Economics Belongs in the NSC

The Trump administration’s decision this month to allow some technology sales to Huawei has revived criticism of the White House for being inconsistent in its approach to the blacklisted Chinese technology giant. To be sure, the president’s apparent willingness to use Huawei as a bargaining chip in trade negotiations with Beijing partly explains the waffling. But more fundamentally, the problem is the White House’s failure at the outset to consider the Huawei challenge from a 360-degree perspective, balancing national security concerns with practical commercial considerations and broader economic ones such as rural access to broadband.

This example highlights the importance of integrating economic and national security decisionmaking at the White House. From tariffs to control of critical technologies to answering China’s increasingly assertive use of its financial clout, economic considerations are more central than ever to U.S. foreign policy. Against this backdrop, the decision by the Trump White House to move economic capabilities out of the National Security Council (NSC) is hard to understand.

In an op-ed last month, new national security adviser Robert C. O’Brien laid out his plans to streamline the NSC staff. He noted that the number of policy staffers had ballooned from just 12 during the Cuban missile crisis in 1962 to over 200 (400 total including support staff) by the end of the Obama administration. He argued that the NSC had moved away over time from its core mission of coordinating the president’s policies to micromanaging policy implementation that should rightly be carried out at line agencies such as the State and Defense departments. O’Brien promised to reduce the number of policy positions from 174 currently to 120 by early next year.

O’Brien is right that the NSC has grown too large and intrusive. In my two stints working on the NSC staff in the George W. Bush and Obama administrations, I always tried to follow the model established by the gold standard of national security advisers, Brent Scowcroft, of acting as an honest broker between the White House and line agencies. But frankly, I often found myself getting uncomfortably involved in day-to-day policy work at Treasury, State, and other agencies. O’Brien’s instinct to try to return to the Scowcroft model is commendable.

But an important element of O’Brien’s plan is ill advised. His decision to close the NSC’s Office of International Economics (known in White House parlance as “Intecon”) and hand its functions to the National Economic Council (NEC), currently under the direction of Larry Kudlow, is a mistake—and unlikely to be sustainable.

Intecon has traditionally overseen a wide range of policy issues, including macroeconomics, finance, trade, development, global health, and energy. Under Bush (43) and Obama—and until now, Trump—Intecon was led by a senior official who served as deputy to both the national security adviser and the director of the NEC. This official also served as G20 and G7 “Sherpa,” the president’s personal envoy to those international forums.

These functions are intimately linked to U.S. national security, for reasons that go beyond the obvious relationship between economic strength and military power. Our partners and rivals alike are wielding their economic clout to shape global rules and norms in ways that will affect not only our commercial interests but also our national security. China’s “Digital Silk Road,” for example, could spread Chinese-preferred standards for telecommunications, extend Beijing’s political influence, and reinforce authoritarian tendencies across large swaths of the world. Meanwhile, the European Union is establishing de facto global standards for privacy that will have broad implications for the handling of data in both the commercial and national security realms.

Whether he likes it or not, Mr. O’Brien will frequently find himself mugged by international economic issues. He will need sophisticated analysis of the commercial, foreign policy, and national security implications of these developments. He will also need a full toolkit of policy options for responding to these challenges. This means not only traditional security and diplomatic measures but also smart economic statecraft. The latter, in turn, includes both punitive measures such as sanctions and a positive agenda of trade, development, and other international economic policies that incentivize other countries to follow our preferred rules and norms. Integrating all of this into a coherent strategy is critical to the role of the NSC.

To be fair, the success or failure of any policy is as much a function of personalities and processes as it is of organizational structure. But without sound structures, the risk of turf wars and procedural dysfunction rises. And the case for integration is especially strong here, where economic issues are so clearly—and increasingly—intertwined with national security. Thus, I would argue strongly for returning to the model of having the senior international economics official in the White House co-report to both the NSC and NEC.

It is worth noting that, even as O’Brien announced his decision to take international economics out of the NSC, one of the United States’ leading allies, Japan, took a step in the opposite direction. The National Security Secretariat (NSS), which supports the prime minister’s national security adviser, recently established an economic security preparatory office staffed by officials from the Ministry of Economy, Trade, and Industry (METI), Ministry of Finance (MOF), and other economic agencies. Since it was established in 2013, the NSS had been staffed almost exclusively by officials from the ministries of foreign affairs and defense and spent little time on economic affairs.

Japan’s move to change this is sensible, but one flaw is the focus on “economic security.” The officials detailed to the new office are mostly experts in sanctions, export controls, and other “defensive” policies. Adding trade negotiators and officials focused on Japan’s economic competitiveness would ensure that the NSS maintains an appropriate balance between mitigating risks to national security and two other imperatives: first, ensuring that Japan’s economy remains open (and is perceived as such: recently enacted legislation to tighten the country’s investment-screening mechanism has raised an outcry among foreign investors); and second, extending Tokyo’s recent leadership in global economic rulemaking, from its heroic efforts to keep alive agreed trade rules in the Trans-Pacific Partnership (TPP) following U.S. withdrawal, to its winning G20 approval of principles for digital governance and quality infrastructure.

All of this reminds me of a small dinner I attended in 2006, hosted by CSIS President John Hamre. The guest of honor was Yuriko Koike, now governor of Tokyo but then newly appointed national security adviser to Shinzo Abe during his first, ill-fated term as prime minister. Dr. Hamre’s first piece of advice to Ms. Koike was to include economic capabilities in her new office, noting the importance of economics in Japan’s ability to project power. Having never met Dr. Hamre before, I was impressed—and a few years later joined CSIS with a mandate to shed light on the strategic role of economics in international affairs. More than a decade since Dr. Hamre offered his advice, it is encouraging to see Japan taking it to heart—and disappointing that Washington is moving in the opposite direction.

Matthew P. Goodman is senior vice president and holds the Simon Chair in Political Economy at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Matthew P. Goodman

Matthew P. Goodman

Former Senior Vice President for Economics