Lack of Strategy: Assessing the American Vision for Economic Security in the 21st Century
The global economic system is at a critical juncture. Disruptions in supply chains caused by the COVID-19 pandemic, climate disasters, and the Russia-Ukraine conflict have exacerbated the current neoliberal order. As global geo-economic and geopolitical tensions rise, the United States and its partners have begun advancing an international economic security agenda aimed at reducing risk exposure and enhancing resilience. However, while the Group of Seven (G7) countries, including Japan and the European Union, have defined economic security strategies, the United States generally lacks such strategies.
In light of this, Emily Benson, Katherine Mordean, and Andrea Leonard sought to assess the U.S. government’s economic security tools in a report published by the Center for Strategic and International Studies (CSIS) in July 2024, titled Toward an American Strategy: 21st Century Directions for Domestic and International Policymaking. The report focuses on strategic trade and investment tools, including tariffs, export controls, and sanctions, and examines how the U.S. approach to economic security interacts with those of foreign partners. Finally, it offers suggestions on how to strengthen the G7’s economic security approach.
The report highlights the evolving concept of “economic security.” About ten years ago, this concept was associated with individual economic stability rather than that of the state. However, economic security has since become an international issue, reflecting the recognition of external threats targeting a nation’s economic stability. As such, it is now defined as “the ability to protect against deliberate attempts by foreign entities to disrupt a country’s economy and force it into taking specific actions.”
Based on this, the report explores the relationship between economic security strategy and U.S. foreign policy, noting the absence of a comprehensive U.S. strategy compared to the development and implementation of such strategies by foreign partners. However, in recent years, the U.S. has developed a specific economic security strategy concerning China, led by the U.S. House of Representatives. In December 2023, the committee published a comprehensive report, supported by both Democrats and Republicans, detailing 150 recommendations on “resetting” U.S.-China economic relations.
Offensive and Defensive Tools:
The U.S. government draws much of its economic power from a range of laws that grant U.S. agencies broad authority to implement economic strategies. Key offensive tools for U.S. economic security include:
Export controls, a longstanding tool of U.S. foreign policy, evolved during the 20th century to restrict inputs that could lead to weapons of mass destruction. It is easier to gain international agreement on export restrictions when the nature of the threat is clear. Today, the U.S. increasingly uses export controls as an economic security tool to hinder the growth of China’s artificial intelligence (AI) and advanced semiconductor sectors, which could provide significant military advantages.
Economic sanctions: Modern sanctions take various forms, including arms embargoes, travel bans, asset freezes, and restrictions on imports and exports.
Strategic control lists: The U.S. uses a variety of strategic control lists on trade and investment, which can serve both offensive and defensive purposes. These lists aim to prevent exports, re-exports, and the transfer of information, data flows, and finances, while also governing government contracts with foreign entities.
Regarding the U.S.’s defensive economic security tools, the report notes that deterrence measures have gained significant attention in recent years, from sanctions on Russia to AI chip export controls on China. There is also growing momentum in the U.S. to leverage the protective side of strategic trade policy more fully. These tools include:
Section 232 tariffs, which the U.S. president can impose for national security reasons.
Section 301 tariffs, a broad provision that allows the U.S. to impose tariffs to correct unfair foreign trade practices.
Permanent Normal Trade Relations (PNTR): Primarily supported by the Republican Party, the repeal of PNTR would essentially impose a “national security tax,” causing consumers to pay a premium on imported Chinese goods.
Industrial policy and positive incentives: Major legislative packages like the Inflation Reduction Act and the CHIPS and Science Act aim to support U.S. production of green technologies and semiconductors. Along with these positive incentives to relocate production and investment to the U.S., these packages also include “binding conditions” that tie funding to broader foreign policy objectives.
International Cooperation and Economic Security:
The report shifts to examine how the U.S. economic security approach interacts with that of foreign partners through international economic cooperation. It notes that the 20th century witnessed the establishment of international institutions such as the GATT and the World Trade Organization, which set the rules for global trade. Later on, international financial institutions like the International Monetary Fund (IMF) and the World Bank created frameworks for international economic cooperation. However, the new liberal economic order established after World War II is now facing significant challenges due to the realignment of competition between major powers: the United States and China.
As a result, the U.S.’s partner governments are increasingly “securitizing” their economies through new trade and investment tools aimed at protecting and promoting advanced technologies while minimizing risks from geopolitical competitors to maximize the benefits of positive incentives. The report highlights key trends in enhancing economic security through U.S. cooperation with foreign partners, including:
Customs Cooperation: Free trade agreements often include reducing or eliminating tariffs on goods traded between participating countries, which facilitates the flow of goods by making them cheaper for consumers and businesses. The U.S. and its partners should specifically focus on jointly eliminating tariffs on green technologies rather than raising them.
Geopolitical Risk Assessment: Historically, tariff reductions have failed to account for negative side effects such as increased emissions or geopolitical risk factors. The U.S. and its partners should begin developing a risk classification system for trade, pricing both climate risks and geopolitical risks, such as China’s support for Russia in its war against Ukraine.
Facilitating Trade in Services: Free trade agreements have included trade in services such as financial services, telecommunications, and a wide range of professional services. The report suggests the U.S. and its partners commit to deregulating and facilitating cross-border trade in services, building on and supporting existing successes, including outcomes from the U.S.-Japan summit in April 2024.
Regulatory Cooperation: Free trade agreements could encourage regulatory cooperation between member states to align standards and regulations, reduce trade barriers, and promote mutual recognition of product standards and certifications.
Anti-Coercion Platform: As part of the economic security preparedness agenda, the U.S. and its partners should work through the G7 and other frameworks to establish the coordination platform on countering economic coercion, first announced at the 2023 Hiroshima G7 summit. This platform should host discussions on coercive measures that require immediate national responses and those that call for a joint response. In the long run, this platform could lead to a more robust structure akin to an “economic NATO.”
Economic Security Proposals:
The report presented several proposals the U.S. government should work on to enhance its economic security strategy, including:
Providing Additional Human Resources: Adding 17 new officials focused on economic security across five different sectors and institutions would enhance the U.S.’s economic security capabilities, while revitalizing the Office of International Economic Communications.
Improving Economic Intelligence Through Technology: Historically, U.S. intelligence gathering has focused on hard security issues, but significantly expanding the intelligence community’s focus on economic security would help U.S. agencies anticipate the potential outcomes of specific policies and identify areas of potential collateral damage.
Incorporating Climate Considerations into Economic Security Policy: There is a substantial risk in not pricing climate risks into economic security policy. Tariff increases on green technologies should be carefully considered, given the risks of accelerating climate change, which could threaten the livelihoods of billions of people in the 21st century. Furthermore, prioritizing climate change as an integral part of economic security would enable more effective pricing of climate risks in key trade and economic decisions.
Codifying Economic Security Policies into Law: Issuing economic security strategies at the executive level leaves them vulnerable to significant shifts in domestic policy. Securing legislative support would provide additional durability, offering greater certainty to both the U.S. private sector and foreign partners.
Finally, the report concluded that targeted increases in staffing, coupled with the widespread adoption of specialized technologies in trade and investment, will strengthen the U.S. government’s capabilities in the era of geo-economics. Additionally, the U.S. should refocus its efforts on building a positive trade and investment agenda, with its key milestones including: greater tariff cooperation with close partners, pricing geopolitical risks, a joint investment fund for purchasing struggling strategic companies, ongoing efforts in sectoral supply chain arrangements, collaboration on trustworthy technology standards, progress in anti-coercion cooperation, and deepening research cooperation, especially in emerging technologies.
Efforts to enhance the current economic security agenda can be bolstered by greater inter-agency coordination within the U.S. and deeper international cooperation. With an expanded U.S. offensive and defensive toolkit, larger international cooperation through an expanded G7 (G7+) framework can help stabilize the international economic security strategy.
Benson, E., Mouradian, C., & Palazzi, A. L. (2024, July). Toward a U.S. economic security strategy: Twenty-first-century guidance for domestic and international policymaking. Center for Strategic and International Studies. https://www.csis.org/analysis/toward-us-economic-security-strategy
