War on the Rocks

This article is the fourth in an 11-part series examining how the United States should organize, lead, and integrate economic statecraft into strategy, defense practice, and the broader national security ecosystem. This special series is brought to you by the Potomac Institute for Policy Studies and War on the Rocks. Prior installments can be found at the War by Other Ledgers page.

What if the real battlefield of great-power competition is the global flow of money?

The ability to mobilize and direct large pools of public and private capital across critical industries — defense, infrastructure, manufacturing, and technology — is becoming the defining instrument of contemporary economic statecraft. These industries operate largely in private balance sheets and global supply chains, meaning governments should increasingly align national priorities with private investment.

As a result, a new toolkit of economic statecraft is emerging. Governments are turning to investment vehicles, financing platforms, and policy incentives that bring public priorities and private capital closer together.

Contemporary economic statecraft now operates across three interconnected layers: finance, the physical infrastructure that enables industry, and the technology that sits on top of that infrastructure.

This article examines why the capital intensity of critical industries is forcing a deeper relationship between governments and private markets. It uses the generative AI infrastructure boom as a short case study before exploring how finance is emerging as the central instrument of economic statecraft. It concludes with practical recommendations for the United States and its allies — from lowering the cost of capital and signaling priority projects, to aggregating allied demand, building new financing platforms, and accounting for strategic economic value.

AI Infrastructure: Finance, Friends, and Physical Assets

The generative AI infrastructure boom illustrates how the layers of finance, physical infrastructure, and technology interact in practice. Critical industries are capital-intensive and often require patient capital over long investment cycles, in multiple geographies. The generative AI boom has accelerated the demand for the physical infrastructure that enables these industries, including power generation, data centers, digital connectivity, and critical minerals.

Energy supply has become the central constraint. According to Nvidia’s CEO, the cost of a one-gigawatt AI data center is immense. While the exact amount varies, it is thought to be approximately $35–60 billion. No single country controls all these inputs, which means the infrastructure behind AI is inherently global. Many countries with these required inputs are emerging markets. In the Indo-Pacific, the region’s data center market is forecast to grow to $53.58 billion by 2028, with the Bank of America identifying a potential multi-year run driven by AI-related commodity and energy demand in emerging markets.

The implication is clear: the countries that organize capital, energy supply, and infrastructure fastest will shape where the AI economy ultimately scales and who gains from the value creation. For the United States and its allies, the strategic task is not simply technological leadership but ensuring that the finance, physical assets, and supply chains needed to support that technology are built within trusted economic networks.

New Financial Vehicles, New Statecraft

Finance is becoming the central mechanism through which allies and partners coordinate on critical industries, as governments deploy investment vehicles, financing platforms, and policy signals to reduce early risk and crowd private capital into strategic sectors. Initial models are already emerging across the United States and allied economies, largely focused on venture-scale investments in technology and dual-use capabilities, with some signs of critical industry coordination.

The U.S. Department of Defense Office of Strategic Capital, established in 2022, currently deploys approximately $1.2 billion through direct loans of up to $150 million per project and up to $175 million in fund financing. The United Kingdom’s National Security Strategic Investment Fund, launched in 2018 with the British Business Bank, co-invests alongside commercial funds, provides market intelligence, and helps firms navigate government procurement. Its capital base is modest, but its proximity to demand gives it influence.

Australia’s newly announced venture-backed defense vehicle adds another model. With up to $350 million targeting cyber, AI, quantum, electronic warfare, and undersea systems, it aims to crowd private capital into sovereign capability. Its success will depend on quickly partnering with private industry and ensuring funded companies have sufficient defense and allied customers to remain commercially viable.

At the multinational level, the NATO Innovation Fund sets the highest benchmark for regional capital aggregation and investments. Launched in 2022 with approximately $1.2 billion from 24 allies, it is the first multi-sovereign venture fund of its kind.

These investment vehicles share core features. They deploy public capital as debt or equity to crowd in private investment and absorb early-stage risk. They limit where the money can come from and where it can be invested, keeping it mainly at home to strengthen national capacity, and in some cases, allowing it to flow only to trusted partner countries. Their effectiveness depends on clear investment mandates, strong investment opportunities, and the ability to translate government needs into commercial terms or private sector innovation into dual-use applications.

While these vehicles are useful, they also face limits. Government balance sheets are finite. Risk tolerance is often low. Australia’s National Reconstruction Fund illustrates the growing pains common to this emerging asset class: navigating the tension between institutional risk culture and a bold policy mandate, slow early deployment, and the political scrutiny that comes with deploying public capital.

Finance is becoming a central component of how allies and partners coordinate on economic statecraft. Public money is being used to set direction and lower early risk, and private capital is moving in where returns are credible. The vehicles through which this is happening are still maturing, but the direction of travel is clear. Investment funds, financing platforms, and blended capital structures are no longer experimental. They are all becoming the institutional architecture of a new economic statecraft.

Countries that coordinate their financing efforts with trusted partners across the private and public sectors will secure the industrial capacity and long-term advantages that come from the multiplier effect of acting together to pool capital. This is even more important in competition with adversaries who can direct state-backed financial resources.

Mobilizing the Full Allied Capital Stack

Funding critical industries requires the full capital stack working together across the entire supply chain. Public and private capital have already begun organizing around technology opportunities, but the infrastructure, manufacturing, and energy systems that underpin these industries demand much larger and more varied sources of finance. Different segments of the capital stack, from venture capital to development finance institutions to sovereign wealth funds and pension systems, play distinct roles.

Capital-rich markets such as the Middle East illustrate how large pools of capital translate directly into economic influence. Investment institutions such as Mubadala, the Abu Dhabi Investment Authority, Saudi Arabia’s Public Investment Fund, and the Qatar Investment Authority play a leading role in funding critical industries around the globe.

However, where capital originates matters because the financial returns, governance influence, and long-term industrial relationships that follow tend to flow back to the capital provider. For the United States and its allies, relying heavily on external financing for strategic industries risks shifting both economic benefit and strategic influence to potentially unfriendly actors.

Crucially, many of the largest pools of capital sit within allied economies. Pension funds and sovereign wealth funds are well-suited to financing long-term infrastructure, though fiduciary caution is an important consideration. Australia’s pension system manages more than $2.5 trillion. Japan’s Government Pension Investment Fund and related institutional investors represent even larger pools of capital, which play a stabilizing and leadership role due to their long term (often 100 year) investment return horizon and experience in infrastructure investment, in the region.

At the same time, private finance is increasingly identifying commercial opportunities across critical industries. JP Morgan’s 2025 commitment of $1.5 trillion over 10 years across advanced manufacturing, defense, aerospace, energy, and frontier technologies reflects a broader market trend toward economic security as an investment category.

The question now is not whether capital exists to fund critical industries, but whether governments and allies can organize the full capital stack quickly enough to direct it toward shared strategic priorities.

Rewiring Economic Statecraft: A Policy Agenda

Meeting this challenge requires governments and industry to focus on several areas where policy and capital markets intersect.

Lowering the Cost of Capital

For starters, governments should focus on reducing the cost of capital to encourage large-scale private sector capital into critical industries. Many critical industry projects require advanced manufacturing, energy infrastructure, and digital systems, which involve long horizons and significant upfront investment. New legislation in the United States provides one example of how governments can influence capital flows. By allowing businesses to immediately deduct the full cost of eligible machinery, equipment, and certain property improvements in the first year on their taxable income, rather than spreading the expense over several years, the policy reduces the cost of capital and accelerates private sector investment.

Enabling Priority Projects

Many governments already maintain national priority infrastructure to signal investment focus. Australia’s Infrastructure Priority List, the United Kingdom’s Planning and Infrastructure Bill, and Indonesia’s National Strategic Projects scheme all serve precisely this function.

A logical extension for these national models would be the creation of a shared priority list across allies and partners. A multilateral critical industries list would signal clearly where large-scale capital deployment is required. Establishing such a list would require credible coordination across governments and some form of repository or coordinating body.

Strategic competition in this area is already well-embedded, with China’s Belt and Road Initiative and institutions such as the Asia Infrastructure Investment Bank combining project identification and financing at scale. Yet the Belt and Road Initiative’s record is instructive in a different sense, as country trust has eroded over time. The allied model’s comparative advantage is precisely its credibility: transparent standards, genuine co-investment, and governance structures that give partner countries agency rather than dependency. That is not a constraint on allied economic statecraft — it is its most durable competitive asset.

Allied coordination in this area is nascent but accelerating. The Trilateral Infrastructure Partnership, launched in 2018 by the United States, Japan, and Australia, offers a cautionary precedent. Despite best efforts, it struggled to align investment mandates, pool capital, generate shared demand signals, or establish a clear project pipeline, functioning ultimately as a coordination framework rather than a decisive financing mechanism. Evolved models include the Indo-Pacific Partnership for Prosperity, which brought together $25 billion worth of capital to invest in the region, and the very recent Indo-Pacific Energy Security Ministerial and Business Forum, which aims to support coordination and project deal-making.

However, U.S. allies and partners have not yet developed mechanisms to align their infrastructure priorities, finance tools, and private sector across an allied network that can withstand political changes. The generative AI-led boom may be the forcing function that changes this. The scale of its demand is so fundamental, and the consequences of falling behind so significant, that it creates a rare opportunity to build coordination mechanisms that transcend political cycles and are private sector-led.

Aggregating Demand Across Allies

Governments and industry have a role to play in ensuring that demand for critical industry assets reaches the scale necessary to justify major investments. From subsea electrical and digital cables, support operations like construction and repair vessels, to grid equipment, to manufacturing facilities, and advanced energy systems. These all require long-term production volumes to attract manufacturing facilities and infrastructure financing.

Allies are beginning to experiment with mechanisms that combine project finance, supply chain coordination, and early forms of pooled demand. The critical minerals sector provides an emerging reference point. Initiatives such as the Forum on Resource Geostrategic Engagement, the Quad Critical Minerals Initiative, and the U.S.-Australia Framework for Securing Supply of Critical Minerals and Rare Earths reflect growing recognition that securing critical mineral inputs for advanced manufacturing, energy systems, and defense capabilities requires multilateral coordination. Financing cooperation is also emerging. The recently announced U.S. Critical Minerals Strategic Reserve would allow companies to pre-sell future output to governments or industrial buyers, quarantining them from shocks in the future to demand.

In other areas, there are examples of regional energy power pools, food and health demand pooling, or the pooling of fuel reserves by the International Energy Agency, which are areas to examine (although the organization’s efforts in effect coordinate the release of fuel rather than physical aggregation).

Taken together, these steps represent various forms and levels of allied industrial cooperation by aggregating demand for certain key components. In the future, demands should be extended to the full spectrum of physical assets, including industrial manufacturing capacity and purchasing and demand aggregation.

Building Financing Platforms

Governments should adapt lessons from technology-focused finance vehicles like the NATO Innovation Fund to critical industries. Given the significance of the Indo-Pacific for the United States and in the quickly evolving generative AI boom, countries could look to establish a dedicated Indo-Pacific critical industries fund that could align capital and strategic priorities across a range of different investment opportunities within the sector. Such a vehicle could be financed by the public and private sectors for large-scale investments that are appropriate for significant capital expenditure projects or supply chains. They could also include a backbone support organization to inform building the enabling environment, information sharing, and convening between governments and the private sector. Given their prior lessons and learnings in investment in the region, Japan and Australia are natural anchor partners for such a vehicle with the United States, given their financial resources, including large pension fund capability, and historical and current experience in investing in the Indo-Pacific. If a regional critical industries fund were to be established, it could also be linked to a shared critical infrastructure list between allies and partners. This would be especially helpful when governments need to convey their dual-use infrastructure requirements across the Indo-Pacific to private sector lenders and investors.

Improving Government Coordination

Each government should consider a special envoy office with clear authority to coordinate critical industries policy across government and industry. That office will need authority and ability to reach into key departments such as defense, energy, finance, trade, and industry, and have the cut-through with industry, particularly the finance community. This office should function as a coordination mechanism across government agencies, between countries, and between governments and industry.

Accounting for Strategic Economic Value

Finally, governments should confront a broader analytical challenge. Current fiscal frameworks struggle to capture the wider strategic value created by infrastructure investments, which are often evaluated only through traditional metrics such as jobs and growth. Developing shared metrics across allied economies would help governments justify long-term investments in critical industries.

Mastering the financial, physical infrastructure, and technological layers of economic statecraft — and coordination across them — is no longer optional. It is the defining challenge of strategic competition in the AI-infrastructure boom era.

The pace and shape of this coordination will inevitably be shaped by the disposition of the United States at any given moment. When Washington is an active lead partner, allies can move further and faster. Alternatively, when U.S. posture is more transactional, the case for allies building a more resilient, self-reinforcing financing architecture of their own becomes correspondingly stronger.

Emerging contemporary economic statecraft is about the sustained organization of capital across critical industries, building resilience, deterrence, and long-term industrial capacity that national and global security now demands. The countries that grasp this and act on it together will define the strategic landscape and capture the value of the AI infrastructure-led boom for generations to come.

Georgie Skipper is a Fulbright scholar and former senior advisor to the Australian foreign minister. She is the CEO of Lucetia Group, a co-founder and affiliate director at the Massachusetts Institute of Technology Murray Lab for Geopolitics and Innovation, and a research affiliate at the Massachusetts Institute of Technology Sloan School of Management.