Resolving the Emerging Economic Security Trilemma

This commentary is part of a report from the CSIS Economic Security and Technology Department, titled Staying Ahead in the Global Technology Race. The report features a set of essays outlining key issues on economic security for the next administration, including global technology competition, industrialization policies, economic partnerships, and global governance.

The United States is in the midst of a generational shift in economic policy and its role in national security planning. Even in these polarized times, there is surprising consensus across the American political spectrum that the economic policies and global institutions fostered since World War II are no longer adequate. They left the United States vulnerable to competition with non-market actors, principally China; domestic economic dislocations; and global crises such as climate change and pandemics. These vulnerabilities persist and will await the next administration.

Global technology competition continues to gather pace. Earlier this year, U.S. secretary of commerce Gina Raimondo compared the contemporary chips race to the space race of the 1960s: a new Sputnik moment.¹ Indeed, we may be living through five Sputnik moments at the same time across semiconductors, artificial intelligence (AI), quantum computing, climate technologies, and biotechnologies. Losing our edge in any one of these areas—especially, the triad of chips, AI, and quantum—could meaningfully diminish the United States’ economic prospects and national security. As Darío Gil, chair of the National Science Board and senior vice president and director at IBM Research, noted at the board’s 490th Meeting, “science and technology are the new currency of global power.”

Staying ahead of the technology race is more challenging than ever. The United States and its allies must contend with a primary competitor that uses its scale and prowess to weaponize innovation, flout fair competition, exercise control over vital value chains, and engage in economic coercion. Meanwhile, China continues to reap the benefits of having played the long game with countries around the world, particularly in the Global South. At stake for the United States and its allies is their long-term prosperity, the resilience and security of their markets and democracies, and the rules-based economic order they fostered for three generations.

As these realities have come into clearer view in recent years, the past two U.S. administrations have put their respective stamps—in design and tenor—on “economic security,” rewriting the implicit contract between governments and markets. Under the Biden administration, U.S. economic security policy evolved dramatically in pursuit of competitiveness, resilience, and national security goals. G7 and other allies followed suit, with policymakers in Japan and the European Union codifying formal economic security frameworks, creating mandates within their respective governments, and developing similar policies.

The United States, in pursuit of competitiveness and resilience goals, has implemented promote measures entailing unprecedented public and private investments in reviving U.S. chipmaking and building capabilities across clean tech and other technologies. A second set of measures has sought to align competitiveness and national security goals by protecting technologies and markets by expanding export controls, sanctions, and investment screening, as well as a continuation of strategic tariffs. A third, in part to counter China, has involved plurilateral economic cooperation agreements with partners on supply chain resilience and the energy transition, as well as bilateral initiatives on technology innovation.

Early implementation has shown signs of industrial revival across the United States: private sector investment commitments—domestic and foreign—in strategic sectors such as chips, clean power, clean-tech manufacturing, and others totaled over $900 billion over the past four years. And protect measures such as export controls have blunted Chinese and Russian acquisition of dual-use technologies. And yet, implementation challenges have emerged, along with second-order effects.

While export controls on Russia degraded Putin’s war machine in the early days, their efficacy has been tested by transshipment from third countries and Russia’s continued reliance on Chinese chips and chipmaking materials. Similarly, while new U.S. export controls initiated in 2022 and 2023 blunted China’s access to sensitive AI chips, Beijing has responded with its own industrial policies to “design out” and circumvent U.S. controls and standards. It has also enacted tit-for-tat trade restrictions on processed critical minerals—a key chokepoint in the chips and electric vehicle value chains.

Tensions between the protect, promote, and partner strategies have emerged, particularly regarding the use of subsidies, tax breaks, and domestic sourcing requirements aimed at promoting U.S. chipmaking and clean technologies. These policies have sparked concerns among key allies—Japan, South Korea, and the European Union—over a subsidy race that could disadvantage their own industries. Similarly, the U.S. government has led efforts to engage partners via new economic cooperation agreements such as the Indo-Pacific Economic Framework (IPEF) and the Americas Partnership for Economic Prosperity (APEP). These agreements, however, do not come with either increased market access or meaningful financing benefits that partners seek, in part due to U.S. domestic political considerations. These do not fare well relative to China’s long-term play in the Global South, notwithstanding concerns about the Belt and Road Initiative’s flaws, including debt overhang and poor standards in some countries.

Given these limitations, the bigger question is whether the promote-protect-partner framework adds up to a long-term economic security strategy. The answer to that question will depend on how effectively the next administration navigates the emerging “economic security policy trilemma.” While not quite an impossible trinity, the trilemma means that policymakers will be able to pursue any two sets of measures (for example, promoting domestic industries and protecting dual-use technologies) but not without sacrificing the third (for example, deep integration with supply chain partners). This collection of essays from leading experts at CSIS’s newly formed Economic Security and Technology Department is our contribution to this debate.

An immediate priority is to assess the impact of protect measures such as export controls, sanctions, investment screening, and strategic tariffs, including their second-order effects. Greg Allen and Barath Harithas underscore the importance of building the capabilities of the Department of Commerce and related departments. But that alone will not be enough: the United States must work effectively with allies, as James Andrew Lewis argues, on forging a post–Wassenaar Arrangement technology alliance with meaningful European and Asian buy-in. At some point, though, Scott Kennedy warns, the administration’s use of defensive measures will stretch the United States’ ability to militate the rules-based economic order that it has fostered for decades.

Ultimately, the most critical long-term path for the United States is to out-innovate China across advanced technologies. The CHIPS and Science Act as well as Inflation Reduction Acts put in place a number of building blocks of a strategy—investments in industrial infrastructure, research and development (R&D), and the workforce; a creative capital and investment attraction program; and partnerships with supply chain partners. As Sujai Shivakumar notes, the United States will need to finish the swing with investments in technology clusters and R&D cooperation that will require a sustained bipartisan effort to bear fruit. Adam Frost calls for a national security–focused approach to directing U.S. government financing in critical and emerging technologies. In addition, Joseph Majkut highlights the need for technology enablers such as access to clean power, along with a large transmission infrastructure, to fuel AI and advanced manufacturing.

Promote tools alone are limited: innovation does not happen in isolation, not to mention the cost of promote tools to the taxpayer amid already unprecedented levels of federal debt. Rather the time- and stress-tested drivers of innovation are competition in secure, trusted international technology markets and cooperation with allies, including on research and development and supply chains. Strong enforcement of intellectual property rights, Kirti Gupta argues, is essential if innovators are to enter markets. Given the global and distributed nature of technology value chains (from base materials to end products), Ilaria Mazzocco reminds us of the productivity benefits that will accrue to U.S. clean tech firms that take risks, compete in global markets, and integrate into value chains.

Nowhere are competitive markets and a favorable investment climate more important than in the Global South. Without meaningful market access or substantial financing commitments, Bill Reinsch and Erin Murphy argue, agreements such as IPEF are unlikely to attract long-term buy-in from partners. As a reminder of what is possible, Rick Rossow points out that the U.S.-India commercial partnership, including its focus on chips, critical minerals, and other critical and emerging technologies, could prove pivotal for both countries, with potential spillovers for others.

We are well into the era of economic security. The need for an allied approach is now axiomatic, but it will require the United States to lead and partner in equal measures. The challenge for the next administration is to build on the early lessons of recent years and devise a long-term, bipartisan economic security strategy that balances domestic goals with international cooperation and the complexities of the global markets.

Navin Girishankar is the president of the Economic Security and Technology Department at the Center for Strategic and International Studies in Washington, DC.