9 ways national security and economic cooperation are evolving

Rising geopolitical tensions and efforts to pursue de-risking have seen national security assume a more prominent place in domestic policy debates about trade and investment. More than ever, trade officials are engaging with their counterparts from the national security and defence establishments — the result is an uptick in trade and investment restrictions across a wide range of sectors from semiconductors and critical minerals to renewable energy technologies.

That’s why, ahead of the Shangri-La Dialogue in Singapore, the World Economic Forum, working in partnership with the Hinrich Foundation, convened a small group of experts representing policymakers from national security and defence on the one hand and economic cooperation and trade on the other.

In this dialogue, these two expert groups shared and discussed their views and perspectives on the evolving nature of international economic cooperation in a world where the assumptions underpinning mutual economic interdependence have started to be questioned, as many governments grow warier of each other and many electorates increasingly question the benefits of unfettered globalization.

Businesses at the meeting shared their views on the impact that new and constantly changing regulatory restrictions enacted in the pursuit of national security are having on their businesses.

From these discussions, nine key insights emerged about the changing relationship between national security and the global economy.

The old rules-based order that was established after the Second World War is succumbing to unprecedented pressure as we enter a new multipolar world that will require an updating of these rules rather than their complete abandonment.

The benefits of cooperation still vastly outweigh the costs of confrontation. Mutual interdependence, although a source of discomfort for the national security establishment, is still the optimal way to manage the global economy in terms of both promoting stability and avoiding costly duplication of systems, networks and other assets.

The concerns of the national security establishment can largely be reduced to supply chain risks and exposure to economic coercion, both of which can be effectively addressed by diversification strategies that require neither economic decoupling nor raising geopolitical tensions, while also not requiring us to abandon the rules-based multilateral trading system.

Because the costs of pursuing a policy of complete economic independence are simply too high over the long term even for the largest economies, and because the need to develop broad and deeply resilient diversification strategies is now recognized as crucial, political leaders and policymakers must accept the reality that we need to trade even with countries that could potentially be adversaries one day.

The countries and trading partners we consider as like-minded allies or potential adversaries are not static and can change very suddenly, such as after an election or regime change. This means we must embrace pragmatism and openness rather than any kind of rigid ideology as the justification for exclusionary trade and investment policies.

The concept of dual-use goods — items with both military and civilian purposes — and the trade and investment restrictions they lead to are deeply problematic for businesses. This is because they lead towards regulatory restrictions that are constantly growing because the so-called “small yard high fence” approach appears to result in an ever-expanding yard and an increasingly taller fence. The solution is to recognize that there are many potential attack surfaces but that governments cannot effectively focus on all of them simultaneously. This means exercising constraint when imposing trade and investment restrictions while also defining what is truly a dual use technology in narrow rather than expansive terms.

The Green Transition that we are all committed to requires a degree of cross-border cooperation that is rapidly being undermined by efforts to decouple and derisk. If decarbonization is genuinely the goal then this requires political leaders to recognize the benefits of mutual interdependence and specialization, thereby optimizing the most efficient use of the world’s limited resources.

The conundrum the world currently faces in terms of the breakdown in international cooperation is due to a deterioration in trust on two fronts. The first front is the perceived failure of global trade rules to properly assuage the view held by many that the playing field is tilted in favour of the largest economic players. The second front is a failure at the domestic level to distribute the gains from trade more equitably between the so-called “winners” and “losers” from globalization, namely those who have benefitted from increased competition and those whose livelihoods have succumbed to it.

In an increasingly fraught global geopolitical landscape, multistakeholder dialogues, including Track 1.5 discussions, can play a key role in lowering the temperature, identifying new perspectives to address evolving international challenges and engendering trust among key stakeholders. This is crucial as the lines between economic cooperation and national security are becoming increasingly blurred. In other words, to bridge the gap of understanding between national security and economic cooperation, active dialogue is a critical feature and not a bug.

This was the first in a planned series of Dialogues on National Security and Economic Cooperation that the World Economic Forum is rolling out over the next few months in capitals such as Washington and Tokyo. The aim is to promote an open, frank and constructive conversation between different stakeholders representing a wide range of interests as we deliver on the Forum’s objective of rebuilding trust and improving the state of the world.