Many of us have long awaited America’s wake-up call with China, the turning point when we grasp the formidable challenges in catching up to a geopolitical foe. With coronavirus, that moment may have finally arrived. With COVID transmission spread across the globe in an eye-blink, with pharmaceutical and health product supply chains looking more like gossamer threads, the world’s interconnectedness has not saved us—indeed, it has only magnified the crisis.
As we move forward, attempting to make sensible, informed decisions to protect public health without irreparably harming the economy, the U.S. government needs to fully reconsider its understanding of national security. It must ensure its strategy is holistic and properly focused, that its notions of national security and the national interest are duly calibrated with American economic well-being first in mind. Simply put, what these perilous times demand is a conscious government-directed strategy that is not simply, or primarily, “geopolitical,” but geoeconomic.
The United States has certainly practiced economic statecraft in the post-Cold War era. But employing economic statecraft as a form of diplomacy, via sanctions or aid packages, is very different from linking America’s national security with economic growth and deliberately prioritizing that growth. Instead, for years, according to the strategic “instruments of power” model, “economics” has been simply one of several of such instruments, usually thought of as part of a “DIME” (diplomatic, informational, military, economic) construct that all military and foreign service officers learn about at some point in their careers.
But in a true geoeconomic strategy, “economics” is not simply an “instrument” of national power. Rather, economic growth and productivity are the sources of national power. This understanding, however, has never been fully articulated and effectuated in any recent American national security strategy.
In 1990, as the post-Cold War era began, Edward Luttwak coined the term “geoeconomics.” Luttwak asserted that the world order was shifting to a new systematic understanding of power: a world “where there is no superior modality” to economic power. He contrasted this with the older model in which the loser could readily “switch to the grammar of war.” But this, Luttwak contended, was far less plausible in a world where capital was so globally fluid and where markets were so interconnected. States were not able to “disconnect” outright and to resort to fighting as they did in the past.
So how to operate effectively in this milieu, according to Luttwak? The appropriate way was to seemingly retranslate commerce into conflictual geoeconomic “grammar.” This was obviously a Clausewitz-inspired schema, and it sounded not too dissimilar to standard Cold War geopolitics. But Luttwak grasped a key point: He insisted that globalism would not simply turn “world politics” into “world business.” Rather such a conflictual grammar and strategic logic presupposed a nation-state. Even in the new commercialized world, states, and therefore state governments, were still the central agents.
This was hardly an obvious concept in the 1990s as globalization proceeded. Multinational corporations and international institutions rode on its wave of the future. Thomas Friedman’s famous “golden straitjacket” would be woven by financiers and über-capitalists—they would bind the state, not the other way around. “Geoeconomics” sounded too stodgy, too retrograde, too mercantilist.
Luttwak’s concept thus got little traction stateside in the early post-Cold War era. But one country got the geoeconomic memo. China’s own version of the East Asian miracle model was premised on a simple, unifying theme: Economic growth was the source of its power, and the Chinese state would orchestrate that growth. Acting consistently with Luttwak’s notions (though its policies predated them), the Chinese state filtered, interpreted, and mediated globalization on its own terms, not “straitjacketed” by financiers’ rules.
According to William Overholt, China’s catastrophic “politics in command” under Mao were replaced by “economics in command.” The Chinese government directed a controlled competition. It rejected Washington-favored “shock therapies” for an incrementalist, mixed-economy approach that combined heavy exports, high savings and investment, and low consumption. It entwined its civil service with the marketplace as it established economic targets at municipal, provincial, and national levels, and it made achieving those targets a requirement for political advancement. Most significantly, China reconfigured the entire notion of labor arbitrage to wholly serve China’s ends, and convinced U.S. leaders that the offshoring of the American manufacturing base was in America’s interests.
China’s rise to prominence was obscured in the 1990s because too many kept seeing its rise through geopolitical lenses. In the articles and think pieces of the era, China was usually lumped together with other BEMs (big emerging markets). Overholt also points out that, while China gradually rose economically, its military spending actually decreased significantly, going from a Mao-era 16 percent of GDP to a post-Mao 3 percent under Deng Xiaoping. In the new geoeconomic China, classic balance-of-power geopolitics and military power projection were the consequences, not the catalysts, of Chinese state action.
While much of China’s geoeconomic strategy has worked spectacularly, lifting hundreds of millions out of Maoist immiseration, it has come at often significant cost to its own people. Regressive taxation, environmental degradation, and labor suppression are but a few of the bitter fruits of the Chinese Communist Party’s strategy. And the Chinese economic model may be at its own critical inflection point—not only because of COVID, but because its predicates of high investment, high savings, and low consumption are becoming unsustainable.
China is making moves to address these issues: Its Made in China 2025 and Belt and Road initiatives seek high-tech and purposeful investment and even greater overseas markets. Whether such initiatives are the right moves or whether, as Matthew Klein and Michael Pettis have recently argued, a more radical redistributionist effort is required, the fact remains that the Chinese government is, consciously and coherently, making choices and actually strategizing.
For the most part, however, the United States’ inherent advantages have allowed it to economically stumble through much of the post-Cold War period. Such an approach is no longer viable. If COVID augurs the real end of hyperglobalization, through a whole or partial “decoupling” of the United States and China, then massive, rippling consequences will follow. Prices could rise steeply as cheaper imports become less available. China could in turn buy far fewer dollar assets that ensure the steady flow of capital. Unemployment has already surpassed early 1980s levels. All this, on top of an already fragile COVID-recovering economy for which the American government has budgeted trillions to stimulate.
There is some good news. In the past few years, a slew of legislation, executive orders, and actions have emerged that indicate a tilt toward American geoeconomic thinking. The 2018 Foreign Investment Risk Review Modernization Act (FIRRMA) focuses on foreign investment and technology transfer, especially in hi-tech areas such as artificial intelligence and robotics. The Export Control Reform Act (ECRA) of the same year goes the other direction, looking at exported technologies and ways to ensure such exports don’t damage national security.
The list goes on. The 2018 Better Utilization of Investments Leading to Development (BUILD) Act created the International Development Finance Corporation—part semi-sovereign wealth fund, part response to the Chinese Belt and Road. A critical mineral list was mandated by a 2017 executive order, and a subsequent 2019 report set forth an approach to ensure that critical mineral supply chains are maintained within the United States. Other efforts, even if they have not borne out yet, reflect a strong bipartisan spirit, such as the Competitive Dollar for Jobs and Prosperity Act, proposed by Senators Tammy Baldwin (D-WI) and Josh Hawley (R-MO), which would tax foreign capital inflows used to buy U.S. Treasury bills and related assets, and thereby help drive down the glut of foreign capital that has distorted the American market and driven up consumer debt.
These are, for the most part, sound ideas, but they are not unified in a purposeful way, and therefore do not cohere into a strategy. Strategy requires more than a series of actions—it requires a kind of sense-making, a coherent way to tell what the actions are, and how they relate to each other. Strategy is also not simply a story of what one hopes things should be, of glittery, generalized wishcasting. As Frank Hoffman points out, a good strategy is a theory of success. It is grounded in a series of goals that are attainable, explainable, and of the political moment.
In addition, good strategy is declaratory and resonant. It requires attention. In 2015, the Obama Administration launched the National Strategic Computing Initiative, to ensure that America maintained its edge in supercomputing. It was a noble effort, but it failed—China now has the world’s fastest supercomputer. More importantly, you have probably never heard of it. Truly effective strategies need to be big and public, not simply well-meaning singular initiatives; they need institutional heft to gain power and endurance.
It stands to reason, therefore, that an American geoeconomic strategy needs to be articulated in the next published National Security Strategy (NSS) of the United States. The 2017 NSS already has significant geoeconomic elements. Its second section, “Promote American Prosperity,” begins with the promising assertion that “A strong economy protects the American people, supports our way of life, and sustains American power.” But the 2017 strategy remains a predominantly geopolitical document. It conceives of American power largely in terms of its ability to defend itself against threats, from the spread of WMD to biothreats to transnational criminal organizations. It describes these threats in language that is clear and direct, resonating urgency, while the injunction to “promote” prosperity is vague and laudatory sounding, connoting some future project.
A real geoeconomic strategy, by contrast, is not about economics as an instrument of American power and security, but as the foundation and source of American power and security, and as the source of the well-being of the American people. A geoeconomic strategy should not ignore perils from abroad or within. Nonetheless, a too extensive, too “securitized” set of national interests—whether it involves fighting terrorists or rival states or even pandemics—becomes a fight against every conceivable foe. The next National Security Strategy should give geoeconomics unquestioned pride of place, and orient its distribution of ends, ways, and means accordingly.
The strategy can embody the virtue of simplicity with two basic guiding principles: first, achieve and maintain American prosperity; second, secure and defend American prosperity. To “achieve and maintain prosperity” does not mean simply allowing for the possibility of Silicon Valley mega-wealth, but providing opportunity for a decent job and security for the average American, in the hope that one’s children can live a better life. To “secure and defend” that prosperity reorients national security efforts accordingly, filtering such questions through geoeconomic propositions: Are we aiding or imperiling American prosperity with this particular defense? Is American prosperity helped or hindered by this particular action?
If the National Security Strategy is where that geoeconomic strategy should be announced, what organization should principally formulate and advise on it? Logical candidates include the National Security Council, which does at least have an economic component to its organization, and the National Economic Council, initiated by Bill Clinton in 1993 as a parallel organization to the NSC.
A more promising candidate is the Committee of Foreign Investment in the United States (CFIUS), chaired by the Secretary of the Treasury. Extant since 1975, and given statutory basis as a permanent standing committee since 2007, CFIUS is the sole interagency committee devoted to national security reviews over the array of foreign investments within the United States. With the passage and implementation of 2018’s FIRRMA, CFIUS’s reach has been even more greatly expanded, covering everything from greenfield investments to real estate purchases near ports, airfields, and military installations.
CFIUS’s membership is deep and broad. Since 2008, CFIUS is statutorily required to consist of nine Cabinet members, including the Secretaries of Treasury, State, Defense, and Commerce. It requires individuals no lower than Assistant Secretaries to certify to Congress that investments have no “unresolved national security issues.” Furthermore, since the passage of the ECRA, CFIUS has become increasingly involved in export controls and complementary authorities related to national security export issues. CFIUS thus already has a linkage between national security and economic policy that other governmental entities do not.
Admittedly, there are likely objections to CFIUS becoming a locus of U.S. geoeconomic strategy. For one, Treasury would have overweening authority and influence, creating fears that such a strategy would be bank- and finance-dominated. CFIUS is not only chaired by the Treasury Secretary, it also has an Assistant Treasury Secretary for Investment Security with CFIUS-specific responsibilities. Another concern is that CFIUS already has too much plenary discretion; concerns have been raised that CFIUS’s power to characterize any number of matters as detrimental to “national security” is too open-ended.
There are legitimate concerns, but Treasury’s predominant role could be mitigated, perhaps by making CFIUS chairmanship rotate between Commerce and State, and perhaps by adding a complementary Commerce Assistant Secretary with CFIUS responsibilities. And the risk of excessive power can be mitigated, with CFIUS subject to strong Congressional oversight, frequent open hearings, and a requirement to publish publicly available strategic reports to articulate what it believes would constitute “national security interests.” The United States does not need a closed-door plenum equivalent.
If CFIUS is largely a defensive entity, however, still missing is an institution that can geoeconomically strategize offensively. “Offense” has to be understood in terms of active investment in innovation, in infrastructure, and in human capital. All the separate military services are, for instance, now engaged in major public/private collaborative innovation and future technology efforts—including the Army’s Futures Command, the Navy’s NavalX, and the Air Force’s AFWERX. What is lacking is an overarching geoeconomic innovation, infrastructure, and human capital hub that correlates civilian and military efforts and thereby conceives an offensive geoeconomic strategy that could complement CFIUS’s defensively oriented one.
And what would such a strategy entail? It would undoubtedly have many parts, but it should also have one major project that serves as the very public center of its energy and purpose—a public/private investment “moon shot” that involves U.S. government and major FAANG corporations. A comprehensive 5G “internet of things” effort, modeled along the lines of the 1980s SEMATECH consortium, could be one such effort. Such a project would not simply be about breakthrough technology and consequent productivity gains, but would deliberately focus on rolling out, for example, 5G systems and platforms deep in urban and rust-belt America, and on combining 21st century infrastructure development, worker training, and subsequent employment in an array of 5G-related programs.
Some may object that “securitizing” economics this way invites realpolitik into the world of economic transaction. But in truth, a geoeconomic as opposed to a geopolitical strategy actually can lessen national security risks. The latter type of strategies, by their nature, outwardly focus on international and militarized threats. They focus less on what we should do and more on what we think they—in this case, the Chinese—are doing. In geopolitical strategies, too often security dilemmas are posited, mirror images are gleaned, and accompanying prophecies thereby self-fulfilled. What is front and center in a geoeconomic strategy, on the other hand, is not external speculative threat, but internal economic viability.
Some may further object to having a national security strategy that has, as its foundation, a prosperity-oriented “economic” calculus that might be considered just as reductive as a militarily dominant geopolitical one. Of course, that all depends on how we understand that economic calculus. Economic rational choice models that emphasize resource maximization and competition certainly have their limits. As Mary Hirschfield notes, “competition” loses its rational choice meaning when translated to householders and their occupants—a household that fails isn’t simply failing to “maximize its wellbeing,” it and its occupants are actually living worse than they were before. In a viable geoeconomic strategy, American prosperity is ultimately about people, not bottom-line market transactions.
Free-market fundamentalists, to their credit, often speak with what seems like brutal clarity. As one put it recently, in a rejoinder to Marco Rubio’s recent call for “common good capitalism”: “[W]e work, ultimately, to consume.” A quite reasonable conclusion to this sort of argument is that what finally matter is consumption, presumably of everything from potato chips to computer chips with relative indifference.
But this again begs the question as to what is meant by “prosperity” in the first place. The a priori of Rubio’s argument is that man is not purely homo economicus. As has been shown in any number of studies over the past fifty years, the end of work is not simply to consume. Work itself can be an appropriate end—it can provide for purpose, stability, and a “disciplined self” that helps to make sense of lives across the economic spectrum. Economic prosperity is thus about far more than simple consumption, but includes, to quote Rubio, “the creation and availability of dignified work.” In sum, a geoeconomic strategy is reductive only if what constitutes its economic calculus is itself reductive.
The last President to intuitively grasp the necessity for a geoeconomic approach was Eisenhower, who rejected both the Taftian isolationism and excessive tightfistedness of his own party and the freewheeling spendthrift ways of the Democrats. He recoiled, for instance, at Truman’s Korean War budget, which he thought wildly out of balance. He did not believe that economic strength was secondary to national security but that the two were “inextricably connected.” No President since Ike has made such a tight linkage between national security strategy and economic prosperity.
In his valedictory address, President Eisenhower famously mentioned the threat of a “military-industrial complex,” of a “conjunction of an immense military establishment and a large arms industry.” What is often forgotten is that he also called for an overriding imperative: the need for balance, a balance between the “private and the public economy, balance between cost and hoped for advantage.” Anything excessive, any lack of long-term focus, threatened that balance. To achieve this, Eisenhower sought during his presidency—not always successfully—to create and to maintain a national strategy that was just as focused on prosperity, growth, and economic vitality as it was on military strength.
Eisenhower had his Sputnik moment. By an order of significant magnitude, we have now had ours—and we need, too, to have our own geoeconomic strategy to achieve long-term prosperity, growth, and vitality.
