Economic Security in Trade Agreements: My Response to Geoff Gertz
Thanks to Geoff for laying out his vision for why economic security should be in trade agreements and how to bring it in. It won't surprise anyone to hear I have some additional comments and questions in response! I have grouped them into two categories: (1) What is economic security? And security against what or whom? And (2) does economic security fit within trade agreements? Isn't it already in there to an appropriate extent?
What is economic security? And security against what or whom?
In his first post, Geoff offers the following as an illustration of an economic security concern:
there are specific and actionable risks. For instance, China (and other adversaries) could seek to acquire sensitive dual use technologies with military applications through trade or investment transactions.
In response, let me raise issues related to (1) how U.S. foreign policy approaches the issue of allies and adversaries and (2) the scope of economic security.
On the first one, Geoff mentions "China (and other adversaries)," but I have concerns about how U.S. foreign policymakers think about these issues. It often feels like they want to base their decisions on two clearly defined categories called "allies" and "adversaries," but in my view these categories should be treated with more nuance rather than being all or nothing assumptions. Underlying this point may be some broader questions related to U.S. foreign policy. I suspect that Geoff and I have different general takes on U.S. foreign policy in recent decades, with Geoff thinking it is mostly good (at least under Democratic presidents), whereas I am ... less convinced. I only started playing close attention to U.S. foreign policy as part of the response to 9/11, and I have been mostly disappointed ever since. It is too much for this particular debate to get into specifics (although one aspect will come up later), but I wanted to point out that part of the subtext to any debate over economic security may be what people think about U.S. foreign policy, because U.S. approaches to economic security are guided to a great extent by foreign policy considerations.
The second issue here starts off as a narrow implementation point: How do we define dual use technologies in a sensible manner? But it leads in to a broader and more fundamental question: What is economic security? Without a clear definition, it's difficult to have a productive debate. My sense is that governments and policy wonks have been struggling with this in recent years, and I'm not sure there is ever going to be a definitive answer. Any time someone invokes economic security, the term will have embedded in it a number of assumptions that often remain under the surface, and these assumptions will vary widely. As a result, any international rules that are developed will be vague and subject to change as personnel change, as well as differing across countries, and that means we may never have enough certainty to allow for formal international rules to be effective here. Despite Geoff's best efforts in his posts, I think we will always be left wondering a bit about what exactly we are talking about when we say "economic security."
As a further point on the scope of economic security, Geoff also points to one thing he definitely wants included, which is responses to economic coercion:
if China dominates global supply chains in critical goods (as it has already done on critical minerals, and might one day achieve on foundational semiconductors), it could weaponize this leverage to coerce other governments to make economic and political concessions. The United States should seek to reduce such vulnerabilities. This does not seem like a controversial position.
Here, I think there is a crucial set of questions that often gets swept under the rug in U.S. foreign policy debates: Are we against all economic coercion in international affairs? Or do we want to be a dominant enough power that we are the only ones able to do the coercing?
If it's the former, that's not how we are acting. The U.S. government could push for international rules or norms against economic coercion, but has not done so (or it has claimed exceptions that make the rules or norms ineffective).
That suggests the answer is that the U.S. government wants to be the only one doing the coercing. There are two problems with this: (1) That may not be realistic in today's world; and (2) in many parts of the world, U.S. economic coercion is very controversial, and, in fact, undermines the push for allies that I think is at the core of Geoff's position.
Related to the last point about allies, the mirror image of the "against whom" question is "with whom." Geoff makes the case for promoting economic security with "a group of like-minded partners":
It should also be uncontroversial that governments’ efforts to advance economic security will be more successful if they are coordinated by a group of like-minded partners, rather than pursued unilaterally.
I suppose it's true that this statement is uncontroversial in some sense. However, who constitutes a "like-minded partner" seems controversial and contested. Consider how the Trump administration sees this as compared to how the Biden administration saw it: It's a somewhat different set of countries that qualify as like-minded. And as administrations change going forward, the differences are likely to continue to be significant. If we are going to endlessly shift back and forth on the like-minded partner question as administrations change in the U.S. (and abroad as well), this idea of coordination with allies becomes very challenging.
How does economic security fit within trade agreements? Isn't it already in there to an appropriate extent?
On this second grouping of questions, Geoff argues that economic security is at the core of economic integration:
I would argue economic security cooperation is not some distraction from the main purposes of international trade agreements, but in fact is essential to ultimately preserve and advance economic integration among trade partners.
...
... bringing economic security into the trade regime will strengthen the foundation for economic interdependence, recognizing that trade policy cannot be considered in a vacuum given its impact on other national policy priorities.
In response, let me start with this question: What is the purpose of trade agreements? I usually answer this with something along the lines of "mutually agreed constraints on protectionism." Of course, even if this is the core objective, in recent decades trade agreements have expanded beyond it. But this expansion carries risks, and I think people should be wary of doing too much in any specific international forum. Indeed, I would say this is an underappreciated reason as to why trade agreements became the subject of so much criticism starting in the early 1990s. Every time someone brought an issue into the trade regime (e.g. IP or labor), it generated support from some groups but also opposition from others. I worry about international trade institutions starting to be seen as "global government," and leading to more backlash than we've already experienced. Having the trade regime cover a broad and amorphous subject like economic security in greater depth – as I'll point out below, security is already in there – could certainly do that.
Geoff also says:
I sense that part of free trade advocates’ concerns with this approach is an apprehension that economic security claims can be a slippery slope to protectionism.
Let me stop here to note that he senses correctly! To a great extent, it seems to me that economic security claims have become the new buzzword to justify protectionism (as if there weren't enough of these buzzwords already!).
Geoff continues:
But this worry misdiagnoses the cause of the problem. Governments are already intervening in markets in the name of economic security, and at times doing so in disjointed and contradictory ways—in part precisely because trade agreements have to date largely relegated such matters to exception clauses outside the scope of the rules-based trading regime. More institutionalized and formalized cooperation on economic security could, over time, help develop shared expectations on the legitimate bounds of national security interventions in the economy, and provide at least some modest guardrails on their abuses.
First, let me raise a point about his statement that "trade agreements have to date largely relegated such matters to exception clauses outside the scope of the rules-based trading regime." Are these matters really "outside the scope" of the trading regime? I'm not totally sure what he means by that, but WTO panels have, in a sense, rejected that view (and the U.S. was not happy about this). Clearly, though, the operation of the security exceptions has been a problem in recent years, and I think people should sit down and talk about how to make things work better (I'll come back to this later).
But putting that debate aside, could additional economic security provisions in trade agreements, as opposed to something less formal in the area of economic security, help with cooperation on these matters? I'm skeptical. If you are in a set of circumstances where security cooperation is needed, but is not happening informally, then I would say it is unlikely to happen to through a trade agreement. What is the mechanism by which a trade agreement would accomplish this whereas informal approaches would not? If the informal agreements are not being followed, this suggests that governments have decided they don't want to cooperate. I would need more evidence to be convinced that trade agreements would be more effective here. Geoff's argument on this point is as follows:
the United States has long sought to work with allied countries on economic security, primarily through informal ad hoc diplomacy and various non-binding frameworks and MoUs. While these efforts have yielded some successes, they are clearly insufficient to the challenge. Trade lawyers should be familiar with the reasons why non-binding MoUs are less effective at shaping behavior than full legally-binding agreements: the latter provide greater certainty and durability, create a stronger “compliance pull”, and have mechanisms to resolve disputes and enforce commitments. In the absence of a more institutionalized framework for economic security cooperation, today coordination remains incomplete and haphazard: we get dozens of talk shop forums to analyze supply chain dependencies, but far too little actual policy alignment.
This is all true to some extent, but trade lawyers also know that trade agreements have limits of their own (see, e.g., US - Gambling and EC - Hormones), and on security matters in particular have had great difficulty shaping behavior.
In terms of the specifics on policy alignment, here are some things Geoff would like to see on economic security cooperation:
· Institutional alignment on defensive economic security tools like export controls and investment security, to ensure U.S. allies have the domestic authorities to take actions to prevent adversaries from acquiring sensitive dual use technologies;
· Fast track licensing and white-list programs, to ensure economic security tools do not unduly restrict trade and investment flows among allies;
· Processes to coordinate trade protection measures to address shared vulnerabilities associated with dependencies in critical supply chains;
· And consultation and information sharing mechanisms to facilitate joint risk assessments and the development of shared norms and expectations on legitimate interventions in trade and investment flows to protect economic security.
In my view, the "informal ad hoc diplomacy and various non-binding frameworks and MoUs" that Geoff finds insufficient may actually be the better approach to alignment, because they provide the flexibility to accommodate the changing alliance problem noted above. Geoff is looking for mechanisms that can push coordination on these issues forward. I'm skeptical, however, that policy alignment on sensitive security issues can be pushed further by international law than governments want to go. It may be that international rules should be designed so as to account for the realities of alliances, rather than to adopt an unrealistic approach to shaping those alliances.
Geoff later gives the following example where he thinks a trade agreement would have helped in a real world situation:
For example, if the United States and Japan had an economic security agreement of the type Emily and I have advocated for during the Nippon steel CFIUS saga, the Japanese government would have had a formal channel to raise its opposition to the decision, and the U.S. government would be required to explain its justification.
Here, though, I'm fairly confident the Japanese government raised the issue through existing formal channels, and the U.S. government responded with a justification. I don't see how adding an additional channel in the form of a trade agreement economic security provision would have made a difference in how this case was handled. If Geoff means that he wants a communications avenue that would be public, so we would have more details on the U.S. justification, I would note that a lot of what happens under FTAs ends up being done in private, and that would likely be the case with the Nippon steel example too if it played out in the context of a trade agreement.
It's worth mentioning in this context that the WTO offers the most transparency on these sorts of conflicts. Inu and I once proposed setting up a national security committee within the WTO, and I'd be curious what Geoff thinks of that idea. He worries about security being "relegated" to the exceptions clauses, and this could help elevate the issue. For the reasons noted above, I'm not sure the durable alignment Geoff is looking for through trade agreements is possible, but I do think that new institutions to deal with security issues could be of value.
Finally, Geoff argues that we all have to adjust to this new era, saying:
There is no turning back the clock to an era where trade powers abstained from invoking national security to intervene in trade and investment flows.
However, I think this misreads the changes that have taken place in recent years as well as what came before. Economic and national security have always played an important role in trade agreements, and governments have invoked security on a regular basis. The differences today are that: (1) there have been some recent invocations that are perceived as not being in good faith and that have escalated into formal disputes, something which governments had carefully avoided for decades; and (2) the concept is being expanded, in particular in the context of China's role in the trading system. To me, there are better solutions to both problems than adding new economic security provisions into bilateral trade agreements in the way being proposed now (my thoughts on the good faith issue are fairly straightforward; the China situation is more complicated, but here is something that addresses one aspect).
Conclusions
Summing all this up, it seems to me that a combination of factors has led us to our current policy debate.
First, people were already having doubts about various aspects of the existing framework of international trade rules, and then Trump came along and upended the whole trading system with his strongly held preferences for tariffs and protectionism. That made it possible for the political conversation to consider security-related trade restrictions – such as Section 232 tariffs – that had been off the table for years.
Second, there has been a shift towards "Great Power Competition" as one of the guiding U.S. foreign policy frameworks, with China now playing a much bigger role in the eyes of the hawkish foreign policy community, which had been distracted with other issues at the time China joined the WTO.
And third, Covid got people thinking about things like supply chains, although that may have been more of an excuse to do what some people were already pushing for rather than an independent cause of new thinking.
For all these reasons, we have seen the emergence of "economic security" as a core element of U.S. trade policy. Will it become enshrined in formal trade agreements as Geoff would like to see? Or will it fade away a bit as priorities shift to the next big thing? I suspect the answer will depend in part on how politics and the economy go in the coming years. While Geoff and I are busy digging around in the weeds, big picture questions – such as who wins the next presidential election, and does the AI bubble burst, and did any of Trump's trade policies actually accomplish what they were supposed to – may provide the atmospherics that guide the way forward on economic security.