The money war: NATO and economic security

“Freedom is more important than free trade,” said NATO Secretary General Jens Stoltenberg at the 2022 World Economic Forum in Davos. Just a few years ago, it would have seemed strange for a NATO chief to comment on such economic issues.

Given Russian aggression, the rise of China and tensions in the Middle East, security and economics are now inextricably linked. “What used to be purely economic decisions have now become security concerns,” says former NATO spokeswoman Oana Lungescu, now a Distinguished Fellow at RUSI in London.

In 2019, for example, the US warned NATO members that buying 5G equipment from China’s Huawei posed a threat to their collective security. At the time, the Europeans argued it was good business and that shutting out Chinese 5G providers could have cost as much as 55 billion euros ($59 billion).

This was the first time in more than 20 years that an economic issue was at the top of NATO’s agenda. At the 2019 London summit, China was mentioned by name for the first time, in a statement that directly referred to the country’s economic policy.

Another pressing issue is critical minerals used to make chips for electronics and sophisticated machinery. Around 98 percent of the EU’s rare earth metals come from China, and Stoltenberg warned last year of the need to secure access to these vital raw materials. NATO’s Parliamentary Assembly has also expressed concern about China’s central role in the semiconductor industry.

The security implications of economic dependence came into focus following Russia’s large-scale invasion of Ukraine in February 2022. Weeks earlier, NATO had warned Europe that it needed to diversify its energy supplies and move away from Russian gas (a dependence that, like Chinese 5G, had developed for economic reasons).

After the war began, NATO’s involvement in energy infrastructure intensified. In the same year, acts of sabotage occurred on the Nord Stream 2 gas pipeline, prompting the Alliance to double its maritime presence in the North Sea. The NATO Energy Security Centre has been issuing recommendations on these issues since 2012.

Economic considerations were an integral part of NATO’s founding document. Article 2, the “Canadian” article because Ottawa insisted on it, stipulates that states should seek to avoid conflict and promote economic cooperation with other members.

Article 3, which mainly concerns defense spending, also obliges NATO allies to prepare their economies against external threats. Two former NATO deputy secretaries general, who asked not to be identified, said in interviews with the authors that these articles give the organization a clear economic mandate.

The Alliance took full advantage of these powers during the Cold War when, aware that economics and defence were inextricably linked, NATO became the driving force behind the Soviet Union’s export control coordination committee (CoCom). The committee was dissolved in 1994 and, believing that the West had won the battle for global dominance, NATO relaxed its position.

Given that adequate military spending was already difficult to justify, it was almost impossible to persuade NATO countries to take civil or economic precautions after the Cold War. Interdependence in the global economy increased, European countries were unable to secure their supply chains, and important infrastructure was built by geopolitical opponents.

Faced with a situation in which Western governments are pursuing an active industrial policy while simultaneously facing open war on the European continent and a looming conflict in the Taiwan Strait, NATO has resumed its economic responsibilities.

However, if the Alliance were to revisit export controls, it would be different from the Cold War. China is a much richer rival than the Soviet Union and an economic power. To meet this challenge, NATO must expand and improve its tools.

The alliance already has clear means of coordinating its economic resilience, and its key resources lie in surveillance and mapping. For example, the Joint Force Command monitors air and sea routes to ensure the safe flow of goods and keeps track of investments by strategic rivals that could threaten supply chains. This surveillance prompted NATO officials to raise the alarm, given that China has majority ownership of several strategic ports in Europe.

The alliance is also unique as a forum for information exchange and coordination. Unlike other multilateral groups such as the EU-US Trade and Technology Council (TTC) or the Mineral Security Partnership, confidential intelligence briefings are regularly held between the governments of the member states.

There is a strong political will to coordinate with other member states and increasingly with Indo-Pacific countries and the private sector. According to former NATO officials, this coordination needs to be strengthened to ensure economic security.

Strong internal markets among NATO members will accelerate much-needed change. In Europe, 23 Alliance countries share the EU internal market, and the private sectors of all Allies are inextricably linked through common supply chains.

Critics say NATO is overreaching itself in the area of ​​economic security and is getting in the way of the European Commission, as much of its activities appear to overlap with the EU’s economic security strategy.

With NATO currently focused on military supply chains and the EU on civilians, this is less of an issue, but as these lines blur, it will be important to avoid duplication. Given the sheer scale and complexity of the challenges, two hands are better than one. “If an issue is of strategic importance, it is appropriate to discuss it in different fora,” said a senior NATO official.

The Alliance’s focus on economic security is not going to wane any time soon. It has always been concerned about securing its economies, and that is a more difficult task today than in most of the 20^th Century.

NATO’s future priorities appear to be increasingly economically focused, and the July summit in Washington DC offers an opportunity to strengthen cooperation.

Clara Riedenstein is a PhD candidate at the Institute of Politics and International Relations at the University of Oxford and a research associate on the Digital Innovation Initiative team at the Center for European Policy Analysis (CEPA).

Eduardo Castellet-Nogués is a programme assistant for the Digital Innovation Initiative at the Center for European Policy Analysis (CEPA). His work focuses on the nexus between trade, technology and EU-US relations.

Europe’s edge is CEPA’s online journal covering major foreign policy issues in Europe and North America. All opinions are those of the author and do not necessarily reflect the position or views of the institutions he represents or of the Center for European Policy Analysis.