Economic Statecraft: The Next Generation

Darn those policy-relevant academics!

Photo by Dan Dimmock on Unsplash

Longtime readers of Drezner’s World know that I have some passing familiarity with economic statecraft in general and weaponized interdependence in particular. This topic has become all the rage in great power capitals and in foreign policy community. In recent years, there has been a surfeit of work on this topic, including Henry Farrell and Abraham Newman’s Underground Empire and Chris Miller’s Chip War.¹

At some point, however, one has to ask whether this will merely be the hot intellectual topic of the moment or a trend that generates sustainable scholarly interest over the long run. The answer is obviously a function of whether financial sanctions, export controls, and other forms of economic statecraft persist in the real world. It is also, however, a question of whether scholars can tie statecraft questions into larger debates about foreign policy and international relations.²

Having just perused the just-released Fall 2023 issue of International Security, I am bullish about the future of economic statecraft research. Because this issue contained not one but two papers by junior scholars that I would strongly recommend to all those interested in this topic.

The first paper is, “To Punish or Protect? Local Leaders and Economic Coercion in China,” by the University of San Diego’s Kacie Miura. Here’s the abstract:

During foreign policy disputes involving China and some of its most important economic partners, why do local leaders punish or protect foreign commercial actors? Understanding this variation is important because how local leaders treat foreign businesses can influence the overall effectiveness of the Chinese government's use of economic coercion against foreign states. Two variables help determine whether local leaders participate in economic retaliation: (1) whether they regard commercial ties to the targeted state as essential to achieving the economic growth necessary for career advancement; and (2) whether they are politically vulnerable, either because they lack powerful patrons or because their locality recently experienced social unrest. Economic importance creates incentives to protect foreign commercial interests, and political vulnerability provides incentives for local leaders to demonstrate their patriotic credentials through economic retaliation. Drawing on interviews with Chinese, Korean, and Japanese sources, an examination of local leader behavior in Chinese cities illuminates why they responded differently during foreign policy disputes with Japan in 2012 and South Korea in 2017.

Beyond the interview work, what I really like about Miura’s paper is the way it complicates the dominant narrative about Chinese economic statecraft. An awful lot has been written about how the Chinese sanction differently (which is true) and how the PRC’s style of economic statecraft is tactically and strategically superior (which is at best debatable).

Miura’s paper also fits nicely with research on Chinese policymaking and authoritarian politics more generally. As she notes, there exists a “conventional wisdom that autocracies like China are largely monolithic when it comes to foreign policy…. Yet the assumption that authoritarian leaders like Xi enjoy belies their reliance on local and other officials to execute preferred policies.” So this is a paper that will not just appeal to sanctions scholars, but those interested in Chinese foreign policy more generally.

The second paper, “‘Wars without Gun Smoke’: Global Supply Chains, Power Transitions, and Economic Statecraft,” is by Ling S. Chen of SAIS and UConn’s Miles M. Evers. Here’s their abstract:

Conventional wisdom holds that conflict is highly likely during a power transition between declining and rising powers. The spread of global supply chains has provided new economic weapons for great powers waging these conflicts, but the businesses that constitute global supply chains can make it harder or easier for them to do so. A structural theory of business-state relations shows how power transitions affect a state's ability to exercise economic statecraft. As a dominant power and a rising power approach parity, they face structural incentives to use economic statecraft to decouple their economies. The resulting threat to businesses’ profits changes business-state relations: high-value businesses within the dominant power tend to oppose their state's use of economic statecraft, whereas low-value businesses within the rising power tend to cooperate with their state's use of economic statecraft. The Anglo-German power transition from 1890 to 1914 and the U.S.-China power transition since 1990 illustrate the theory. The findings shift scholarly debates on the use of economic statecraft in modern great power competition and have policy implications for weaponizing supply chains against rising powers like China.

The role of the private sector in weaponized interdependence is just beginning to receive the necessary scholarly research, and it looks like this paper (which should be free to anyone and everyone) proposes an interesting paradox for the use of private networks to coerce other states: “Shifting perspectives from the domestic to the international level matters because the same structural forces that incentivize states to ‘weaponize’ private economic networks may constrain their ability to do so in practice.” Again, as with Miura’s paper, Chen and Evers are not just speaking to the economic statecraft crowd. This paper also addresses questions about great power transitions and state-firm relations in leading economies.

That both of these papers are the product of junior scholars makes me optimistic about the future of research into economic statecraft. If papers of this caliber continue to be written and published, I am confident that a decade from now scholars will know a great deal more about the dynamics of economic statecraft.

1. Miller keeps winning awards for this book!

2. These are questions I have been wrestling with for something that will be published sometime in 2024.