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....
For some background on how the U.S. came to this sorry state of affairs we have on offer:
