Markets are often talked about as if they operate separately from politics. But in reality, the global economy is closely shaped by government decisions and the balance of power between countries.
20 March 2026
“We often like to think of markets as happening external to politics,” said CommBank Senior geo-economic analyst Madison Cartwright. “But in reality, policy from government shapes all facets of how market actors interact with each other, especially if they're going across borders.”
Trade rules, alliances and sanctions all influence how countries and businesses deal with each other - and how stable the global system is.
According to Cartwright, the global economy works best when countries broadly agree on the rules - and when there is a powerful economy able to uphold them.
“Really, what makes an economy stable at the global level is if we have a consensus amongst different economies about how things should run,” he said.
“And we have a very large, powerful economy that’s able to enforce those rules.”
Problems tend to arise when that agreement weakens - or when no single country is strong enough to maintain order.
“Economic instability comes when there isn’t that one major strong power to oversee the rules of the game, or if that consensus starts to break down,” Cartwright said.
Economists use the term hegemon to describe the most powerful country in the global system - one that no group of other countries could realistically match.
“Hegemony means that you are the most powerful economy in the world… and no coalition of countries could even match you,” Cartwright said.
This power isn’t just about size. It comes from influence across several areas.
Military power
This is the ability to protect your own country - and, in some cases, provide security for others.
“It’s the ability to determine your own security as well as the security of others,” Cartwright said.
Military strength shapes alliances and relationships, which in turn affect trade and economic cooperation.
Information power
This refers to control over knowledge and information.
“It’s the ability to control the generation and distribution of knowledge and information,” Cartwright said.
Countries that lead in technology, data and research can influence how information flows through the global economy.
Productive power
This is about deciding what gets made, where, and by whom.
“It’s the ability to determine where production takes place,” Cartwright said.
Importantly, this doesn’t mean a country has to do the manufacturing itself. It can still hold power if its companies control global supply chains.
“The most powerful companies in the world determine where production takes place,” he said.
The United States is a good example. Even though much manufacturing has moved offshore, US-based companies still influence global production decisions.
Financial power
This relates to the role of a country’s currency.
Cartwright describes it as an “exorbitant privilege”.
“What that means is that you can settle your debts with the rest of the world… with your own currency,” he said.
Today, the US dollar dominates global finance, giving the United States a unique advantage.
Countries are now deeply connected through trade and supply chains. That creates opportunities - but also risks.
“Interdependencies can create both opportunities and risks for economies,” Cartwright said.
In more competitive times, those connections can be used strategically.
“If we’re entering a period of fragmentation and competition like we are, these sorts of relationships can become weaponised,” he said.
China is a clear example. It relies on imports of certain advanced technologies, which creates vulnerability if access is restricted.
At the same time, it has leverage of its own.
“When China put export controls on rare earths and critical minerals, it was essentially weaponising others’ dependencies on itself,” Cartwright said.
Despite rising global tensions, Australia is in a relatively strong position.
“Australia is in a very privileged position geopolitically,” Cartwright said.
Australia is a key ally of the United States in the Indo-Pacific, while also maintaining important economic ties with China.
“We have had some hiccups along the way,” he said. “But ultimately we have amicable relationships with China.”
As global power shifts, Cartwright says countries need to stay alert and adapt.
“We need to be alert to shifts in the global distribution of power… and adapt as we can,” he said.
Australia’s economy gives it a solid base to do that.
“Luckily Australia has a dynamic economy, a sophisticated economy, and a highly educated workforce,” Cartwright said.
“That means we’re well placed to meet the challenges of the new era.”
Jet fuel prices are rising as Middle East disruption squeezes refined fuel supply, leaving airlines and air freight operators facing higher costs a...
New data showing strong employment growth highlights a resilient Australian jobs market, but CBA economists caution the picture may change as the y...
The Middle East war is causing an unprecedented disruption to global oil flows, raising risks for diesel supply, energy prices and Australia’s ener...
For the latest news and announcements from Commonwealth Bank.
Media releases are prepared without considering an individual reader’s objectives, financial situation or needs. Readers should consider the appropriateness to their circumstances. Visit Important Information to access Product Disclosure Statements or Terms and Conditions which are currently available electronically for products of the Commonwealth Bank Group, along with the relevant Financial Services Guide. Target Market Determinations are available here. Loan applications are subject to credit approval. Interest rates are correct at the time they are published and are subject to change. Fees and charges may apply.
