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Research Questions

  1. What is strategic competition in economics?
  2. What is competition as outcome versus competition as action?
  3. How do countries compete for markets, technologies, and standards?
  4. What are the economic tools for geopolitical competition?
  5. What are the tools of economic warfare?
  6. What are the three pillars of the current rules-based international economic system, and why is there rising competition to set future rules for the international economy?
  7. How does U.S. aggregate domestic economic prosperity translate into international power in the global economy?
  8. Why is economic competition relevant to the U.S. armed forces?
  9. What are the policy implications of economic competition?

U.S. foreign policy is built around a fundamental assumption that the United States faces growing competition politically, militarily, and economically. Economic competition in particular can be examined from a number of different perspectives grouped into two broad categories: The first is competition as outcome, or the ability to increase standards of living through domestic economic policies. The second is competition as action, where government policies and programs are applied to further not just economic but geopolitical and military goals.

Taking readers from the 1990s debates about competitiveness to more current outlooks on geopolitical competition using economic instruments, the author explains the different types of economic tools and actions countries use to compete and whether they more effectively serve to provide for domestic economic strength or to gain advantage in security and geopolitical areas. Along the way the author explores wide-ranging themes of national competitiveness, competition for markets and investment, geopolitical competition with economic tools, economic warfare, and competition over the nature of the global economic system.

After taking a broad look at forms of economic competition and competition using economics, the author shifts the discussion to why economic competition is relevant to the U.S. armed forces and, finally, what the policy implications are.

Key Findings

Companies compete economically, but so do nations

  • National economic competitiveness usually refers to the ability to increase productivity and standards of living.
  • There is disagreement about the effects of government action to support specific technologies or economic sectors and global technology leadership.

Countries conduct economic competition beyond ensuring their economies are "competitive"

  • Countries compete for export markets, inward foreign direct investment, and leadership in technology-intensive industries.
  • They compete to ensure standards favorable to their industries are adopted more widely.

Countries use economic tools to compete in security and geopolitical domains

  • Economic instruments are used to defend national interests and produce favorable political, diplomatic, or security outcomes.
  • Sanctions are economic tools used to punish; more aggressive economic actions to coerce can become economic warfare.
  • Innovation and control of new technologies influences a country's prosperity and can give a defense and security edge.

Countries compete in setting the rules of global trade, investment, and finance under which they compete economically

  • The U.S.-led rules-based international economic system established following World War II was attractive enough that nearly all countries want to freely participate.
  • Control of economic institutions has become more contentious, especially with the rise of China.

Economic competition is relevant to the U.S. armed forces

  • A wealthy country with a large economy may have larger, more powerful armed forces.
  • A nation's overall level of economic development appears to be related to success in military conflict.
  • International security interests may follow international economic interests, which is highly relevant for the armed forces.

Recommendations

  • Start with smart domestic economic policies: focus on responsible and stable fiscal and monetary policies for the long run that strengthen the nation overall.
  • Institute general innovation-supporting policies to support overall competitiveness—for example, promoting infrastructure, basic research, patent protections, and technology development. Policymakers should avoid attempting to pick specific winners and losers in sectors or companies.
  • Take advantage of the relative size of the U.S. economy to set rules for the international system that are conducive to the U.S. economy and attractive to other countries in the long run.
  • Be judicious in the use of economic tools such as sanctions and foreign aid because of the unintended consequences and costs of using such tools as part of geopolitical strategy. The costs of using these economic tools must be weighed against their benefits.
  • Treat the tools of economic warfare the same as any other instrument of war, assessing positive strategic effect and potential harm done before deploying them.

Table of Contents

  • Chapter One

    Economics as a Domain of Competition

  • Chapter Two

    Strategic Competition in Economics

  • Chapter Three

    Economic Competition Beyond Competitiveness

  • Chapter Four

    Geopolitical Competition with Economic Tools

  • Chapter Five

    Competition over the System Itself

  • Chapter Six

    Economic Competition and the Armed Forces

  • Chapter Seven

    Policy Implications for Economic Competition

Research conducted by

This research was commissioned and sponsored by the Director of Strategy, Concepts, and Assessments, Deputy Chief of Staff for Strategic Plans and Requirements, and conducted within the Strategy and Doctrine Program of RAND Project AIR FORCE.

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