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America Must Play the Geoeconomics Game

America Must Play the Geoeconomics Game

The United States has forgotten that money is a weapon. China hasn’t.

By the Johnson and Nixon years, however, geoeconomics had noticeably begun to wane. The war in Vietnam pushed geoeconomics off the U.S. policy stage. It was perhaps inevitable that the outbreak of armed conflict and hundreds of thousands of U.S. troops on the ground in Southeast Asia would shift policy makers’ attention in the direction of military use of force. But this continued through the 1979–81 Iranian hostage crisis and the failed rescue attempt. It gained momentum with Washington’s military responses to the Soviet invasion of Afghanistan; the U.S. interventions in Angola, Lebanon, Grenada and Panama; the first Gulf War; the Clinton administration’s air campaign in the Balkans; 9/11 and the wars in Afghanistan and Iraq; the U.S.-led NATO intervention in Libya; the American drone and combat air attacks across the greater Middle East; and the reintroduction of U.S. ground forces in Iraq and deployment of special forces into Syria.

Even when policy makers’ attention turned from waging conflict to de-escalating it, the parameters of discussion stayed largely confined to conventional political-military concerns: arms-control negotiations, détente with the Soviet Union and diplomatic openings with Soviet allies, all assisted by largely political factors. And even in the rare cases when the United States did take on a geoeconomic project of some magnitude during this period—attempts to bring Russia and China into the Western economic order are far and away the most important example—these tended to remain geoeconomic attempts only briefly, before morphing into more straightforward commercial and purely economic ones. Geopolitical factors have not disappeared from these efforts, but they have become secondary if not tertiary considerations.

The decline of geoeconomics in American foreign-policy making in recent decades proves to be a complicated story, with lots of variables, subplots and nuances. But the short version is a combination of neglect and resistance. American economists tend to resist putting economic policies to work for geopolitical purposes, in part because the notion of subjugating economics in this way challenges some of their deepest disciplinary assumptions. As Michael Mandelbaum put it, “The heart of politics is power; the aim of economics is wealth. Power is inherently limited. The quest for power is therefore competitive. It is a ‘zero-sum game’ . . . Wealth, by contrast, is limitless, which makes economics a ‘positive-sum game.’” Because many U.S. economists and economic policymakers tend to see the world through this positive-sum logic and have little appreciation for the realities of power competition among nations, they tend to be skeptical of using economic policies to strengthen America’s power projection vis-à-vis its state competitors.

The notion has also encountered ambivalence from foreign policy strategists. Although they are steeped in traditional geopolitics and are not averse to viewing economic instruments of statecraft within a zero-sum logic, most strategists fail to recognize the power and potential of economics and finance as instruments of national purpose.

Thus, embraced by neither most economists nor most foreign policy strategists, the use of economic and financial instruments as tools of statecraft has become an orphaned subject. For a time, it seemed of no great consequence. In the years following the Cold War, the United States faced no serious geopolitical rival, no real struggle for international influence or in the contest of ideas. Liberal economic consensus pervaded. And as it did, what began as a set of liberal economic prescriptions aimed at limiting the rightful role of government in the market morphed over time into a doctrinal unwillingness to accept economics as subject to geopolitical choices and influence. Thus, certain liberal economic policy prescriptions, such as trade liberalization, that found favor initially at least in part because they were seen as advantageous to U.S. foreign policy objectives came over time to be justified predominantly on the internal logic of laissez-faire liberalism, not on the basis of (perhaps even in spite of) U.S. geopolitical grounds.

U.S. Geoeconomic Policy Prescriptions

Given the persistent use of geoeconomic instruments by China, Russia and others, there is no reason to expect that the issue or the stakes will diminish anytime soon. Washington’s focus should therefore shift to a new organizing question for U.S. foreign policy, namely: how does America maintain global leadership in an age importantly defined by geoeconomic power?

First and foremost, nothing would better promote America’s geoeconomic agenda and strategic future than robust economic growth in the United States. Economists are a contentious lot, but there is a wide, bipartisan consensus that U.S. growth over the next decade will require increased public and private investment in the near term, and a solution to U.S. entitlement pressures over the longer term.

In addition, the next president must speak to geoeconomic policy by laying out an affirmative vision for a geoeconomics-centered foreign policy. Without presidential geoeconomic leadership, Pavlovian political-military responses are likely to most often carry the day in Washington, and thus drive the bureaucratic responses to America’s external challenges. If America is going to be effective at exploiting its geoeconomic potential, it needs the right signals and bureaucratic structures in place, many of which can only come from the White House.

 

Put bluntly, the U.S. Congress is often a serious impediment to implementing a coherent and comprehensive American geoeconomic strategy. Thus, the incoming administration will need to adopt new rules of engagement with Congress. Because much of the needed U.S. geoeconomic agenda cannot be implemented without congressional approval, the leadership of the Congress should schedule a comprehensive set of hearings on the potential of the United States to use economic tools to further U.S. geopolitical objectives.

As Secretary of Defense Bob Gates urged, funds should also be shifted from the Pentagon to be used to promote U.S. national interests through geoeconomic instruments. The administration’s State Department budget request for fiscal year 2016 was $50.3 billion, while the Defense Department’s total request was $585.2 billion. Such a ratio is incompatible with an era of geoeconomic power projection.

 

The United States will also need to develop a more concerted understanding of geoeconomics across all executive branch agencies with responsibilities in U.S. foreign policy and national security. Such a conceptual framework should, at minimum, be capable of distinguishing geoeconomic from non-geoeconomic instruments and influence, as well as determining what makes them more or less effective; it should also offer policymakers a means of evaluating geoeconomic policy options against other policy alternatives.

For a decade or more, America’s economic relationships with many of its closest allies have lagged behind security cooperation. Thus it is time to reboot U.S. alliances for geoeconomic action focused as intensely on shared geoeconomic as on political and military challenges.

Geopolitical strategy by the United States in Asia cannot succeed without delivering on the Trans-Pacific Partnership (TPP). Even though TPP began as a straightforward exercise in liberalizing trade barriers, its geopolitical stakes are now real.

The United States should likewise conclude the TTIP agreement with America’s European allies. Nothing else will so further transatlantic geoeconomic prospects—especially if both sides seek to make this a trade agreement that prioritizes geoeconomic aims in its design choices.

The next administration should also construct a geoeconomic policy to deal with China over the long term. America’s economic pivot to the Asia-Pacific has lagged behind our diplomatic and military investments. But more than any other region, economics is the coin of the realm in Asia. As we now work out the content of the rebalancing, our strategy must change to reflect this basic reality.

In another aspect of rebalancing to Asia, the United States should make geoeconomic investments in India’s emergence as a Pacific power. With so much staked on an India that is growing economically and engaged regionally, supporting India in its bid for greater multilateral influence would seem a minimum ante for the United States.

To bolster the geoeconomic defense of Europe, Washington will need to construct a geoeconomic policy to deal with Russia over the long term. Working with the EU to initiate a new standing policy of jointly policing and punishing acts of geoeconomic coercion and intimidation in Russia’s “near abroad,” in whatever form, would not only help habituate the Europeans into swifter actions but also send stronger signals of U.S.-EU resolve to Moscow and to other countries that may be looking to visit similar tactics on their regions.

To shore up America’s geoeconomic potential, the next administration should seek to convert the energy revolution into lasting geopolitical gains. The strategic premium the United States can accrue from the unconventional energy boom is just as significant as the improvements seen in U.S. energy production. But the geopolitical benefits to America cannot be realized if the production of U.S. unconventional energy resources is not given the priority it deserves.

At the same time, the United States will need to meet the test of climate change. Like many other issues in the geoeconomic domain, solving the problem of climate change requires harmonizing domestic and foreign policies, an objective often not currently being accomplished.

If America is to retain its competitive economic edge in the twenty first century, it will need to blunt the threat of state-sponsored geoeconomic cyberattacks. The costs of geoeconomic-minded cyberattacks, especially by China, fall disproportionately on U.S. firms, as the leading suppliers of R&D and tech-intensive goods and processes. The next administration needs a robust policy to punish China for its systematic theft of American intellectual property.