What the global economy and security require

STOCKHOLM — The global order is undergoing significant changes that demand a new economic-security agenda. From hot wars and localised insurgencies to great-power standoffs, geopolitical conflict has made the complex relationship between economics and security a daily concern for ordinary people everywhere. Complicating matters even more is the fact that emerging markets are gaining economic clout and directly challenging traditional powers’ longstanding dominance through new networks and strategic alliances.

These developments alone would have made this a tumultuous period marked by economic instability, inflation, and supply-chain disruptions. But one also must account for rapid technological advances — which have introduced new security risks (such as arms races and cyber threats) — as well as natural risks such as pandemics and climate change.

To navigate this dangerous new world, we must reckon with three interrelated dimensions: the effects of geopolitics on the global economy; the influence of global economic relations on national security; and the relationship between global economic competition and overall prosperity.

Each pathway sheds light on the multifaceted interplay between economics and security. We will need to understand all of them if we are to tackle the varied and complex challenges presented by our highly interconnected global system.

As recent years have shown, geopolitics can profoundly affect the global economy, reshaping trade, investment flows, and policies sometimes almost overnight. Aside from their devastating human toll, wars like the Russian invasion of Ukraine and Israel’s war in Gaza often reverberate far beyond the immediate theater of conflict.

For example, Western-led sanctions on Russia, and the disruption of Ukrainian grain exports through the Black Sea, caused energy and food prices to soar, resulting in supply insecurity and inflation on a global scale. Moreover, China has deepened its economic relationship with Russia following the mass exodus of Western firms in 2022 and 2023.

Similarly, Israel’s bombing of Gaza has destabilised the entire Middle East, especially tourism-dependent neighbouring countries such as Egypt, Jordan and Lebanon. Meanwhile, Yemeni Houthi rebels, long supplied by Iran, have been attacking cargo ships in the Red Sea, leading international shipping firms to suspend or adjust their routes, and directly impeding trade through the Suez Canal — a major artery of global commerce.

We are witnessing the destabilising effects of natural threats as well. The COVID-19 pandemic drove a massive shift away from cost-effective “just-in-time” supply chains to a “just-in-case” model aimed at strengthening resilience during disruptions. And, more recently, an El Niño-induced drought has diminished the capacity of the Panama Canal — another major artery of global commerce. Whether for geopolitical or ecological reasons, rerouting around these new bottlenecks inevitably increases shipping costs, causes delivery delays, disrupts global supply chains and creates inflationary pressure.

Turning to the second dimension — the implications of global economic relations for national security — it is clear that countries will be more likely to adopt bold or aggressive security policies if they already have a web of economic ties that can either attract support or dampen opposition. China, for example, is counting on economically dependent countries within its Belt and Road Initiative to accept its political influence and longer-term bid for hegemony. Many countries also now rely on China for critical defense-related supply-chain components, which leaves them vulnerable diplomatically and militarily.

More broadly, global connectivity, in the form of economic networks and infrastructure, is increasingly being weaponized for geopolitical ends. As Russia’s war on Ukraine shows, economic ties can create dependencies that raise the cost of opposing assertive security policies (or even outright aggression). The implicit threat of supply disruptions has a coercive — sometimes quite subtle and insidious — effect on a country’s national-security objectives. Owing to the network effects of the dollar system, the United States retains significant leverage to enforce international order through coercive sanctions against states that violate international norms.

Trading with the enemy can be lucrative, or simply practical, but it also alters the distribution of power. As Western governments learned over the past two decades, the advantages conferred by technological superiority can be substantially offset by forced technology transfers, intellectual-property theft, and reverse engineering.

The third dimension – the relationship between global economic competition and prosperity — has been complicated by these first two dynamics, because the pursuit of material well-being now must be weighed against security considerations. Discussions in this area thus centre around the concept of economic security, meaning stable incomes and a reliable supply of the resources needed to support a given standard of living. Both Donald Trump’s “Make America Great Again” slogan and President Joe Biden’s “Build Back Better” plan reflect concerns that economic relations with China harm US prosperity.

The challenge for the US and its allies is to manage the tensions between these varying economic and security objectives. There is a potential conflict between adapting to market- and geopolitically-driven shifts in economic power and sustaining the economic strength to finance a military force capable of protecting the global economy. The US, as the dominant power, must remain both willing and capable of preserving an open, rules-based global economy and a peaceful international order. That will require additional investments in military capabilities and alliances to counteract territorial aggression and safeguard sea lanes, as well as stronger environmental policies and frameworks to distribute global economic gains according to market principles.

By attempting to mitigate security risks through deglobalization (reshoring, onshoring, and “friend-shoring”), we risk adding to the economic and security threats presented by a more fragmented world. Though economic ties with rivals can create dangerous dependencies, they also can act as a safeguard against hostility.

All governments will need to grapple with these tensions as they develop a new economic-security agenda. The world is quickly becoming more adversarial and fraught with risk. To maximize both security and prosperity, we will have to understand the complex interplay of forces that are creating it.

Carla Norrlöf, professor of Political Science at the University of Toronto, is a non-resident senior fellow at the Atlantic Council. Copyright: Project Syndicate, 2024. 

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