Robert Belfer meets with students and Nicholas Burns.

Robert Belfer (middle right) joins Nicholas Burns (seated to his right) and Aditi Kumar (front left) in a meeting to discuss the strategic focus of the Economic Diplomacy Initiative with the EDI Student Working Group.

The Economic Diplomacy Initiative aims to provide analysis and recommendations to policymakers on challenges at the intersection of economic policy and national security. From traditional economic measures, like trade policy, development aid, and economic sanctions, to emerging challenges, like data privacy and competitiveness in artificial intelligence, the project aims to advance our understanding of how national leaders should use economic power to pursue both inclusive growth and national security interests.

The initiative will investigate the challenges that policymakers face in the international economic environment, including:

  • Negotiating the rules of the international economic order. As economic power shifts from the US to a broader group of economic leaders, how will policymakers set a clear vision for the international economic order, including the agreements, institutions, and infrastructure that facilitate multinational commerce?
  • Deploying economic instruments to promote geopolitical interests. How are states using economic instruments – including trade, investment, sanctions, aid, and monetary policy –to achieve national interests? How should policymakers respond to other nations’ use of these instruments?
  • Promoting competitiveness in critical economic sectors. In an era of unprecedented global competition, how can policymakers support competitiveness and innovation in critical sectors, such as energy, finance, artificial intelligence, telecommunications, and next-generation commodities?

There is perhaps no better example of economic statecraft, and its dual mandate to promote growth and security, than US economic policy in the aftermath of WWII. The United States invested billions of dollars through the Marshall Plan to rebuild war-ravaged European countries to not only contain the threat of Soviet communism, but to build a global economic order based on the belief that liberal economic policy and multilateral institutions would be the tide that lifted all boats. The historical record is equally littered with coercive economic measures — as early as the American Civil War, President Lincoln forced the United Kingdom to sever ties with the South by threatening to block trade and seize British assets. During the Cold War, the United States experimented with various embargos to deter the Soviet Union while using aid and trade to compete with the Soviets throughout the post-colonial world.

The idea of economic policy as an instrument for achieving strategic objectives is thus not new. What is new, and evolving, is the number of nations with the capacity to wield economic power, and the interconnectedness and complexity of global economies that enable a more diverse and potent arsenal of economic tools. China, which barely had a GDP of $1 trillion twenty years ago, today envisions investing $1 trillion in its Belt and Road Initiative. The level of technological sophistication and reach of the global financial system now allows the United States to surgically target the assets of 11 Russian oligarchs in response to the invasion of Crimea, rather than enforce blunt sanctions impacting the average Russian citizen.

In the face of these structural changes, policymakers require a new vision for how to effectively deploy economic tools in the foreign policy arena. With more state actors wielding economic power in meaningful ways, how do we resolve competing visions of the future of the global economy, the costs and benefits of open markets, and the role of multilateral institutions? How can nations use economic tools to respond to today’s pressing challenges, like mass migration, terrorism, and climate change? Given globalized networks for trade and investment and the multinational structure of corporations, how can national policy achieve growth and security? What are the disruptive forces that could fundamentally reconfigure the economic system and render current policy tools ineffective? These are just some of the questions that motivate our work on this initiative.

The Economic Diplomacy Initiative aims to investigate the critical role that economic relationships play in enhancing global security. Today, as nations seek to limit the human and economic costs of the transnational COVID-19 pandemic, global policy coordination is more important than ever. Synchronized monetary, fiscal, and trade policy  across major economies will be key to stabilizing the global economic outlook. At the same time, policymakers must reconsider coercive economic measures like sanctions and trade barriers, which may have sound geopolitical aims in normal times but risk exacerbating the crisis.

Our weekly COVID-19 and Economic Diplomacy tracker looks at policies that impact the coordination of international governments and central banks, ongoing commentary and analysis, and asks what these turbulent times mean for economic diplomacy.

 

Read the COVID-19 and Economic Diplomacy Trackers

 

World Bank Chief Economist Dr. Carmen Reinhart in conversation with Lawrence H. Summers and Nicholas Burns on economic diplomacy in the time of COVID-19.

Dante Disparte, Vice Chair and Head of Policy and Communications at Libra Association, Julia Friedlander, Senior Fellow and Deputy Director of the Global Economics and Business Program at Atlantic Council, and Chuanwei David Zou, Chief Economist of Wanxiang Blockchain speak with Aditi Kumar, Executive Director of the Belfer Center about digital currencies and the new direction of money.

The Economic Diplomacy Initiative hosts a conversation with Martin Mühleisen on the International Monetary Fund’s response to COVID-19 and the key decisions and challenges ahead.