Fragmentation (geoeconomic)

Geoeconomic fragmentation is the policy-driven division of cross-border economic activity along strategic or political lines. It can affect trade, investment, capital flows, payments, technology diffusion, migration and multilateral cooperation. The term is broader than decoupling between two states and narrower than any decline in globalisation, because it focuses on changes connected to policy and geopolitical alignment.

Mechanisms

Fragmentation develops through tariffs, sanctions, export controls, investment screening, industrial subsidies, data restrictions, procurement preferences and efforts to relocate supply chains. Firms respond through diversification, duplication, inventory, near-shoring, friend-shoring or routing through connector economies. These adaptations can reduce one exposure while creating new concentration elsewhere.

Security policies do not have to seek global separation to produce fragmentation. A narrow control on advanced technology can divide a high-value supply chain. Conversely, large trade barriers may redirect commerce without producing stable blocs. Measurement therefore requires product, sector and network data rather than a single headline indicator.

Evidence

International Monetary Fund staff define the phenomenon as a policy-driven reversal of integration and identify channels including trade, capital, technology and the international monetary system. WTO research finds that trade flows became more sensitive to geopolitical distance after Russia's 2022 invasion of Ukraine, while also finding no comparable evidence of broad near-shoring in the period studied. This supports a bounded conclusion: early fragmentation is visible in selected relationships, but a complete division of the global economy has not been established.

Modelled welfare losses vary with assumptions about bloc structure, technology spillovers and adjustment. Estimates are scenarios, not observations. They should not be presented as forecasts without stating the model and counterfactual.

Statecraft significance

Fragmentation can be an intended effect of denial or a cost of resilience policy. It changes leverage by reducing some dependencies and increasing the strategic value of remaining gateways. Large markets may gain agenda-setting power, while smaller states can gain brokerage value as connectors. At the same time, duplicated capacity, weaker competition and reduced knowledge diffusion can impose efficiency costs.

The concept should not collapse every industrial policy into economic warfare. Analysts need evidence of state purpose, targeted dependence or strategic alignment. They should also distinguish resilience through diversified openness from resilience through exclusion.

Assessment

A practical assessment tracks bilateral concentration, substitution, investment location, payment currency, technology licensing and the emergence of connector routes. It also asks who bears the transition cost and whether policies remain coordinated. Fragmentation is a process with uneven depth, not a binary state of the world economy.

Aggregate measures can conceal integration within blocs and separation between them. Attribution also requires a counterfactual because logistics shocks, interest rates and industrial cycles can alter the same indicators. The concept is strongest when policy changes and network responses are traced together at product and sector level. It is weakest when a change in one trade series is treated as proof of a settled geopolitical bloc.

See also

de-risking · Decoupling · friend-shoring · strategic autonomy · Weaponised interdependence

Sources

1. Shekhar Aiyar and others, "Geoeconomic Fragmentation and the Future of Multilateralism", IMF Staff Discussion Note 2023/001 (2023).
2. World Trade Organization, *World Trade Report 2023: Re-globalization for a Secure, Inclusive and Sustainable Future*.
3. Michael Blanga-Gubbay and Stela Rubínová, "Is the Global Economy Fragmenting?", WTO Staff Working Paper ERSD-2023-10 (revised 2024).
4. Charlotte Gardes-Landolfini and others, "Energy Transition and Geoeconomic Fragmentation", IMF Staff Climate Note 2023/003 (2023).

• Luka Salu Keiser, "Geoeconomic Fragmentation, Security Exceptions, and the Weaponisation of Economic Interdependence in International Economic Law", Elsevier BV (2026-01-01), DOI 10.2139/ssrn.7197080.