Wednesday, June 19, 2024
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Economic security has become a national security priority but it remains poorly understood. The ensuing debates have been stunted or misdirected. Failure to grasp the full sweep of economic security concerns and the strategic significance of new and emerging technologies undermines efforts to get economic security right.

Leadership in economic security will determine winners in today’s geopolitical competition. Prevailing in this race must be states’ overriding consideration, even if it demands rejection of economic and foreign policy orthodoxy.

Traditionally, economic security has manifested in two forms, one legitimate and the other not. One manifestation is ‘legitimate’ because there are multilateral initiatives that give them substance, indicative of compliance with international law and acceptance. An expression of the legitimate form is strategic trade controls, which aim to prevent a country’s trade or commerce from being used to strengthen its adversary.

The second manifestation, largely considered illegitimate, consists of policies designed to aid the competitiveness of domestic industries and disadvantage foreign competitors. These efforts protect states’ vested interests and are condemned as protectionism and mercantilism. Not only do they promote inefficiencies and deter innovation, but they spur other governments to act similarly. This erodes the foundations of the global economic order and ultimately hurts billions of people around the world by denying them the benefits of economic liberalization.

The crude application of these policies also discredits more subtle and positive uses which have historically provided economic and social benefits, such as facilitating restructuring or assisting sectors hurt by temporary downturns. The hard criticism that colours the debates over industrial policy reflects this phenomenon.

There is also a third focus of economic security — resilience. This concern first manifested over a decade ago when China cut exports of rare earths to Japan as punishment for Tokyo’s attempt to nationalise the Senkaku Islands, which were claimed by China as the Daioyu Islands. The issue metastasized during the COVID-19 pandemic as the world became aware of vulnerabilities created by lengthy supply chains for personal protective equipment and the resulting dependence on China for those critical goods. The Ukraine invasion reinforced those concerns.

Governments are now focused on reducing those vulnerabilities. They have studied supply chains with ferocious intensity and established working groups — national and multilateral — to reduce those vulnerabilities. Pillar 2 of the Indo-Pacific Economic Framework is focused on supply chains and the 14 governments concluded their negotiations this spring, reaching the first substantive agreement of the process.

But even the most recent deals and documents miss the fourth, and perhaps the most important, element of economic security — the strategic advantage conferred on countries that prevail in the race to develop and deploy new and emerging technologies. This is the truly strategic dimension of economic security.

Leadership in these sectors will produce revenues that facilitate a virtuous cycle of investment, research and development that can secure dominance in their use. It will promote international standards that lock in a country’s leading position. Tech supremacy will confer legitimacy on that country’s innovation model, reinforcing its soft power. As the US National Intelligence Council summarized in its March 2021 Global Trends Report, ‘some technological areas appear to offer the potential for transformative change… to shape societies, economies and perhaps even the nature of power’.

Western leadership is not assured. In its survey of critical technologies, the Australian Strategic Policy Institute found that China is positioning itself ‘as the world’s leading science and technology superpower, by establishing a sometimes stunning lead in high-impact research across the majority of critical and emerging technology domains’. The Special Competitive Studies Project was equally alarmed in its 2022 interim report, which put the United States ahead in five key categories, China leading in three, and four categories still contested. Victory has long-term implications.

China gets it. Chinese President Xi Jinping observed in 2014 that ‘science and technology innovation has become a critical support for increasing comprehensive national strength’. Four years later, he hammered home that message, adding that ‘the initiatives of innovation and development must be securely kept in our own hands’.

The United States understands this, too. The Export Control Act of 2018, part of the National Defense Authorization Act for Fiscal Year 2019, notes that ‘the national security of the United States requires that the United States maintain its leadership in the science, technology, engineering, and manufacturing sectors’. Yet complaints from businesses, economists and strategists who fear a rupture in relations with China have softened policy and undercut this critical objective.

If leadership in these fields will allow the victor to write — or rewrite — the rules of global order, then tougher measures are required and higher costs, the greatest bugaboo to rerouting supply chains, must be tolerated. De-risking, which focuses on disruptions, does not go far enough. Neither do trade controls that focus on current or potential military advantages.

A far greater restriction is required, one that must be done in cooperation with allies and partners. It must be coupled with efforts to promote innovation among those same nations to spur the creation of new technologies and their adoption in those countries. This is a heretical notion given most conceptions of international economics and regional order, but it seems inescapable given the stakes.

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