The new geo-economic game

Countries such as China and Russia are already playing a new geo-economic game, where economic power is leveraged aggressively for national advantage

The United States and the international community have begun to wrestle with the complications of an interconnected global environment, where economic power, access to resources, and cutting-edge technologies are redefining national power. There is a growing recognition in the US that the myriad vulnerabilities and opportunities in this shifting landscape require a new national economic security strategy.

Countries such as China and Russia are already playing a new geo-economic game, where economic power is leveraged aggressively for national advantage.

They continue to steal billions of dollars of intellectual property from US and other government and private sector networks. Certainly, the internet has accelerated and amplified vulnerabilities with the ease of digital access to mass amounts of data, low barriers of entry to cyber-intrusion, and the useful cloak of online anonymity.

But economic battles are not confined to cyberspace. During a diplomatic spat with Japan in 2010, China suspended its export of rare earth minerals – necessary for key high-tech manufactured items such as hybrid engines and solar panels. China has also used its undervalued currency, subsidies, and the weight of its market – both current and future – to demand local content and partnership concessions from foreign companies.

The resulting transfer of technology and marginalisation of multinational companies has allowed Chinese companies to take larger chunks of the global solar, wind turbine, and high-speed rail markets. At the same time, Chinese infrastructure and extraction projects in Africa, Central Asia, and Latin America are facilitating Chinese access to both raw materials and political influence.

Russia hasn’t hesitated to play the game either, using its oil and natural gas resources to exert political pressure while padding the Kremlin’s coffers. In 2006 and again in 2009, Russia shut off natural gas supplies to Europe through Ukrainian pipelines to extract concessions and pressure Ukraine. Russia – through Gazprom – has also followed an acquisition pattern of “plugging the holes” of alternate channels of energy supply to Europe in the Balkans and Poland.

In the more recent conflict with Ukraine and Russia’s annexation of Crimea, Russia has continued to use its oil resources and financial influence to pressure Kyiv, while also threatening neighbours such as the Baltic countries. In the face of Western economic sanctions and pressure, Moscow has used its own economic measures and threats as a sword and shield. Russia is now using direct sanctions against Turkey after that country’s downing of a Russian aircraft on the Turkish-Syrian border.

Both China and Russia have begun to create and explore alternative institutions, trading relationships, and payment platforms to displace the dollar and the US-centric global financial order. China’s promotion of the Asian Infrastructure Investment Bank (AIIB) as an alternative to the US and Japanese-led Asian Development Bank (ADB) is an example of Chinese designs to create parallel or competing structures in the global economic system. China is also working to grow its influence in the current international construct. The International Monetary Fund’s (IMF) inclusion in 2015 of the yuan in its Special Drawing Rights is an example of China’s graduation into the global club of currencies and economies.

The US faces a direct challenge to its economic predominance from an alternate state-driven capitalist model, and from systemic and economic threats from a panoply of state and non-state actors. US economic reach and influence have been taken for granted as a function of the free trade paradigm that the US helped establish and the competitive advantages of the US market and companies against foreign competitors. This is now in jeopardy, with not only economic advantage but also international influence at risk. The newly signed Trans-Pacific Partnership (TPP) trade pact is an attempt to regain economic advantage and influence in the critically important Asian and Pacific markets, in the face of a rising China.

Even with the new trade pact, the US remains unprepared to play this new geo-economic game. Its current approach to economic security abroad reflects a reticence to meld political and economic interests. This underscores a longstanding structural divide between national security policies and the role of the US private sector in the international commercial and financial system. In 2015, the contentious debate in Congress on whether to re-authorise the Export-Import Bank (Exim Bank), which provides financing, loans, and insurance to US exporters and brokers, was a reflection of this dynamic.

The most egregious examples of this failure to combine national and economic security interests have occurred recently in the war zones of Iraq and Afghanistan. US blood and treasure have been spent to establish security and functioning economies, but US companies and interests are often left on the sidelines as Chinese, Russian, and other countries’ companies profit from oil, mineral, construction, and other sectors.

The US government’s approach to these vulnerabilities is also scattered – with strategies to protect supply chain security, combat transnational organised crime, secure the cyber domain, protect critical infrastructure, and promote US private sector interests abroad to compete with state-owned enterprises. As the Venn diagram of economic and national security overlaps ever more exactly, the US should craft a deliberate strategy that aligns economic strength with national security interests more explicitly and completely. It should also design this strategy with its allies squarely in mind.

The intelligence community should prioritise collection and analysis to focus on the global landscape through this lens. The Departments of Commerce, Energy, and Defense should sit down together – and then with the private sector – to determine how to maintain investments and access to strategic materials and capabilities critical to national security. Our homeland security enterprise should be focused less on defending against specific actors and more principally on protecting and building redundancies in the key infrastructure and digital systems essential for national survival. Law enforcement and regulators should have access to beneficial ownership information for suspect investments and companies formed in the US.

International alliances should be recast to ensure key resource and supply redundancy, while trade deals should create new opportunities for influence and economic advantage. The Trans-Pacific Partnership (TPP) is a major step in the right direction. Washington should deploy new doctrines of deterrence like a “boomerang deterrent” making it patently unwise for countries to try to attack or weaken the US given the entanglement of the international commercial and financial systems.

The US president should also review the traditional divide between the public and private sectors where cooperation is essential, as is happening in the cyber domain. We should view the relationship between government agencies – such as the Ex-Im Bank, Overseas Private Investment Corporation (OPIC), and USAID – and businesses as core to the promotion of US interests, creating alliances based not just on trade and development but also on shared economic vulnerabilities and opportunities. The White House needs to ensure that its national security and economic experts are sitting at the same table crafting and driving the strategy while consulting the private sector.

In doing this, the US and Western liberal democracies must reaffirm their core principles. Western capitalist societies should not strive to be like either China or Russia, and analysts should not automatically overestimate the strength of such alternate systems and inadvertently create structures that move us towards a state authoritarian model. On the contrary, the US should commit to remaining the vanguard of the global free trade, capitalist system, while preserving the independence of the private sector and promoting ethical US business practices. The US and its allies should not retreat from the globalised environment they helped shape but instead take full advantage of the innovation and international appeal of US and Western business and technology.

In the twenty-first century, economic security underpins the nation’s ability to project its power and influence. The US must remain true to its values but start playing a new, deliberate game of geo-economics to ensure its continued security and strength.

The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of its individual authors.

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