From American Affairs Journal, Winter 2025 / Volume IX, Number 4:
Economics has always mattered for foreign policy, but today it matters more than ever given the higher degree of digital interdependence of organizations, people, and nations.1 Economic tools—from tariffs and export controls to industrial policies—have become instruments of power on par with traditional military might. During his first term in office, President Donald Trump brought many of these issues to the forefront, wielding trade and investment measures as levers of geopolitical influence. His “America First” approach, though divisive to some, elevated supply chains, trade imbalances, and industrial capacity as national security priorities, foreshadowing today’s recognition that economic strength and security are inextricably linked.2
President Trump’s tenure marked a break with decades of economic orthodoxy that treated commerce as separate from strategy. By confronting China over technology and trade, pressuring allies on critical minerals and 5G networks, forcing a broad rethink of how supply chains are organized, and staking U.S. policy on the leverage of tariffs, the Trump administration clarified both the potential and the pitfalls of geoeconomic statecraft, anticipating many elements of the de facto economic security agenda now taking shape in Washington and other capitals. To understand this evolution, it is essential to examine the limitations of traditional economic models, the rise of complex systems thinking in strategy, and the lessons generated by tensions in the U.S.-China relationship. Trump’s record, viewed in this context, illustrates the early adoption of economic tools as geopolitical weapons and offers insights into their promise and limits.
The Limits of Traditional Economic Models
For much of the post–Cold War era, policymakers operated under a set of economic assumptions that, in hindsight, overlooked strategic realities. Classical models of free trade and comparative advantage promised that global market integration would yield mutual prosperity and lasting peace as countries became more economically interdependent. In the 1990s and 2000s, politicians and pundits largely “prioritized markets over security, hoping that economic liberalism and interdependence would underpin peace.”3 The implicit belief was that fostering integrated global supply chains and welcoming rising powers like China into the World Trade Organization would bind everyone’s interests together. U.S. National Security Strategy documents from that era devoted scant attention to supply-chain vulnerabilities, focusing instead on terrorism and nuclear proliferation, while other forms of kinetic warfare were thought to be less likely with more trade relationships. Economics and security occupied separate lanes of policy, with market forces presumed to take care of themselves in a benign international environment.
This conventional wisdom, however, had critical blind spots. It “hollowed out U.S. industry, welcomed a rising adversary (China) into free-trade arrangements, and riddled global supply chains with critical security vulnerabilities,” according to international affairs scholars Henry Farrell and Abraham Newman.4 Western economies became reliant on external sources for nonessential goods as well as the essential ones, assuming that interdependence itself was a safeguard. By the 2000s, the dangers of such assumptions became evident. For example, the 2008 global financial crisis demonstrated how complex and contagious economic networks could destabilize nations. Around the same time, China’s rapid economic rise, aided by far-reaching and often lopsided access to Western markets and technology, began to fuel concerns in Washington about economic coercion.5 Beijing’s mercantilist practices belied the notion that trade was purely a win-win proposition. But U.S. policymakers were slow to adapt.
And yet, the problem is not so much with markets as it is with the absence of them. Donald Trump’s election in 2016 coincided with a growing realization that the old economic playbook, which often relied on lip service to markets, was inadequate and culminated in unintended social and economic harms. Trump championed a view long held on the fringes of policy debates: that America’s massive trade deficits and deindustrialization were not just economic issues, but strategic liabilities. He pointed to the loss of factories and dependence on imports as evidence of American decline, rejecting the idea that such trends were benign side effects of globalization.
One of the temptations within economics research is to focus on answering research questions where there is good data. But many of the major, and often overlooked, consequences of the globalization era are hard to measure, ranging from nontariff trade barriers resulting from regulatory arbitrage to local economic and societal decay in much of the Midwest. As a result, there is much less work quantifying the harms of globalization on the American economy, save seminal research by David Autor, David Dorn, and Gordon Hanson.6
To that end, Trump moved aggressively to link economics with national security. Invoking a seldom used provision of U.S. trade law, his first administration imposed tariffs on steel and aluminum imports on national security grounds, arguing that a weakened industrial base would imperil defense production. This contrasted with traditional arguments by economists, who warned that tariffs would raise costs and provoke retaliation. President Trump’s view was that the orthodox models did not tell the whole story and ignored power dynamics. In particular, if the United States was “losing many billions of dollars on trade” with a country, that imbalance could be exploited to America’s advantage. Washington could wield tariffs and other barriers to force concessions, encapsulated in Trump’s famous quip that “trade wars are good, and easy to win.”7
The idea that the United States held leverage because of its big import market reflected a kind of raw game theory approach: Trump believed he had “escalation dominance” over any country with which the United States ran a large trade deficit. In theory, nations such as China or Mexico stood to lose more in a tariff war because they depended more on access to the U.S. market than the United States did on theirs. Traditional economic analysis would counter that such tariffs harm both sides and that global supply chains complicate the picture—a reality that indeed tempered the results of Trump’s trade fights. But by treating trade as a strategic contest rather than a reciprocal boon, Trump exposed the tension between classical models and real-world power competition. Policymakers could no longer ignore the fact that “the United States gets vital goods from China that cannot be replaced any time soon or made at home at anything less than prohibitive cost.”8 Reducing such dependence, however, is not as simple as flipping a tariff switch: it requires a deeper rethink of economic policy and national strategy.
The limitations of the old paradigm became even more apparent when the Covid-19 pandemic hit. Even setting aside the origins of the crisis, shortages of medical gear and pharmaceuticals in 2020 drove home the point that efficiency-driven supply chains, optimized for cost, had little redundancy for emergencies. Traditional models had prized just-in‑time production and offshoring to the cheapest supplier; national security was someone else’s department and ran in a silo. Now, supply chain resilience has begun to matter at least as much as efficiency, elevating a new strategic role for national statecraft alongside economic measures.
The Rise of Complex Systems Thinking
Replacing the simplicity of the old models is a more complex systems view of the global economy. Rather than seeing trade and investment in linear terms (“more is always better”), there is a growing recognition of the role that networks play and the feedback loops they create. On one hand, interdependency can create complementarities and even greater gains; strong trade links can boost competition and institutions of human capital production. On the other hand, interdependencies can also be leveraged for economic and/or geopolitical leverage. A single weak link or chokepoint can create cascading effects through a supply chain, and a savvy adversary can target those critical nodes to inflict outsized damage.
U.S. officials have come to appreciate that trade and technology ties cannot be disentangled from security when markets are intertwined with those of adversaries, consumer electronics can be weaponized, and high-end chips power artificial intelligence for military use. Put simply, the economy is not a benign, self-correcting system in today’s strategic context; it is a contested domain, prone to shocks and manipulation by other actors that use “the market” as a mask. In fact, many free trade proponents routinely point out the nontariff barriers that other countries have created that exacerbated the offshoring of American manufacturing due to regulatory arbitrage; the challenge, of course, is that these unintended effects are visible only in hindsight.
Trump’s approach, for all its bluntness, intuitively grasped aspects of this complex reality. His administration zeroed in on certain “choke points” in the global economic network where the United States held a position of advantage. One example was the semiconductor supply chain. Advanced computer chips are designed with U.S. software and manufactured with equipment from a handful of Western firms. In 2020, the Trump administration tightened export controls to bar China’s telecom champion, Huawei, from purchasing cutting-edge chips made with U.S. technology. It also pressured allied nations to follow suit in restricting China’s access to critical chipmaking tools. These actions demonstrated a new kind of economic statecraft: using control of a key node in a complex supply network as leverage over a rival’s capabilities. Subsequent measures to deny Beijing the semiconductors needed for military AI applications were “empowered and justified by the Trump administration’s reform of export control regulations.”9 Trump’s team rewired the regulatory system to enable today’s tech sanctions on China.
Alongside semiconductors, critical minerals became another focus of U.S. strategic planning. These raw materials, from rare earth elements essential in missiles and electric vehicles to lithium and cobalt for batteries, together form the backbone of modern technologies. They also epitomize the complex systems challenge: supply chains are highly concentrated, often in politically fraught locations, making them vulnerable to disruption....
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For some background on how the U.S. came to this sorry state of affairs we have on offer:Globalization: "The Thirty Tyrants: The deal that the American elite chose to make with China..."
The pigs went snout deep into the trough with zero concern for the effects of these actions on their fellow citizens....
