Toward a US economic security strategy

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Introduction; Economic security considerations

1. A confluence of problems is producing a profound rethink of how the US and its allies approach economic engagement, strategic competition, and geopolitical risk; policymakers are underequipped to answer key questions on economic security and economic statecraft tools; the US needs to equip its agencies to produce a cohesive economic security strategy.  (p. 1) 
2. In contemporary US terms, "economic security" is the ability to safeguard against deliberate attempts by foreign entities to disrupt a country’s economy, coercing it to adopt specific positions; this could include intentional economic shocks and disruptions or the use of tools like embargoes, boycotts, tariffs, sanctions, and the weaponization of supply chains; a resilient and secure economy should have the capacity to withstand such external pressures; economic security policy is meant to protect a country’s economic sovereignty. (p. 3)  
3. Central to economic security is reducing foreign dependency, limiting economic vulnerability related to external shocks and achieving economic resilience though policies like increased indigenous technology and industrial capacity, secure access to critical resources, de-risking, friendshoring, and reshoring; strengthening economic resiliency and strategic industries can limit the ability of foreign actors to threaten or coerce economic interests; economic security aligns with a commitment to medium- and long-term resilience, prioritizing sustainability over short-term profit maximization. (pp. 3-4) 
4. Vincent Cable defined economic security as "those aspects of trade and investment which directly affect a country’s ability to defend itself" referring to the acquisition of weapons and military equipment; economic security is now recognized as an integral part of national security considerations, having become the driving force shaping economic policies; G7+ countries have actively charted new territory in terms of economic security policymaking, with Japan, the EU, UK, Germany, and South Korea all issuing economic security strategies in recent years. (pp. 4-5) 
5. The economic security strategies of the US’s foreign partners makes the absence of a US strategy conspicuous; various US departments and agencies have released their own individual strategies touching on economic security but the US lacks a holistic approach; there is broad bipartisan support for reevaluating the US economic approach to China and a shift toward a more hawkish approach to economic engagement. (pp. 5-6)

Offensive US tools for economic security

1. The US derives most of its economic weapons from a small set of statutes like the International Economic Emergency Powers Act, Foreign Investment Risk Review Modernization Act, and Export Control Reform Act; a lack of similar unilateral export control capabilities among allies frustrates US policymakers who say that geopolitical urgency demands greater agility in restricting access to critical technologies; as the US pursues an increasingly offensive strategy for economic statecraft, it has to know who to target, how to deconflict policy objectives, and how to reduce collateral damage and fratricide and be able to determine definitively whether its sanctions and export controls are working. (pp. 8-10, Table 1) 
2. In the 20th century, export controls were an instrument for controlling inputs to build weapons of mass destruction; international coordination of export controls occurs through the Nuclear Suppliers Group, the Missile Technology Control Regime, the Wassenaar Arrangement, and the Australia Group; these regimes were successful because participants agreed about the definition of threats to national security; after the dissolution of the USSR, the export control system shifted from geographic-based controls toward end-user controls. (p. 9) 
3. The US may be moving back to a geographical-based, sectoral approach; export controls are increasingly used as an economic security instrument yet the Department of Commerce has not sufficiently enhanced its ability to gather intelligence about foreign technological capabilities or grown its enforcement capabilities. (pp. 9-10) 
4. The current environment challenges the notion that export controls and sanctions achieve their intended objectives; Russia’s ability to sustain its war machine highlights the porous nature of export controls; the complexity of supply chains in critical sectors makes it hard for suppliers to know the ultimate destinations for their inputs; SMIC’s ability to produce a 7nm semiconductor called into question the efficacy of US attempts to limit Chinese production of advanced semiconductors; these situations highlight the need for the intelligence community to elevate the importance of economic considerations in intelligence gathering.  (pp. 11-12) 
5. Modern sanctions take a variety of forms, including arms embargoes, travel bans, and asset freezes; implementation of sanctions is a unilateral decision, but the UN, including the UN Security Council, EU, and OCSE play a significant role in coordinating multilateral economics sanctions; the US and its allies argue that sanctions are useful in ending political violence and conflict, while China and Russia view them as a political tool of the West; a lack of coordination and capacity in the US has led to mixed results; offensive measures carry a significant toll for the US and the international community, worsening socioeconomic conditions; some argue that Washington’s overuse of sanctions could encourage foreign government to diversify away from Western economic channels; calibrating unintended geopolitical costs of imposing sanctions could preempt their overuse and provide clarity on their overall efficacy. (pp. 12-13)

Defensive US measures for economic security

1. While the US offensive tool kit has received outsized attention in recent years, there is growing momentum for the US to make fuller use of defensive trade strategy; this momentum is linked directly to China’s trade liberalization through participation in the WTO and consequent dominance of global production capacity, affording it tremendous leverage over foreign markets; the Trump and Biden administrations have made use of trade laws like Section 232, 301, and 202 to usher in a new era of trade policy prioritizing economic security over free trade in order to safeguard against Chinese nonmarket practices, safeguard US jobs, reduce Chinese leverage over critical supply chains, and ensure that production methods are decarbonized. (pp. 16-17) 
2. Section 232 of the Trade Expansion Act of 1962 is small part of a law that was designed to grant the US president authority to negotiate tariff reductions; 232 allows the president to adopt protectionist measures if it is determined through an investigation that imports threaten to impair national security; section 232 directly addresses domestic industry and the need to recognize the close relation of economic welfare to national security, taking into consideration the impact of foreign competition on the economic welfare of individual industries. (pp. 17-18)  
3. Section 301 of the Trade Act of 1974 is a catch-all provision that allows the US to levy tariffs or "take all other appropriate and feasible actions" to remedy unfair foreign trade practices; it is a broad provision allowing actions if a foreign country violates any trade agreement or if its policies restrict US commerce or are discriminatory toward the US. (pp. 18-19)

US government agency mapping

1. The Trump and Biden Administration have advanced a global recalculation of geopolitical risk, using trade and investment tools in offensive and defensive ways to bolster economic resiliency; these tools emanate from different agencies and under different laws, obfuscating overall policy coordination across the US government, restraining progress with allies and partners. (p. 21) 
2. The US remains underequipped to design, determine, manage, and evaluate the efficacy of tools at the heart of the economic security agenda; the executive branch is split among 15 departments or agencies which compete for competencies over specific issues. (pp. 21-22) 
3. After mapping relevant agencies and the methods they use to evaluate the effects of economic weapons to determine where more advanced, sophisticated methods can be used to guide government policy, the US government should identify the appropriate strategic node for economic security policymaking and provide that group with added resources to enhance its effort, and develop a doctrine or set of rules of engagement for economic warfare, because:
   
   1. There is a pernicious problem of pervasive mistrust in economics, including the belief that economists missed key elements in policymaking in recent decades; many policymakers are not sufficiently trained to understand economics and do not know which questions to ask when formulating economic statecraft policies;
   2. Agencies protect their turf, resulting in information silos and suboptimal information-sharing systems among federal agencies; and
   3. Staff do not have sufficient technological capabilities to measure the impact of their policies. (pp. 22-23)
4. The Department of Commerce is critical to the promulgation of a US economic security strategy; among its six sub-agencies, the International Trade Administration analyzes individual economic sectors, coordinating supply chain policies and assessing the need for antidumping and countervailing duties; the Bureau of Industry and Security oversees export controls and also houses the Office of Information and Communications Technology which enacts and enforces the ICTS Supply Chain Rule and other executive orders; BIS relies on Technical Advisory Committees (TACs) to advise on technical aspects of controlled dual-use items; TACs could serve as a model for economic security analysis across agencies to help the US government fine-tune its ability to craft effective policy. (pp. 23-24, Figure 1)
5. One of the Department of Treasury’s four directorates is the Office of Terrorism and Financial Intelligence, which houses the Office of Foreign Assets Control (OFAC), which is responsible for promulgating and enforcing sanctions. (pp. 24-25, Figure 2)
6. The Department of State oversees several aspects of economic security, including the 2022 Supply Chain Ministerial Forum, engaging in international economic negotiations, conducting economic analysis, housing the Division for Counter Threat Finance and Sanctions, and implementing nonproliferation-related sanctions and multilateral export controls through the Bureau of International Security and Nonproliferation. (pp. 25-26, Figure 3)
7. USTR has long played a critical role in carrying out US economic statecraft through its authority to negotiate trade agreements, litigate against unfair trade practices, promote economic growth and safeguard critical industries and technologies. (pp. 26-27, Figure 4)
8. There is not currently a coordination mechanism among federal agencies focused on economic security issues; some experts advocate for the US to establish a new agency to oversee economic security strategy. (pp. 27-28)
9. The National Security Council is the most prominent body in the executive branch, coordinating national security policies among various agencies; its international economic affairs office covers policy areas relating to trade, economics, development, finance, and other portfolios; an economic security council at the White House could coordinate among the US federal agencies with economic security authorities to break down information silos and build a more cohesive strategy and perspective. (pp. 28-29, Table 2)

Stabilizing an economic agenda through international cooperation

1. International Financial Institutions like the IMF and World Bank are facing challenges due to the realignment of great power competition and have been slow to respond to China’s economic behavior and climate change mitigation; partner governments are securitizing their economies through new trade and investment instruments that seek to safeguard and bolster advanced technologies while de-risking from geostrategic competitors; governments and the private sector must work together to ensure that technology competition protects efficiencies, institutionalizes trade cooperation, and promotes a level playing field. (pp. 33-34) 
2. Partner countries should decide which forum will host economic security dialogues to determine how to articulate economic security strategies; for now, partners have concentrated economic security efforts in the G7; partners must pursue institutional changes at the domestic level to promulgate economic security policies; partners must work with domestic legislative bodies to pass companion laws to support economic security objectives. (p. 34) 
3. The most fundamental problem facing international cooperation is that no institution is able to create enforceable rules to deal with a new economic security reality; the G7 could be expanded  and used to create an Economic and Technology Security Regime (ETSR); the ETSR could have two pillars for deeper cooperation on trade, investment and technology; one pillar would focus on export control parity, the other would focus on investment security, aligning standards for high-risk transactions; the investment pillar could include a "golden share" fund to acquire distressed firms deemed critical to national security. (pp. 34-35) 
4. US allies and partners agree with the US desire to accelerate de-risking, but fear that the growing scope of trade and investment controls risks inviting Chinese retaliation and driving up costs without a clear mechanism for offsetting them; the US and its partners should: 
   1. Eliminate tariffs on green technologies while working jointly to determine applied tariff rates in other sectors like critical technologies; 
   2. Develop a risk taxonomy for trade, pricing in both climate risk and geopolitical risk; 
   3. Deepen research cooperation to scale up next-generation technologies;
   4. Adopt a golden shares instrument to provide governments the ability to intervene jointly to protect strategic assets in high-risk cases;  
   5. Advance critical supply chain arrangements with partners to deepen supply chain resiliency, and the private sector should recognize that supply chains will increasingly serve as the primary vehicle for operationalizing the economic security agenda and participate actively in advancing supply chain security initiatives;  
   6. Encourage regulatory cooperation between member countries to align standards and regulations, reduce barriers to trade, and promote mutual recognition of product standards and certifications; 
   7. Work through the G7 and other frameworks to establish the Coordination Platform on Economic Coercion; and 
   8. Create a buyer’s club (offtake agreements) for critical minerals to create demand and price stabilization to keep producers operating. (pp. 36-37; 41)

Lessons for a twenty-first-century economic security strategy

1. As the US pursues a new era of global economic statecraft and engagement, a few targeted adjustments would further bolster US government capabilities for the economic security era: 
   1. Provide additional staff resources, adding 17 new officials focused on economic security in five different departments; 
   2. Reinvigorate the NSC’s international economic affairs office and provide additional resources for economic intelligence throughout the intelligence community; 
   3. Improve economic intelligence through tech adoption and expanding the remit of the intelligence community to include a more concerted focus on economic security; 
   4. Integrate climate considerations into economic security policy to effectively enable the pricing in of climate risk in major trade and economic decisions; 
   5. Codify economic security policies into law to ensure that economic security policies adopted at the executive level outlast extreme swings in domestic policy; 
   6. Leverage a variable geometry for tech alliances, including working with an expanded G7 to establish a series of supply chain arrangements, technology cooperation agreements, and trade and investment measures; and 
   7. Design future-leaning cost offset mechanisms through reimagined trade engagement – in the absence of tariff negotiations, the US is still pursuing deepened collaboration in research, supply chain resiliency, and tariff cooperation – advancing these policies as part of a holistic economic security strategy would provide durability and an affirmative inducement for allies to join the agenda. (pp. 38-40)
2. Assuming the economic security era is here for the foreseeable future, it is time to reimagine the economic governance architecture in a way that facilitates more durable cooperation with economic security, national security, and climate security as core objectives. (p. 42)

Conclusion

The report provides concrete context, guidance, and ideas, for policymakers to draw from as they consider and adopt economic security policies and strategies in the coming years.

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External Resources

• Riskful Thinking: Navigating the Politics of Economic Security – European Union Chamber of Commerce in China and China Macro Group
  A review of the steps EU, China, and the US are taking to "de-risk" each economy.

• Optimizing Export Controls for Critical and Emerging Technologies – Center for Strategic and International Studies
  A series of papers from CSIS examining export controls and recommending reforms.

• How ‘Economic Security’ is Re-shaping Presidential Power – Just Security
  Claussen and Meyer argue for Congress to take back authority over foreign commerce.

• Developing an Economic Security Strategy: EU and U.S. approaches – Center for Strategic and International Studies
  The author compares and contrasts EU and US policy approaches toward economic security.

• How Everything Became National Security – Foreign Affairs
  Drezner argues that when everything is "national security" nothing can be a national security priority.

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