“For the greater part of the last decade, the United States and China have been locked in a cold war, fought as fiercely over economic and technology advantages as over military advantages.”

— Navin Girishankar

Economic power has long been the foundation of any country’s geopolitical influence and national security. The history of the United States affirms this fact. In the early 19th century, the United States was a modest player on the global stage. It was a mostly agrarian society with cotton as its largest export. Through innovation, geographic expansion, investment, and population growth, the United States was transformed over the next century into an industrial giant on the verge of becoming a superpower. During the 20th century, the dynamic U.S. economy continued to grow, enabling the United States and its allies to win two World Wars and the Cold War. With the fall of the Soviet Union near the end of the 20th century, the United States was the pre-eminent economic and military superpower, ushering in a period of global primacy.

In the three decades since, the world has changed. The Chinese economy has grown rapidly, enabling it to significantly expand its military. Possibly more importantly, that growth, particularly in manufacturing, has enabled China to play a central role in a wide range of critical global supply chains, which it uses as leverage to promote its geopolitical interests. China also regulates access to its domestic market to promote its geopolitical goals.

Today, we see the conflict between the United States and China playing out in economic policy. The United States has increasingly used its economic might to advance geopolitical objectives, including through sanctions, export controls, tariffs, and other economic tools. This has often been effective. When the United States announced broad-based tariffs on imports from countries around the world, most countries sought negotiated exemptions. However, China was almost unique in imposing retaliatory tariffs on key U.S. exports. China also threatened to respond to the tariff threat by restricting exports of rare earths, many of which are essential to the defense industry. In the end, China and the United States reached a negotiated solution that avoided the worst of the trade interventions.

This amply illustrates the current challenge to the primacy of the United States and its allies. This heightened state of economic and military competition highlights the need for the United States and its allies and partners to strategically and effectively use their economic power and the tools it supports to advance their economic and security interests.

This chapter examines four dimensions of the strategic use of economic power. First, it explores how countries use economic statecraft to accomplish geopolitical goals that would otherwise require military force. Second, it addresses industrial policy, both as an economic necessity and as a tool of war readiness, highlighting how national security-informed economic policies are a prerequisite for developing the defense industrial base. Third, it analyzes economic power as a deterrent, noting how visible economic strength, when coordinated with defense strategy and guided by national security goals, alters competitor calculations. Finally, it considers the value of strategic alliances that promote economic partnerships and trusted supply chains to strengthen security cooperation and resilience while blunting coercion.

Ultimately, this chapter argues that economic policy can no longer operate in isolation from national security planning. In an era of great power rivalry and multipolarity, strategic advantage belongs to countries that can coordinate the use of economic tools with security objectives, thereby mobilizing capital, labor, and markets as deliberately as they mobilize troops. While the Department of War (DoW) may not launch economic weapons, its leaders and warfighters need to understand their power and implications. At the same time, DoW must work with the interagency, the private sector, as well as allies and partners, so that its priorities inform the “ready, aim” before economic agencies fire these tools.

https://doi.org/10.71236/fd2ksypz