Liz Truss’ ‘Economic NATO’ Is a Pipe Dream
Liz Truss’ idea of an “Economic NATO” is predicated on hidden assumptions that fall apart in the real world.
Liz Truss, Britain’s new prime minister, has developed a bold idea for international affairs. In response to the Russian invasion of Ukraine, she proposes establishing an “Economic NATO”, or “eNATO,” to enable the G7 nations combat coercion with sanctions. Think of an eNATO as a weapon-specific alliance that merges two popular tools together: alliances and sanctions. While traditional alliances act through military force, eNATO uses sanctions. If, for example, China was to invade Taiwan, then members would apply collective sanctions until China withdrew.
Unfortunately, this approach is predicated on hidden assumptions that fall apart in the real world. It encourages U.S. allies to free-ride, creates new entanglements, and undermines credibility. The G7 should instead focus on long-term resilience by creating requirements to produce critical goods within its sphere of influence.
First, normal alliances are deployed against perceived threats. Whether a country is perceived as a threat is due to four factors: economic power, military capabilities, geographic distance, and perceived hostility. However, the threats to an eNATO would be perceived very differently by its various members. Unlike when a member is invaded, the invasion of a non-member is not equally threatening to all members. This means members could be forced into participating in sanctions that are against their own national interests. After all, sanctions are a two-way street: countries harm their own economies hoping they do greater harm to the enemy.
Second, alliances must engage in burden-sharing. In traditional alliances, this is straightforward, albeit difficult: members spend a certain percentage of their wealth on the military so that no one free rides. However, economic warfare is asymmetric by design. For example, if members sanction a food exporter, those reliant on food imports face catastrophic costs compared to those that don’t. NATO and the European Union’s responses to the Russian invasion of Ukraine show that the burden of sanctions isn’t equal. While necessary to punish a horrific act of aggression, it was critical that each country applied sanctions at its own discretion.
Third, making sanctions easier to impose raises the risk that countries will drag others into using them. International institutions reduce coordination costs, as countries don’t have to spend as much time negotiating to implement their goals. But if the costs of using sanctions go down, members would use them even when they aren’t needed. For example, America has continued to apply sanctions to countries long after it was necessary to do so, such as in the cases of Iran and Cuba. An eNATO raises the risk of countries being pressured into doing the same.
Alliances solve immediate problems such as defeating an adversary. As a result, members expect to complete a discrete mission and then go back to normal. But as sanctions are rarely short-term, the costs of sustaining this kind of alliance would climb over the long run and eventually become too great to bear.
Proponents say an eNATO would have served as a deterrent against Russia’s invasion of Ukraine. However, NATO’s lack of a credible deterrent against Russia wasn’t due to its enforcement mechanism; it was because Ukraine wasn’t a part of NATO in the first place. An eNATO wouldn’t solve this issue because other countries rightly believe there’s no guarantee an alliance will come to the aid of non-members, regardless of what tools it uses.
Every alliance is predicated on credibility. The day members choose not to act, due to fear or self-interest, is the day alliances die. Russia’s own alliance, the Collective Security Treaty Organization, is in a free-fall because Russia refuses to protect its ally, Armenia, from attacks by Azerbaijan. Because an eNATO would require making commitments to countries that weren’t even members of the alliance, there’s a risk it would fall and deal a fatal blow to American credibility.
We need fewer tools based on coercion and more tools that protect us from it. Instead of deterrence, the G7 should prioritize resilience—weakening the ability of rivals to inflict economic harm. This can be done by developing regional content requirements for critical goods, including food, military parts, and energy. These requirements would necessitate that any critical goods imported from outside the G7 be at least partially manufactured within the G7. In this case, when conflicts did arise, members would be on an even footing to deploy sanctions individually.
An eNATO ultimately tries to solve a problem that can’t be solved: the inability to marshal support for sanctions against foreign aggression. The G7 should instead work to mitigate the risks of aggression abroad and put its members on stable ground.
Yameen Huq is a Contributing Fellow at Defense Priorities.