Economic statecraft matters today

Bae Young-ja
The author is a professor of politics and international relations at Konkuk University.

Economic security has become a matter of substance and challenge amid the hegemony battle between the United States and China and the two wars in Ukraine and Gaza. Securing stable supplies, responding to trade and investment restrictions and other forms of economic pressure, as well as enhancing the capacity for the innovation of cutting-edge technology, have become life-or-death issues for countries.

The “economic statecraft” of deploying economic tools for foreign policy objectives dates back to ancient Greece. The Megarian Decree, a set of economic sanctions imposed on Megara by the Athenian Empire as a vindictive punishment for its support of Sparta-led alliance, is the earliest example of an entity’s resorting to economic tools, rather military action, to achieve political goals.

The impact of economic threats on national security can be more damaging than military aggression. A study found that the deaths and damages brought by economic sanctions from Britain and France were overwhelmingly greater than those attributed to bombs and toxic gas during World War I.

The economic neo-Cold War between the United States and China may look similar to conventional economic statecraft, but it plays out in different settings in today’s world. First of all, regardless of the de-risking and deglobalization trend, the world economy is more interconnected than ever. The impacts of economic sanctions were one-sided in the past, but damage can be reciprocal and broad when economic weaponization takes place on an interconnected economic stage.

Scarcity — not only of microchips, rare-earth minerals and natural gas, but also of simple commodities like urea and face masks — can seriously disrupt supply chains. Export curbs can deal an immediate blow to a trade partner, but the backlash can be equally injurious to the imposing country. That sends governments around the world scurrying to strengthen their risk management and complement their weaknesses through national policies and diplomatic ties with trade partners.

Second, advanced technology has become a key component of economic security in today’s world. There have been competitions and conflicts over cutting-edge technologies in the past, but the potential for their dual application has become a sensitive issue amid the ongoing U.S.-China competition. Governments have become intensely competitive and protective of tools that can power military innovations. They have been bolstering support for their core technologies and forming strategic partnerships as part of their agenda for economic security.

Third, economic security demands collaborative networking as the borders between foreign and domestic policies are blurry in today’s context. The Biden administration has been toughening regulations on exports of advanced technologies to contain China’s technological prowess and broaden its alliance with like-minded countries. The United States has enacted the CHIPS and Science Act and the Inflation Reduction Act to strengthen manufacturing capabilities on its home turf, which was packaged as foreign policy to benefit the American middle class.

Within the Biden administration, economic security is handled through close cooperation between the National Security Council and other departments — with the former devising strategies and the latter executing them. The Japanese government has created a ministry for economic security in its cabinet. Korea recently established a third deputy director in charge of economic security in the National Security Office (NSO). The new deputy’s responsibility includes not only economic security, but also scientific and cybersecurity. The move is opportune.

In his contribution, titled “The Source of American Power,” to Foreign Affairs, U.S. National Security Advisor Jake Sullivan wrote: “The underlying elements of national power, such as demography, geography and natural resources, matter, but history shows that these are not enough to determine which countries will shape the future. It is the strategic decisions countries make that matter most — how they organize themselves internally, what they invest in, whom they choose to align with and who wants to align with them, which wars they fight, which they deter and which they avoid.”

The new economic security deputy in the NSO must serve as a command center to strengthen our economic security and make strategic decisions that can place Korea in an advantageous position to shape the global order.

Translation by the Korea JoongAng Daily staff.