Combatting Chinese Economic Coercion in the NSS

This coming Monday, President Donald Trump will release his National Security Strategy (NSS), a quadrennial executive effort to transform campaign promises into a coherent framework to govern national security decision-making. Although these are usually general and rife with platitudes, this year’s is especially important as the administration will highlight a plan to address China’s growing economic assertiveness.

The Trump administration has many irons in the fire. Its inquiry into Beijing’s joint venture requirements, equity ownership limitations, and other efforts to force the transfer of intellectual property to China have received broad support from the business community, despite some concerns of Chinese retaliation leading to a trade war. There is also some support for efforts to curb the dumping of aluminum and steel into the U.S. market. Though the administration is pursuing these issues at the World Trade Organization (WTO), these actions are largely geared toward increasing U.S. leverage in bilateral economic negotiations with China.

But China’s economic strategy has broader national security implications for the United States. President Xi Jinping’s statements, consecutive Five-Year plans, and the “Made in China 2025” initiative all state China’s intent to not only grow its economy but to actually supplant the U.S. as a technological innovator. This is not simply garden-variety economic competition, for several reasons. First, China’s heavily subsidized state-owned enterprises are at the vanguard of this effort. Second, China is also focusing on those technologies — including artificial intelligence — that are critical for the future U.S. military advantage. The Made in China 2025 plan aims to catapult China to dominance in key manufacturing sectors like technology and aerospace.

China’s economic strategy extends far beyond domestic policies. In particular, its Belt and Road Initiative — potentially spanning some 60 countries — aims to exert greater Chinese political influence in and foster greater economic dependence among nations in its immediate neighborhood and beyond. Separately, China has demonstrated a penchant for using economic coercion in support of its political objectives, such as curtailing economic ties with South Korea over its deployment of a U.S. missile defense system.

The Trump administration is correctly elevating Chinese economic practices as a national security issue. To build on the NSS, President Trump should build a framework through which to respond to a direct challenge from China and employ a broad array of national instruments. Use of traditional tools alone, such as instituting tariffs and blocking foreign direct investment, are not commensurate to the challenge and may harm U.S. business. Washington must improve intelligence to understand the magnitude of the problem, pursue sustained diplomacy, and generate economic defense plans in regions where China seeks predominance.

Given our vast economic relationship with China, the United States requires superior information from a broad range of sources to create a precise and prudent framework. The president should charge the intelligence community, or the President’s Intelligence Advisory Board (once its members are appointed), with a comprehensive intelligence review to bolster our knowledge of Chinese economic practices. The private sector, through the Commerce and Treasury Departments, should inform our strategy given their exposure and practical experience with China. But a sustained intelligence collection campaign is also important given the inextricability and murkiness around the Chinese state and its economic sector. Since Sept. 11, 2001, the U.S. intelligence community has made tremendous strides in gathering financial intelligence, especially in tracking transfers among terrorists, proliferators, and sanctions violators. President Trump should make his mark by harnessing U.S. intelligence in countering Chinese economic statecraft.

The United States must also enhance engagement with countries China is attempting to coopt through BRI and other initiatives. The NSS should serve as a catalyst for the United States to develop economic and security priorities in critical countries and regions that demonstrate the value of private sector-led growth, assisted as necessary by the government. To counter the allure of Chinese loans for infrastructure, the United States needs new means by which to give economically vulnerable states access to capital. Beijing has a concrete economic agenda — one in which it attempts to fill the void resulting from reduced U.S. engagement in the global trade architecture. If Washington wants to compete for economic and political influence, it needs to articulate its own vision.

Finally, the United States needs to accelerate the incorporation of economic matters into its national security policymaking. China’s economic rise and grand design has challenged U.S. predominance in economics and trade — a core component of U.S. national power. China’s economic might has enabled its use of economic coercion as a tool of foreign policy. The United States needs a framework that includes an economic defense strategy in support of allies pressured by Beijing. Washington needs to have the ability to assist friends subjected to Chinese economic coercion in furtherance of our national security objectives. Blunting economic coercion will require substantial investments and the NSS is a first step in building a comprehensive plan.

National security strategies are ultimately judged by their implementation. If 2017 was about tax reform, 2018 will be about redefining our economic relationships. A key part of this is elevating Chinese economic statecraft as a national security priority deserving of more intelligence, policy focus, and presidential capital.