Smart Economy or War Economy

Text citation (Chicago 17va ed.): Tzili-Apango, Eduardo. “Smart Economy or War Economy”. Tequio geopolítico, March 30, 2026. https://estratequio.mx/smart-economy-or-war-economy.

The global economy is entering a phase of structural divergence in which two distinct organizing logics appear to be consolidating. One orientation prioritizes technological productivity, digital transformation, and global connectivity as the primary engines of economic growth. The other increasingly organizes production, industrial policy, and technological development around security imperatives and geopolitical competition. These two trajectories do not perfectly overlap with geopolitical blocs, yet they are increasingly associated with different centers of gravity in the contemporary international system. China increasingly embodies a model that can be described as a smart economy, while the United States (U.S.) and the broader transatlantic system increasingly reflect a securitized economic model in which industrial capacity, technological policy, and fiscal priorities are progressively shaped by military and strategic competition.

The expansion of military spending across much of the world illustrates the structural weight of the securitized model. Global military expenditure remained at historically high levels in 2025, reaching roughly 2.6 to 2.7 trillion dollars annually (Exaras 2025). This trend reflects a sustained increase in defense spending that has continued for more than a decade, driven by geopolitical tensions, regional conflicts, and renewed great-power rivalry. Within this global landscape the United States occupies a uniquely dominant position. The U.S. allocated approximately 962 billion dollars to defense in 2025, making it by far the largest military spender in the world and accounting for roughly one third of total global military expenditure (SIPRI 2025). This extraordinary scale of military investment reinforces the centrality of security considerations in shaping industrial capacity, technological innovation, and fiscal priorities within the Western strategic system.

The geopolitical environment further reinforces this dynamic. The war in Ukraine and rising geopolitical tensions have accelerated the militarization of economic policy across European states, which have significantly increased defense budgets and expanded arms imports and defense industrial capacity. NATO countries in Europe and Canada have raised military expenditures by roughly twenty-two percent in real terms between 2022 and 2025, reflecting a broad reorientation toward military readiness and strategic deterrence (Daniels 2025). This transformation includes the reconstruction of defense industrial bases, the acceleration of arms production, and the restructuring of supply chains for critical technologies. In this environment the boundaries between economic policy, industrial policy, and national security policy are becoming increasingly blurred.

Russia provides perhaps the clearest example of a securitized economic structure. Since the beginning of the war in Ukraine, the Russian state has dramatically expanded military spending and reorganized significant sectors of the economy around the war effort. Defense expenditures are estimated to have reached roughly seven percent of Russia’s gross domestic product by 2025, with large segments of industrial production redirected toward military manufacturing and logistics (Solanko 2026). Wartime fiscal policy has prioritized weapons production, military procurement, and defense infrastructure, while sanctions imposed by Western countries have further accelerated the restructuring of Russia’s domestic industrial base. Although this model has generated short-term industrial growth in certain sectors, it has also created structural distortions in the broader economy as technological restrictions limit access to advanced components and international markets.

The securitization of economic policy is not confined to states directly involved in armed conflict, as it increasingly shapes the strategic orientation of the broader Western economic system. Industrial policies in the U.S. and Europe now emphasize supply chain resilience, strategic decoupling, and technological restrictions designed to limit rival powers’ access to critical technologies. Export controls on advanced semiconductors, restrictions on technology transfer, and the reshoring of strategic manufacturing sectors illustrate how economic policy has become deeply integrated into geopolitical competition. In this environment the logic of security increasingly structures decisions about trade, industrial investment, and technological development.

Against this backdrop China presents a somewhat different trajectory, which has emphasized technological transformation and productivity growth. Chinese policy frameworks increasingly revolve around the development of digital infrastructure, artificial intelligence integration, smart manufacturing systems, and what Chinese policymakers describe as “new quality productive forces” (The State Council 2024) In this line, China’s development strategy seeks to embed advanced technologies across the broader civilian economy, instead of organizing economic policy primarily around military production.

China’s economic transformation over the past two decades has been closely tied to technological upgrading and digital industrialization. The country has become the world’s largest manufacturing economy while simultaneously investing heavily in emerging technological sectors including artificial intelligence, robotics, advanced telecommunications networks, electric vehicles, and industrial automation. These sectors form the backbone of what may be described as a smart economy in which productivity gains derive increasingly from data integration, algorithmic optimization, and intelligent manufacturing systems. Digital platforms, advanced computing capacity, and networked infrastructure serve as central drivers of economic expansion.

It is important to emphasize that China’s technological development strategy does not exclude military modernization. Official figures state that China’s defense budget reached approximately 249 billion dollars in 2025 (+7.2 per cent annually), making it the second largest military spender in the world (Xiao et al. 2025, The State Council 2025). Nevertheless, the relative weight of military expenditure within China’s broader economic narrative remains lower than in several states experiencing active militarization. China’s strategic discourse continues to emphasize economic connectivity, technological innovation, and industrial upgrading as the primary foundations of national power.

The contrast between these two economic orientations may therefore reflect a deeper structural divergence within the international political economy. One model organizes economic policy primarily around security imperatives and strategic rivalry. In this configuration defense spending, arms production, and geopolitical confrontation become major drivers of industrial activity and technological development. The other model prioritizes technological productivity and economic connectivity, seeking to embed advanced technologies throughout civilian economic systems and global infrastructure networks.

From a political economy perspective this divergence may also reflect competing forms of structural power (Strange 1988). A security centered economic structure tends to concentrate resources in sectors linked to defense production, strategic infrastructure, and military technology. A smart economy by contrast disperses technological capabilities across a wide range of civilian industries and digital ecosystems. The former model may reinforce geopolitical competition and militarized industrial policy while the latter emphasizes productivity growth, technological diffusion, and global connectivity as sources of economic influence.

Whether this divergence will persist remains uncertain. Technological rivalry between major powers may eventually blur the boundaries between civilian and military innovation, particularly in fields such as artificial intelligence, cyber capabilities, and space technology. Yet the current trajectory of the global economy suggests that two broad economic logics are emerging. One increasingly organizes production around the requirements of strategic confrontation. The other seeks to organize economic development around intelligent technologies and integrated digital systems. The interaction between these two economic models will likely play a central role in shaping the geopolitical and economic order of the twenty-first century.

In this emerging economic landscape, Mexico occupies a particularly consequential position. As the largest trading partner of the United States, Mexico is deeply integrated into the industrial foundation of the world’s most powerful military economy. While this integration has generated substantial economic gains, it also implies that Mexico indirectly contributes to sustaining the productive ecosystem that supports an increasingly securitized economic order. In structural terms, Mexico’s export-driven integration reinforces the economic base of a system in which military expenditure and strategic competition play a central organizing role. For this reason, diversifying Mexico’s external economic relations is a strategic imperative. Expanding technological cooperation, investment, and trade with other regions of the world would allow Mexico to reduce its structural dependence on a single pole of the global economy and to position itself more autonomously in an international system increasingly divided between securitized production and smart technological development.

The author is Full Professor and Researcher in the Academic Area of International Politics at the Universidad Autónoma Metropolitana, Xochimilco Unit, and serves as Executive Director of Estratequio, a Mexico-based research center dedicated to geopolitical analysis.

References

Daniels, Seamus P. 2025. “Defense Budgets in an Uncertain Security Environment”. Center for Strategic and International Studies.

Exaras, Ileana. 2025. “Military spending worldwide hits record $2.7 trillion”. UN News. https://news.un.org/en/story/2025/09/1165809.

https://www.csis.org/analysis/chapter-13-defense-budgets-uncertain-security-environment.

Solanko, Laura. 2026. “Rough Times for the Russian Economy”. Bank of Finland Bulletin. https://www.bofbulletin.fi/en/blogs/2026/rough-times-for-the-russian-economy/.

Strange, Susan. 1988. States and markets. London: Pinter Publishers.

The State Council. 2024. “China unleashes new quality productive forces in push for reform, innovation”. https://english.www.gov.cn/news/202406/25/content_WS667a2943c6d0868f4e8e8835.html.

The State Council. 2025. “China to increase defense budget by 7.2 percent in 2025, marking single-digit growth for 10th year”. https://english.www.gov.cn/news/202503/05/content_WS67c7ba5dc6d0868f4e8f05cf.html.

Xiao Liang, Nan Tian, Lopes da Silva, Diego, Scarazzato, Lorenzo, Karim, Zubaida and Jade Guiberteau Ricard. 2025. “Trends in World Military Expenditure, 2024”. Stockholm International Peace Research Institute. https://www.sipri.org/sites/default/files/2025-04/2504_fs_milex_2024.pdf.