October 10, 2024
By Tim Welter | Jason Blessing | William Norris | Joshua Stinson
On July 25-26, 2024, the Potomac Institute for Policy Studies and Texas A&M University’s Bush School of Government and Public Service hosted a summit on economic statecraft. Economic statecraft is traditionally understood as using economic tools of national power to pursue a nation’s goals. The increasing weaponization of economics by US rivals has left key US industries and markets vulnerable, reduced trust in institutions, and endangered US security and prosperity. While prolific, and with varied success, the US government (USG) lacks a broad strategy to coordinate response to such activities, and current efforts have been disparate and disconnected. Accordingly, the goal of the summit was to establish a collaborative foundation for countering adversarial economic statecraft. Panelists across government and industry shared views on adversarial economic practices, US responses, and what would define success in the future.
Key themes included:
National values and free market principles are central to US economic statecraft. Certain societal norms and their context must be considered in exercising economic statecraft, to include broadening the view of what constitutes warfare, the assumption that global stability and prosperity will continue to be dependent on rules-based order, and that countering adversarial economics is an imperative to preserving peace. Competitors can dictate the direction of a command economy, while the US grapples with balancing free markets with security imperatives and democratic processes.
International markets exhibit symptoms of failure due to rivals’ intentionally non-competitive (e.g., monopolistic) behavior which can impact US national security interests. These market failures need to be addressed, as well as industries exhibiting signs of nefarious market manipulation by a monopolist or oligopolistic actor aiming to dominate specific sectors. Advancing regional cooperation and opening markets to allies and trusted foreign partners will help. Tools to remedy market distortions and incentive structures exist, but the worlds of economics and national security do not speak the same language and face fundamentally different decision incentives.
USG institutional structures and processes impede effective economic statecraft. This is complicated by the absence of a lead USG entity designated to orchestrate economic statecraft tools and authorities. Authorities and mechanisms are spread across the executive branch of government with no clear strategy or doctrine for their exercise. The legislative branch faces similar institutional and process impediments in developing policy and oversight of economic statecraft activities. To be effective, both branches will need to be complicit in improving employment and coordination of economic statecraft tools and authorities.
The USG lacks analytical tools to sufficiently gather, process, and share economic statecraft data for priority, action, decision, and evaluating effectiveness of actions taken. Existing tools are not fully exploited and or their output is not shared well enough to address the array of threats. Further, an understanding for the efficacy of those tools is lacking. Analytical capacity is still primarily focused on threat financing (how adversaries fund themselves) instead of threat finance (how adversaries deploy capital). Continued development of an “analytical infrastructure” for economic statecraft is needed.
There is divergence between market-driven incentives and the desires of businesses to support USG economic statecraft. Disconnects between the public and private sectors - namely between USG understandings of commercial market drivers and coordination of investments made on behalf of the national interest, including in human capital - inhibit competitive advantage in areas critical to continued US security and prosperity. The challenge is how to align private sector interests with US strategic interests while preserving free market principles in mitigating economic exploitation by adversaries.
The summit produced several proposals for immediate action, including:
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Create an overarching national strategy and doctrine for economic statecraft and spur the legislative and executive branches to enact and align organizational, cultural, and institutional changes required for the US to engage in and oversee effective economic statecraft.
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Foster the intellectual foundations of economic statecraft and refine conceptual and practical approaches. Advance awareness of challenges and opportunities and induce action by engaging invested stakeholders and intellectual leaders in economics and national security.
Specify appropriations and authorizations for economic statecraft activities to clarify and enhance the prioritization, oversight, and employment of economic instruments (disparately and together) for US strategic interests.
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Engage more deeply with allies and partners in the public and private sectors. Effective US economic statecraft relies on a robust discourse with new and old international partners, relationships underpinned by shared values in pursuit of sustained prosperity and security.
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Additional recommendations outlined in this paper include specific institutional changes for Congress and the Executive Branch and how economic intelligence and information is gathered, assessed, shared, and used.
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Economic statecraft is a viable tool for ensuring US future prosperity and security. Institutional and policy adjustments will need to be made moving forward in collaboration with close partners and allies. Policymakers must work to better understand private sector incentives, to identify when and how they might diverge from strategic interests, and what to do about it.
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Left unchecked, asymmetric economic activities by competitive rivals will leave key US industries and markets vulnerable, reduce trust in institutions, and stress the very fabric of American society, leaving our security and prosperity in peril.
LIST OF ORGANIZATIONS REPRESENTED BY SUMMIT PANELISTS & SPEAKERS
AFWERX
Atlantic Council
Business Executives for National Security
Capitol Peak Strategies
Carlyle Group
Center for a New American Security
Council on Foreign Relations
Defense Advanced Research Projects Agency
EchoStar Corporation
Embassy of Australia
Embassy of Germany
Export–Import Bank of the United States
Fathom Consulting
First In
Flagship Pioneering
Foundation for the Defense of Democracies
Future Union
Galois
George Mason University
Hoover Institution
H. Whitney
Japanese Ministry of Economy, Trade, and Industry
Johns Hopkins University Applied Physics Lab
K2 Integrity
Marque VC
Massachusetts Institute of Technology
Massachusetts Institute of Technology Lincoln Laboratory
Massachusetts Institute of Technology School of Management
MITRE Corporation
Neoterra Partners
Office of the Under Secretary of Defense for Acquisition & Sustainment
Office of the Under Secretary of Defense for Intelligence & Security
Office of the Secretary of the Air Force Concepts, Development, and Management
One Defense
Partnership for Global Infrastructure and Investment
Pointe Bello
Potomac Institute for Policy Studies
Terranet Ventures
Texas A&M University
US Agency for International Development
US Air Force Office of Special Investigations
US Department of Agriculture
US Department of Commerce
US Department of Defense Office of Strategic Capital
US Department of the Navy
US Department of State
US Department of Treasury
US House of Representatives
US Joint Chiefs of Staff J-7 Directorate for Joint Force Development
US Senate
Washington and Lee University
Wiley Rein LLP
Zero Knowledge Consulting