Finally, the unconventional revolution can provide a boost to American leadership in the pursuit of more robust measures to address climate change. Natural gas, while still a hydrocarbon, emits at least 50 percent less carbon than coal. And the downward trend in emissions in the United States provides Washington with some credibility in assuming a more forceful stance toward others reluctant to rein in emissions.57
THESE developments represent a new chapter in the global history of energy and geopolitics. Especially as the United States moves toward becoming a net energy exporter by 2020, the world will see downward pressure on the supply side of the supply-demand balance. The geoeconomic power of traditional energy producers such as Russia, Iran, and the Gulf monarchies will diminish. OPEC will be challenged to regain its traditional role as manager of global energy prices and its consequent geoeconomic influence. Overall, most consumers will welcome this diversification of supply and the potential for lower energy prices.
The United States will be uniquely positioned to seize the geoeconomic opportunities presented by the unfolding North American energy revolution, and its foreign policy must embrace its transformed position on the energy stage. The North American energy revolution will add fuel to the U.S. economic revitalization. The steady diminishment of U.S. dependence upon energy imports and the potential power of its exports will provide greater degrees of geopolitical freedom and influence. The United States will have powerful new geoeconomic instruments to support its allies and friends and to engage with China in redefining the energy infrastructure to sustain a globalized economy in the twenty-first century. Chapter 9 addresses these energy issues and many others, while proposing specific U.S. geoeconomic policy prescriptions for the period ahead.
CHAPTER NINE
American Foreign Policy in an Age of Economic Power
There is no more difficult administrative undertaking in the United States Government than that posed by the management of the various economic assistance programs and the necessity for assuring their conformity to foreign policy objectives.
—COMPOSITE REPORT OF THE PRESIDENT’S COMMITTEE TO STUDY THE UNITED STATES ASSISTANCE PROGRAM (DRAPER REPORT), AUGUST 1959
THE PRECEDING chapters have sought to establish the basic instruments and requirements of geoeconomic power, explore how it is currently deployed by a variety of nations as a tool of statecraft, and consider what sort of changes these new power realities imply for the logic and conduct of U.S. foreign policy. Taken together, these explorations highlight two main points: the importance of emphasizing geoeconomics as a distinct foreign policy discipline, endowed with its own set of questions, assumptions, and organizing principles, and (the subject of this chapter) the need to reorient America’s foreign policy to suit an era of geoeconomics, akin to similar reappraisals in response to the Cold War and the events of September 11, 2001.
Given the persistent use of geoeconomic instruments by China, Russia, and others, there is no reason to expect that the issue or the stakes will diminish anytime soon. Washington’s focus should therefore shift to a new organizing question for U.S. foreign policy, namely: how does America maintain global leadership in an age importantly defined by geoeconomic power?
Coming up with a specific geoeconomic vision for U.S. foreign policy and translating it into initial lines of action is a complex task. It requires specific policy solutions; such recommendations are outlined at the end of this chapter. But because reasonable minds can differ on the specifics, it is worth ensuring they derive from the right framework. Accordingly, the first part of the chapter presents four lessons drawn from the previous chapters, which should help provide a foundation for specific policy choices.
LESSON 1
National power depends above all on the performance of the domestic economy and the ability to mobilize and allocate its resources.
The first set of questions that a more geoeconomic-centric U.S. foreign policy would need to confront involve how to mobilize and allocate resources. Whatever one thinks of overall spending levels and the tools we use to determine them, there are important questions of allocation. In particular, if one agrees that U.S. foreign policy has become overmilitarized in the decade following the 9/11 attacks, then a central question that should follow is what, in power projection terms, is the United States getting for all of this military spending?
After surveying a wide body of empirical research, international relations expert Dan Drezner concludes that “the fungibility of military power is more circumscribed than advocates of military primacy contend.”1 According to Drezner, the lesson for U.S. foreign and fiscal policy is clear: America’s overreliance on military power is “badly misguided.” To be absolutely clear, it is not that military power is useless. Rather, it is yielding diminishing returns. To quote Drezner, “Excessive reliance on military might, to the exclusion of other dimensions of power, will yield negative returns.”2 There is a mounting need to shift Department of Defense resources to the application of geoeconomic instruments to advance U.S. national interests.
LESSON 2
If the currency of power is shifting toward the geoeconomic, so too must the attention spans, competencies, and priorities of U.S. foreign policy makers.
One of the central lessons of Chapters 2–4 is that geoeconomic forces and instruments now do much of today’s diplomatic work. Increasingly, this is as true for the United States as it is for, say, Russia. For example, our ability to isolate Iran economically has proven to be our best hope for realizing the aim of curbing Iran’s nuclear weapons program without war. To take the Russian example, Moscow’s strategy for sowing dependence among its neighbors is geoeconomic as well as military, and Moscow’s calculus on how and how far to press military intervention into Ukraine has turned partially on the relative economic interests at stake between Russia and the West. But between Washington and Moscow, only the latter seems to realize the importance of geoeconomic instruments and their widespread uses. The underlying preoccupations and self-understandings of American foreign policy need to catch up to these realities. But old habits die hard, and the U.S. foreign policy apparatus still tends to fixate on crises that code as political-military in nature, while it views projecting geopolitical influence through economic means as too complicated, too slow-burning, or somehow apart from the central issues of the day.
Often only in hindsight do Washington policy makers come to appreciate the geopolitical salience of issues mistakenly perceived as narrowly economic. For years now, the U.S. government has done little to curb forced joint venture or localization rules, whereby countries mandate that Western companies seeking to enter their markets partner with local, often state-owned firms, or that they house critical infrastructure or intellectual property within the country. But when the Obama administration was forced to consider various sanctions possibilities on Russia over the Ukraine crisis, years of allowing the steady creep of these localization rules complicated U.S. options, narrowing the scope for maneuver and raising the costs of potential actions.3
There is also a parallel tendency to misdiagnose crises as predominantly military in nature, often neglecting substantial economic components. Compare, for instance, the number of U.S. government man-hours spent scoping the size and composition of the Afghan National Security Forces versus thinking through how to ensure Afghanistan’s economic viability, or debates about arming the Iraqi Kurds rather than about promoting the long-term health of their economy.
Better responding to and projecting geoeconomic power requires a fresh look at how America’s foreign policy and national security apparatus concentrates on traditional security and military challenges, and the effect on how we apportion finite diplomatic influence and, more fundamentally, how we spend the time and energies of our senior officials. It should mean more focus on rising theaters of geoeconomic power, especially the Asia-Pacific region. It should mean more willingness to take a tough approach against international economic coercion and the flouting of economic norms
, including by China and Russia.
Finally, infusing U.S. foreign policy with greater geoeconomic logic should require retooling our closest security alliances for an era of geoeconomics. This is especially true of Europe and America’s Asian allies. Again, certainly insofar as TTIP and TPP strengthen the economies of Europe and of Asian nations friendly to the United States, thus making for stronger U.S. allies and partners, both would be positive geopolitical steps. But domestic economic strength is not enough. It is a different thing to retrain these alliances to deal as effectively in geoeconomic power as they have done in military power for the past seventy years, to seek geopolitical benefits from their exercise of economic instruments.
Both the transatlantic and U.S.-Asian alliances were purpose-built to respond to security threats primarily through military means. As Russia’s recent geoeconomic coercion and eventual military intervention into Ukraine brought into sharp relief, however, when presented with threats that are geoeconomic in nature, or when called upon to exercise geoeconomic power, the United States and EU member states are usually caught flat-footed, often with dangerous rifts exposed for the world to see. As noted earlier, why was enormous political pressure necessary to compel France to suspend military arms sales to Russia in the middle of Moscow’s military thrust into Crimea? Or to pressure Germany and the United Kingdom toward sanctions when it was most immediately the security of Europe, not the United States, at stake? Worse, Washington was forced to consider sanctions against Russia on the safe assumption that any loss for American companies would almost certainly produce windfall gains for French, British, or German firms.
In short, any meaningful attempt by U.S. foreign policy officials to restore geoeconomics to a more prominent place in U.S. statecraft ought to entail an early effort to engage our allies in a deliberate, educational discussion. American officials must open more space for geoeconomics to become primary in these alliance relationships, describing to our closest allies what, in Washington’s view, today’s brand of geoeconomics consists of; calling out geoeconomic coercion every time it takes place and developing responses together with our allies; finding inventive ways to use geoeconomic instruments to promote Western geopolitical objectives; and more generally collaborating with these partners on the rightful role of geoeconomics in Western grand strategy.
LESSON 3
Many of the most difficult geopolitical challenges the United States faces are cases where states, often rising powers, are applying geoeconomics as a tool of first resort.
Understanding the nature of the exercise one is engaged in tends to boost one’s odds of success. Surveying the global landscape, we see that geoeconomics is on the march. With Russia, China, and the Gulf states all enthusiastic exponents of geoeconomics, and with India showing similar intent, geoeconomic-led foreign policies are unfolding across a large swath of the world’s population. And in terms of the foreign policy challenges of most pressing concern to the United States and its allies, geoeconomics figures prominently in nearly all of them. From revisionist and increasingly assertive tones out of China and Russia to Gulf states struggling for influence over their tumultuous region, as varied as these challenges are, they share at least one important feature. Each is a case where the tools of liberal economics and finance are being deployed by other nations quite apart from the handling instructions that have traditionally guided their application. This realization should in turn prompt the United States to revisit certain basic foreign policy assumptions. It should also spell new policy concerns and new margins for patience.
For one, it should mean expending more diplomatic energy and political capital on issues that go to the core of this new appreciation of geoeconomic tools, such as cyber, economic espionage, and state capitalism. It should also compel a fresh look at many of these tools themselves, stripped of certain liberal (often neoclassical) economic assumptions that no longer always apply. Would it be nice if Russia and China were not using the World Trade Organization and International Monetary Fund as a routine part of how they conduct geopolitics? Of course. But that is not the reality, and the longer U.S. policy makers remain content to perceive these institutions as they were intended rather than as they are now functioning, the more difficult it becomes to police and punish abuses. The same holds true for the instruments and institutions of monetary and sovereign debt, procurement, investment, and new forms of protectionism that can serve the dual purpose of geoeconomic coercion.
U.S. administrations also require updated margins for patience. These international economic institutions were meant to emit a gravitational pull that compelled countries along a steady reform path; as such, they are the mechanics behind the widely held assumption that investment abroad will change China and Russia more than China and Russia will change the global market.4 Given enough time, enough economic growth, and enough channeling of capital into the United States and Europe, the argument goes, places like China, Russia, and the Gulf will come to resemble their investments. State investors will transition into private investors, illiberal regimes into liberal ones. Such a Ptolemaic view of market transitions, though, requires the magnetic pull of a far healthier set of global economic institutions than the world seems to have at its disposal. (Even in the case of Russia, part of the rationale for fast-tracking Moscow’s inclusion into the global economy was to use interconnections as a check upon aggression. As events between Ukraine and Russia prove, the Kremlin has figured out that this can be flipped, further bolstering the need for capacity building for the West to deal with disinformation and to track the role of Kremlin-connected influencers).5
When pressing rising powers for reform, in other words, what is America’s margin for patience? Is China changing the rules of the game more quickly than the existing rules are changing China? And if the answer is yes, what is Washington prepared to do? What geoeconomic resources are we willing to commit to tip this ratio back toward a more favorable balance for the United States? Again, considering the scale of military operations and defense dollars spent policing perceived military or security threats to U.S. national interests, U.S. officials should show at least some more-comparable determination in policing geoeconomic incursions on those same interests.
LESSON 4
As we confront a set of powers that do not make the same distinctions between public policies and private companies, it will require more interplay between our own domestic economic decisions and national security decisions.
The United States should be prepared to air in the interagency process the delicate issues that span all the interests and competencies of the U.S. executive branch. The decision to treat currency as a trade issue, for example, or to use geoeconomic pressure on Iran beyond sanctions requires that all sides within U.S. administrations be represented. At other times, it is a matter of new issues that do not map well onto U.S. bureaucratic organizational lines. Take technology-driven issues such as cyber espionage and data privacy. In both cases, the United States faces outsized harm from cyber intrusions, including geoeconomically motivated cyberattacks, compared to emerging powers. Yet neither the U.S. government nor existing international arrangements are well suited to tackle the blend of intrusive state and nonstate actors and the prevalence of American private sector targets inherent in the cyber security and espionage threats. And in cases where a potential tougher U.S. stance on geoeconomic coercion or abuses might come into tension with security and military priorities, the latter wins virtually every time.
What, as a practical matter, would such a geoeconomic-centric U.S. foreign policy agenda specifically entail? What would it require? We believe it would be animated by the following presidential and congressional vision: U.S. foreign policy must be reshaped to address a world in which economic concerns often outweigh traditional military imperatives and where geoeconomic approaches are often the surest means of advancing American national interests. It must also systematically address the domestic economic sources of American power projection.
U.S. Foreign Policy in an Age of Geoeconomics: A Twenty-Point Agenda
Next comes the difficult task of translating this vision into concrete lines of action. We offer twenty specific policy prescriptions—by no means an exhaustive list, but taken together, they would amount to a meaningful and self-reinforcing improvement in U.S. geoeconomic performance.
POLICY PRESCRIPTION 1
Nothing would better promote America’s geoeconomic agenda and strategic future than robust economic growth in the United States.6
Economists are a contentious lot, but there is a wide, bipartisan consensus—further backed by the IMF—that U.S. growth over the next decade will require increased public and private investment in the near term, and a solution to the U.S. entitlement pressures over the longer term.7 By 2016, non-defense-related discretionary spending is projected to reach its lowest level as a share of GDP since the early 1960s and to continue dropping from there. As a result, funding for U.S. science and R&D is at its lowest levels in more than forty years, with China now expected to overtake the United States as the world’s leading investor in R&D within five years.8 Both at the federal level and in most states, the United States is spending less on education in 2015 than before the 2008–2009 recession—amounting in some cases to a 10 percent drop in spending per child. And the Congressional Budget Office assesses that federal infrastructure spending is roughly 60 percent of what is needed to maintain current economic growth rates. By contrast, according to the U.S. Chamber of Commerce, citing economic analysis by the University of Maryland, a “targeted and long-term increase in public infrastructure investments from all public and private sources over the next 15 years would increase jobs by almost 1.3 million at the onset of an initial boost, and grow real GDP 1.3% by 2020 and 2.9% by 2030.”9
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