplomacy to Business Diplomacy

The changing global context not only has impact on states, but also on companies. Since companies operate in markets within
and across states, they are subject to inter-state competition.
Companies are now faced with what is called “geopolitical risks”, which can be defined as “an international risk provoked by
geography-related acts”19. The Russia-Ukraine War is a typical geographic-related event, considering that it significantly changed
the existing border between Russia and Ukraine, and displaced over seven million Ukrainians.
Business diplomacy is all about how companies navigate in an uncertain geopolitical environment. Multinational corporations
need to work together with governments in home and host countries to ensure their international economic and trade activities
are conducted in a smooth and profitable way.
Professor David Meyer’s paper is about how companies work with senior government officials, though he focuses on elite
global financers. He finds that elite global financiers and senior government officials engage in economic diplomacy as they
work together to achieve their goals. However, their co-dependent relationship is a source of tension because their goals do
not always align. The thesis is that elite financiers and senior government officials mitigate these inherent tensions through
building moderate to strong ties with each other. The empirical evidence to examine this thesis comes from interviews with 10
elite financiers in leading global financial centres. Their responsibilities require they interface with senior government officials.
The results demonstrate that moderate to strong ties developed in face-to-face meetings between financiers and senior officials
comprise crucial mechanisms to manage the tensions in their economic diplomacy. 20
Elite global financiers engage in corporate diplomacy aimed at managing relationships with senior government officials.21 These
financiers advance the goals of their firms through developing relationships with and negotiating with senior officials. The roles
of elite financiers fall into three broad categories: intelligence, communication, and influence and advocacy. The intelligence
role consists of gathering intelligence and gaining insight into monitoring and assessing risk to the financiers’ firms from senior
government officials. The communication role involves development of long-term relationships with senior government officials.
In the influence and advocacy role, financiers aim to shape favorable socio-political environments for their firms in their dealings
with the officials.22

4 Economic Diplomacy Journal: Future Research Agenda

Economic diplomacy remains an essential component of diplomatic, International Relations, and International Political Economy
studies. However, it is seriously understudied. Efforts need to be made for disciplinary construction, namely theorization,
literature review and update, inter-disciplinary cross-fertilization and comparative studies.

4.1 Economic Diplomacy: Theorization

Although economic diplomacy has been studied since 1950s, there has always been a deficit of theorizing. The most successful
efforts of theorizing so far are expressed in the following four endeavors:
Firstly, Stephen Woolcock and Sir Nicholas Bayne at LSE published “The New Economic Diplomacy: Decision Making and
Negotiation in International Economic Relations (1st Edition) in 2003, and updated it into the 4th edition in 2016.
Secondly, a special issue of the Hague Journal of Diplomacy in 2011 was dedicated to economic diplomacy by three editors
Jan Melissen, Maaike Okano-Heijimans and Peter A. G. van Bergeijk. Maaike Okano-Heijimans published an excellent theoretical
paper titled “Conceptualizing Economic Diplomacy: The Crossroads of International Relations, Economics, IPE and Diplomatic

19 Zhang, Xiaotong., and Xu, Zihao. (2020). The Geopolitical Risks Facing China’s BRI Projects, Global Review, Issue 3, 2020.
20 David R. Meyer, “Working Together: Elite Global Financiers and Senior Government Officials,” Economic Diplomacy, Issue 1, 2023.
21 Egea, Manuel A., Parra-Meroño, María Concepción, & Wandosell, Gonzalo. (2020). Corporate diplomacy strategy and instruments; With a
discussion about “corporate diplomacy and cyclical dynamics of open innovation”. Journal of Open Innovation: Technology, Market, and Complexity,
vol. 6, no. 55, pp. 1-20. https://doi.org/10.3390/joitmc6030055.
22 Doh, Jonathan P., Dahan, Nicolas M., & Casario, Michelle. (2022). MNEs and the practice of international business diplomacy. International
Business Review, vol. 31, no. 1 (February), pp. 1-9.

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Studies”, which systematically reviewed the developments of economic diplomacy and put forward a multi-disciplinary analytical
framework for economic diplomacy.
Thirdly, Peter A. G. van Bergeijk and Selwyn J.V. Moons co-edited the “Research Handbook on Economic Diplomacy: Bilateral
Relations in a Context of Geopolitical Change” in 2018.
Fourthly, Xu Mei and Zhang Cuizhen co-edited the “Introduction to Economic Diplomacy” in 2021.23 It represents renewed efforts
by Chinese scholars after Professor Zhou Yongsheng’s book “Economic Diplomacy” published in 2004.
But further endeavors need to be made to theorize economic diplomacy, especially explaining what is the relationship between
economic diplomacy and relevant concepts such as economic statecraft, economic sanctions, economic war and etc.

4.2 There is a need for periodizing the intellectual history of economic diplomacy

Economic diplomacy can be traced back to ancient times. Now, it has become a global research phenomenon. According
to Google Scholar, just in 2020, there were 29,200 results on economic diplomacy. Statistics show economic diplomacy has
been receiving growing attention since 1950s, and the number of publications on economic diplomacy is growing rapidly over
the past two decades. There is emerging a global community of economic diplomacy research. Therefore, it is necessary to
research on the intellectual history of economic diplomacy. When is its starting point and how did this study evolve over time?
What are the original subjects and how the subject range expands over time?

4.3 Economic Diplomacy Across Disciplines: A Multi-Disciplinary Approach

Economic diplomacy, in its name, implies a multi-disciplinary approach. However, there are silos among different disciplines.
The multi-disciplinary approach is not always easy to practice. Take business diplomacy as an example, it is understudied in
both department of international relations and business school. How corporate executives act in business diplomacy remains
a fertile ground to explore.

4.4 Economic Diplomacy Across Countries: A Comparative Perspective

For now, we are witnessing countries, big or small, are tilting more resources towards practicing economic diplomacy and
developing new economic diplomacy instruments, which give rise to what we call “competing economic diplomacy”.
The experiences of developing countries’ economic diplomacy are worthy of special attention. Developing countries often need
to put economic growth at the center. But they also need to defend its sovereignty and navigate among great powers. That
means they need to practice economic diplomacy for political purposes.
With all the above said, we are now launching this new journal – economic diplomacy, with an aim at promoting discussions and
debates about significant topics on theories, methods and policies of economic diplomacy. It is an uphill battle. But as an old
saying goes, “A thousand-mile trip begins with one step.” Now is the time to study economic diplomacy.

23 Xu Mei and Zhang Cuizhen, co-eds., “Introduction to Economic Diplomacy”, Beijing: Economic Science Press, 2021.