Economic Security is National Security

Economic Security is National Security

The United States needs an Economic Security Coordination Office to compete economically with China.

 

In response to the overt economic and political coercion by the Chinese Communist Party (CCP), the U.S. government has initiated strategic decoupling from the People’s Republic of China through the narrow application of export controls, investment screening, and trade restrictions. This approach reflects a fundamental and troubling reality: America currently lacks the strategy, comprehensive organizational infrastructure, and dedicated senior leadership needed to effectively respond, let alone dictate proactively, the terms of engagement with China. 

Not since the Department of Homeland Security was established in the aftermath of the 9/11 terrorist attacks has America faced such a critical gap in administrative capacity. The United States will only prevail in long-term economic competition with the CCP if it has a more practical approach at home. They can start by establishing an Economic Security Coordination Office. Institutionalizing the efforts to protect and enhance our economic security and resilience now will disincentivize adversaries who believe they can simply wait until the political winds shift once again.  

 

China’s highly controlled state infrastructure is geared toward weaponizing economic statecraft. It has broadly and offensively launched economic attacks on the United States, emphasizing the competitive advantages of its centrally directed economy. These advantages include controlling production lines, manipulating currency and the global commodities markets, denying necessary materials to competitors, engaging in dumping, and monopolizing global transportation networks and systems. The United States needs to coordinate government tools that are fit to address these challenges.

The threat of China’s economic warfare campaign is not merely theoretical. In response to a 2010 maritime dispute, China unilaterally cut off its supply of necessary rare earth minerals to Japan, leveraging its overwhelming dominance in processing these critical commodities. Similarly, after cornering production and processing of gallium, germanium, and graphite—critical minerals used in semiconductors, energy, and military applications—China cut off these shipments to the United States, impeding our national and economic security. 

We are not alone in arguing for a more comprehensive approach to addressing the China challenge. In a recent Foreign Affairs issue, Professors Henry Farrell and Abraham Newman advocate for a new economic security function within the U.S. government—a timely suggestion in a world where national security considerations are inextricably tied to economic issues. As the authors note, there is a need for a government function that “does not fall into the domain of either traditional national security or free-market economics.” 

For instance, an entity mandated to coordinate and implement policy across the full breadth of economic security issues would serve the United States’ interests more effectively than the status quo currently allows. This is because legacy components generally work independently, and entities may view economic security approaches through a specific lens, both guided and constrained by authorities and appropriations. 

Farrell and Newman respond to the need for a new coordinating body by proposing an Economic Security Council that would sit alongside and be modeled after the National Security Council. This proposal is promising, but more is needed to meet the underlying need. In Farrell and Newman’s view, an Economic Security Council would be an advisory office capable of guiding the president. Yet, it would not be empowered with operational capacity or an appropriated budget to direct change. Economic security policy would ultimately remain fragmented across the federal government and subject to the whims of competing agendas, budgets, and priorities.

Our proposal recognizes this bureaucratic reality and creates a two-step function, which begins as an independent Economic Security Coordination Office within the executive branch but has the total operational capacity to align and coordinate efforts throughout the federal government. Initially sitting within the White House, this office would be charged with (1) the short-term coordination and direction of current economic security policy across agencies and (2) developing a second-stage governmental structure to house economic security policy and operations moving forward.

At the outset, this will require not only a comprehensive examination of current economic security functions across government but also a convening of executive agency leadership to understand and resolve competing equities, build an organization chart of needed capacity, and propose to the president the appropriate structure for an integrated and cohesive operational command post for economic security.  

Fortunately, the momentum to make a decisive change to how the United States government formulates economic security policy is already in motion. Washington enjoys a rare level of bipartisan support for countering China’s economic coercion. Presidents Trump and Biden have stated the importance of economic security as a pillar of broader national security. The Trump White House affirmed its strategic policy in its National Defense Strategy by arguing that “economic security is national security.” Similarly, Treasury Secretary Janet Yellen, speaking on behalf of the Biden White House, stated that we must “protect our economic security.” Commerce Secretary Gina Raimondo called China’s economic and technological pursuits “the biggest threat we’ve ever had.” 

Likewise, Congress is focusing considerable attention on China’s economic coercion through the bipartisan House Select Committee on the CCP. The committee has actively investigated and drafted policy proposals regarding business, trade, technology, and economic security. Its inaugural report makes nearly 150 policy recommendations to prevent further modernization of China’s military and state security apparatus, build supply chain resilience, and reset the economic relationship between the United States and China. However, the report will not achieve its objectives without oversight and coordination, streamlined, and nimble executive branch implementation.

Critical actions—from deploying the tools of economic warfare to devising investment strategies for economic power projection—are pieces of an overarching economic security effort that must be consolidated and better coordinated to maximize the benefit to American companies and citizens while reducing the risk of duplicative and wasteful actions across agencies. The efforts, furthermore, must be based upon a coherently articulated and fully transparent economic policy to guide our actions and act as a warning to our adversaries. Having economic tools, capacities, and critical tasks spread unevenly across various parts of government is a function of legacy authorities and a radically different geopolitical environment. America’s economic security enterprise must adapt to a new reality.

To illustrate the challenge, we can examine the current structures for implementing and enforcing various sanctions. When well-designed and aggressively enforced, sanctions can effectively promote the United States’ foreign policy. The United States employs various types of sanctions and implementation across the federal government. The Departments of Treasury, State, Commerce, and Defense all have roles in sanctioning entities, with additional involvement from the Departments of Energy, Homeland Security, and Justice. In total, thirteen subagencies are responsible for some bureaucratic pieces of the fractured U.S. sanctions regime. 

The imposition, enforcement, and retirement of sanctions designations are complex and critically important to the United States’ national security. Yet, assessing the extent to which sanctions are effective is difficult. This reality hampers the government’s ability to identify the most impactful sanctions targets, ultimately leading to inconsistent application of a potent and far-reaching tool. Sanctions enforcement likewise suffers from inadequately resourced analytical talent and prosecutorial capacity, which is necessary not only to hold violators accountable but also to result in the application of secondary sanctions on entities found to be supporting designated parties. 

Of course, sanctions are just one piece of an integrated collection of economic tools that should be leveraged more systematically and mutually reinforcing. For instance, export controls administered by the Department of Commerce should support outbound investment regimes, carefully calibrated with inbound reviews like those used by the Department of the Treasury’s Committee on Foreign Investment in the United States. More can also be done to strengthen supply chains, de-risk private investment, and build up domestic and allied manufacturing capacity that will promote jobs and protect domestic companies from unfair global competition under the principles of economic security. 

Likewise, how the United States leverages aid, investment, and cross-border support to help our allies, stabilize fragile democracies, and lift people out of poverty is ripe for more efficient and robustly constructed implementation. As the world’s largest contributor to foreign aid, the United States has the resources to support positive economic engagement strategies. Still, these resources must be organized and deployed more effectively. Doing so would result in the most evident contrast to China’s ambitious but deeply flawed Belt and Road Initiative. The defects of China’s approach—including widespread opacity, corruption, waste, and debt distress—have allowed the United States and its allies to propose a better way. 

A new economic security function within the United States government must be built upon a clear and defensible framework of strategies, mandates, and resources. Economic security tools must be designed and utilized to address narrow and critically important issues that will only occur with direct government action. These issues must also be aligned to support core American values and interests, including democracy and a rules-based international order. We know the task. Now, we need to set ourselves up to win. 

Elaine Dezenski is a senior director and the head of the Center on Economic and Financial Power at the Foundation for Defense of Democracies. She was formerly an acting and deputy assistant secretary for policy at the U.S. Department of Homeland Security.