Increasing Economic Power as an Instrument of National Power

The United States has an excellent system for developing National Military Strategy (NMS) to match the President’s National Security Strategy (NSS).  Even though a bit cumbersome, the system is thorough and effective and arguably the best in the world. The process carefully focuses critically valuable national resources toward gaps in capability that create the greatest threats to U.S. long-term national security.  The result?  The strongest military, by far, perceived by all our potential adversaries as so strong such that it is rare for it to be challenged anywhere in the world.  Most adversaries have shifted their focus on countering U.S. military power by attacking the U.S. using other elements of national power.  Only China has stated bluntly in official doctrine its intent over the long haul to challenge the U.S. militarily.  Russia appears to have a strategy of not challenging the U.S. militarily except in certain select areas: strategic nuclear weapons, electronic warfare, cyberwarfare, and hypersonic weapons plus random nuisance tactics such as buzzing U.S. forces with its aircraft.

The focus of this article is to propose specifics of a strategy to counter attacks made in the economic element of power.  Before proposing an abridged strategy for dealing with threats to the U.S. economically and via information warfare, the authors recommend the Executive Branch develop a process for strategy formulation to deal with the economic element of power by using an abridged form of the NMS process.

“The Joint Capability Integration and Development System (JCIDS) process is a collaborative effort that uses joint concepts and integrated architectures to identify prioritized capability gaps and integrated doctrine, organization, training, materiel, leadership and education, personnel, and facilities (DOTMLPF) solutions (materiel and non-materiel) to resolve those gaps” (CJCSI 6212.01F – Interoperability and Supportability of Information Technology and National Security Systems, 21 March 20012). “The JCIDS was established in June 2003, replacing the Requirements Generation System that had been in place since 1991” (CJCSI 8501.01B, 21 Aug 2012).

The NMS is enlightened by a multitude of communities. Combatant Commanders (COCOMs), the service chief heads, DoD Departments and agencies identify gaps in U.S. military capabilities. The process is overseen by the Chairman, Joint Chiefs of Staff (CJCS). The COCOMs were established to focus on regional sectors worldwide, such as Europe (European Command), Asia (Indo-Pacific Command), the Middle East (Central Command), the Southern Hemisphere (Southern Command), Africa, (Africa Command), and the Northern Hemisphere (Northern Command).

The COCOMS are charged with identifying threats and gaps in capability within each of their sectors. COCOMs are tasked with preparing and submitting an Integrated Priority List (IPL) according to CJCS instructions. The IPL may include, but is not limited to, high priority capability needs to be prioritized across Service and functional lines, risk areas, and long-term strategic planning issues. At least in some COCOMs, the COCOM commander seeks threat identification and gap analysis for perceived threats from each Ambassador within their geographic areas. By doing so, the Department of Defense can receive input from all other Executive Branch departments and agencies: State, with input from a state department economic officer, Commerce, FBI (in some cases), Agriculture, Intelligence agencies, and others. In practice, the COCOM sends a tasker to their respective Ambassador to identify gaps within each country in the COCOM geographic area. Each Ambassador, knowing the request comes from the COCOM, usually sends a tasker to a military member of the Embassy.

This same approach for identification of military gaps can be used for identifying worldwide gaps, country by country, for the economic element of power, or another element of power such as informational or intelligence. An Ambassador only needs to send the capability gap assessment to the economic and commerce representatives within his/her Embassy. The COCOM could still be used as a collection point of all Embassies within their region and forward to the responsible Executive Branch person designated as the lead for the economic element of power.

What does a capability gap identify? “Capability gaps must: (1) Specifically state the problem and the associated task. (2) Identify what conditions cause the problem and how frequently the conditions occur. (3) Describe the gap’s measurable component (a standard that describes how closure/mitigation of the gap can be measured). (4) Describe the operational or tactical risk associated with the gap” (TRAC-F-TR-13-022 February 2013). For the economic element of power, the last one in the list should focus on the strategic risk rather than an on operational and tactical risk. The latter are more germane to the military environment.

Capability gaps can be qualitative or quantitative. They are categorized as either: (1) catastrophic, (2) critical, (3) marginal, or (4) negligible.  Normally, gap assessments are completed as a sub-element of a larger study, such as an Analysis of Alternatives (AoA). An AoA prioritizes the gaps within two different scenarios – a major combat operation and an irregular warfare context (TRAC-F-TR-13-022 February 2013). The Capability Gap Assessment Process (CGA) is an assessment of how the future year's defense plan (FYDP) addresses Combatant Commands IPLs (CJCSI 3100.01C 20 November 2015).

Is there a foundation document to justify development of an economic and informational strategy? The answer is yes.  The President’s NSS discusses the need for an economic strategy. The NSS, under Pillar II, Promote American Prosperity; Promote Free, Fair, and Reciprocal Economic Relationships, p. 19, says, “The United States will pursue enforcement actions when countries violate the rules to gain unfair advantage. The United States will engage industrialized democracies and other like-minded states to defend against economic aggression, in all its forms, that threatens our common prosperity and security.” Under Pillar III (Diplomacy and statecraft, Tools of Economic Diplomacy, p. 34), the NSS says we should defend, “against threats from state-led economies, and [protect] the U.S. and international economy from abuse by illicit actors.” The same section of Pillar III says we should use the following tools to protect ourselves economically: “sanctions, anti-money-laundering and anti-corruption measures, and enforcement actions.”

Is it possible that the U.S. faces an even greater economic threat than separate challenges from China and Russia?  China alone is a great threat but what would be even worse is a mature China-Russia partnership, a united Russia and China, economically, politically and even militarily.  Signs are increasing that such could be the future. 

China and Russia have significantly increased their economic ties.  Trade in 2018 is expected to top $100B, an increase of 21% over 2016.  A significant resource project is a GAZPROM pipeline that is already 75% complete and will directly connect Russia/Siberian gas production to the Chinese city of Hebi, a pipeline length of 1600 kilometers.  This will be a boon to Russia’s economy and a significant benefit to China, a huge resource importer.  China and Russia see themselves in a mutually beneficial partnership that stops short of being an alliance but has strong elements of security protection, cooperation on many fronts and economic development.  In addition, both China and Russia are investing heavily in advanced technology weapons such as strategic and nuclear weapons systems, space technology, hypervelocity weaponry, Anti-access/Area denial weaponry, cyberwarfare, electronic warfare, and crypto-currency/blockchain technology and mining.  Russia is reportedly using crypto-currency to avoid western sanctions.  The US should be aware of and guard against improving ties and cooperation between China and Russia and adopt any feasible measures to undermine a developing strategic and economic partnership between them.   

The pre-eminent challenge in the Indo-Pacific is China.  China is advancing its ambitions through four seemingly unrelated, but carefully coordinated PRC initiatives: The Petro-Yuan, the Belt-Road Initiative (BRI), The Asian Infrastructure Investment Bank (AIIB), and unique Chinese developments in blockchain/crypto-currencies.  The purely technical side of PRC Cyber-dominance initiatives are a matter of public record.  These initiatives, as pillars of a larger strategy, constitute a long-term effort to establish hegemonic influence throughout Asia and even somewhat in Europe.

In late March 2018, the PRC introduced the first ever Yuan crude oil futures contracts on the Shanghai stock exchange. The planet’s two largest commodities trading firms, Glencore and Trafigura, chose to both affirm and participate in the exchange.

The PRC, to attract more foreign participation, waived income taxes for overseas institutions and individuals. Leading Saudi economics scholar Dr. Mohammed Ramady, in Saudi Arabia’s leading economic journal, THE NATIONAL, April 5, 2018, summarized the challenge to Brent crude and West Texas intermediate by saying, “While the Yuan still accounts for less than three percent of International trade (increased to almost four percent as of this writing), the launch of the new oil futures index and Chinese willingness to see their currency play a more assertive international role could perceptibly change in the near future and create conditions for a respectable challenge to the US dollar”.

The PRC launched some truly expansive and forward-thinking initiatives to garner future economic and diplomatic influence.  Most notably these include the AIIB, the BRICS Bank, and the BRI to strengthen infrastructure both on the westward land route from China through Central Asia and on the southerly maritime routes from the PRC through Southeast Asia and on to South Asia, Africa and Europe.  The AIIB is intended to supplant Western banks over time and was created by China, is funded by China, and is located in Beijing.

Outside of the Bank of International Settlements, the AIIB is the only Financial Institution chartered to issue Special Drawing Rights (SDR).  The SDR is the International Monetary Fund’s specialized monetary reserve currency for its member nations which now numbers 189 nations.  The SDR is seen as a potential threat to the US dollar as the International Reserve Currency.

Among the institutes most respected for ideological neutrality is the Hungarian PAGEO GEOPLITIKAI KUTATOINTEZET.  On June 23, 2018, Gere Laszlo pointed out that the AIIB, while much smaller than the World Bank and International monetary fund, is having a beneficial influence on PRC neighboring countries and expanding Chinese influence. He also points out that PRC Premier Xi Jinping announced the establishment of the AIIB roughly at the same time with the BRI in “One Belt, One Road” (September 2013) and the “Maritime Silk Road” (October 2013, Indonesia). As Laszlo illustrates, the coordinated initiatives accomplish three main strategic objectives for the PRC:

The unifying technology that unites and binds all of these is a unique Chinese blockchain schema resident in NEO crypto-currency, currently the World’s sixth most valuable.  Jeremy Epstein is CEO of NEVER STOP MARKETING, a firm directly serving a dozen or more crypto-currency developers.  According to Epstein, in a March 4, 2018 article in the Blog “Let’s put the cloud to Work” NEO has some distinct advantages relating to accessibility and scalability not resident in either BITCOIN or Ethereum, the two top US cryptos. Additionally, the potential Chinese market size, intense developer awareness, and involvement and instant compatibility with virtually all applications (unlike Ethereum’s which are proprietary) make NEO a likely BRI blockchain standard.

The main risk to NEO has always been political interference by the PRC government. Initially, the PRC imposed a moratorium on all initial coin offerings.  PRC government developers have been “invited” to participate in NEO expansion and have been given special treatment. NEO will likely be under another name, a common blockchain that unites BRI, AIIB and ultimately People’s Liberation Army expenditure and finance transactions.

By reading the PRC’s recent past strategic economic actions, the PRC will benefit from the Petro-Yuan, AIIB, BRI and unified blockchain initiatives.  Ingratiating themselves to neighbors and traditional U.S. allies alike, the PRC is rapidly increasing their “Economic Power” and profitability, and this is only strengthened by their expanding ties to Russia on multiple fronts. This will ultimately result in a more powerful Chinese military presence in Asia and the Indo-Pacific Theater. America’s best strategy to contain this trend is to offer even better trade alliances, enact proactive diplomacy and to “reset” the dollar by pinning it too hard to resource assets. All of these actions can and should be initiatives that result from the development of a U.S. economic strategy.

The Indo-Pacific has emerged as the fastest growing region of the world for economic growth, influence, and power and thus should be the focus of US policy in the future.  Recognition of this military fact of life has already been made by the recent renaming of the U.S. Pacific Command to the Indo-Pacific Command.  So, what might be one part of a future economic strategy? To answer a question with a question, is it time for a new organization to concentrate U.S efforts in that region?  The authors propose the creation of the Indo-Pacific Treaty Organization (IPTO).  IPTO is conceived of as analogous to NATO but with a decided emphasis on the exercise of the economic element of national power.  Before we get to that, for historical perspective regarding the potential merits of a future IPTO, let’s look at NATO.

NATO was formed in 1949 and continues to the present.  It provided stability, structure, forces, will, and resources to contain the Soviet Union for 42 years.  In its present configuration, it stands as a bulwark against adversaries that have designs on neighboring sovereign nations’ territories and ways of life.  As evidence of NATO’s continuing success, one need only look at its growth since the fall of the Berlin wall with the addition of 11 countries. NATO now boasts 29 members.

Although primarily a military and political alliance, NATO serves admirably in a host of other capacities including diplomacy, humanitarian and disaster relief, science, technology and research, and security assistance.  NATO’s economic, political, and military strength led to greater peace and prosperity in Europe for millions of its citizens. 

The following is a brief summary of collective assets of its members in comparison to Russia:

As China is the largest and most powerful country economically and militarily in the Indo-Pacific, it makes sense to focus sharply on their behavior towards neighbors in the region.  In recent years, China has taken deliberate actions to influence and control other nations.  Thus, the biggest challenge of the 21^st Century will be countering the ambitions of China.  China has been transformed economically into a world powerhouse with a GDP second only to the United States.  China’s economic and political power is felt throughout the Indo-Pacific region and even around the world to Africa, Europe and the Americas. 

Coveting and needing the resources of the Indo-Pacific region, often the resources belonging to its neighbors, China has aggressively moved beyond its borders.  Instead of a constructive economic strategy, China has boldly launched a host of regional programs designed to establish itself as the Indo-Pacific hegemon politically, economically, and militarily. 

China’s behavior towards other nations includes:

China uses economic and sometimes military power to coerce and bully neighboring countries. Through its immense cash reserves, it has ambitiously launched a multitude of programs to become the world leader in quantum computers and communications, Artificial Intelligence, supercomputing, precious and rare earth metals, industrial manufacturing, offensive space weapons, cyberwarfare, and chip manufacturing. 

The Indo-Pacific region needs an international organization similar to NATO to counterbalance the ambitions of China with an emphasis on using the political and economic power of like-minded Asian nations to resist China’s agenda where it is harmful to other sovereign nations.   Since the region already has both formal and informal organizations such as ASEAN, the Asian Development Bank, the AIIB, the Economic Co-operation organization and the Quad (US, Japan, India and Australia), why do we need another organization such as an IPTO? 

The Quad met informally a number of times beginning in 2007 and most recently in 2017 and 2018 as a sidebar to the recent ASEAN meeting.  According to the American think tank Center for a New American Security (CNAS), “the United States pursued a Quadrilateral Security Dialogue in an effort to adapt to an increasingly economically powerful China in the Asia-Pacific, where great power rivalry, massive military investment, social inequality, and contemporary territorial disputes have all made war in Asia ‘plausible’.” According to the CNAS, “establishing a series of alliances among nations recognized as democratic by the United States furthers its own interests: It is precisely because of the rise of Chinese power and the longer-term trend towards multipolarity in the international system that values can and should serve as a tool of American statecraft today."  

Since the Quad already possesses critical elements similar to NATO, it could serve as the building foundation for a much more robust organization that develops along the lines of NATO with a strong emphasis at least initially on the exercise of economic power in concert with member nations.  The following is a comparison of the Quad to China: 

Note:  IPTO is not primarily intended as a military organization along the lines of NATO.  However, the instruments of national power--economic, political, and military--are inextricably linked in many ways so for illustration purposes, some data on military strength is included above.  Military strength is demonstrated in peacetime as much as in war so it is instructive to show comparisons.  Peaceful use of military forces is common in history to witness to the robustness of a nation’s capability such as Teddy Roosevelt’s policy of “speak softly but carry a big stick.”

Recommendations:

A new era of major power competition--economic/financial, diplomatic, military capacity and capability, intelligence/information, and law enforcement is well underway.  The US has by far the largest economy in the world and GDP growth is still expanding.  Now is the time to flex our economic strength as a focused instrument of national power to promote our values and to protect ourselves and allies around the world from the threats from those who intend to end American power.

Colonel Michael Padgett (U.S. Army Ret.), DM is a former air defense, ordnance, and acquisition corps officer.  

Captain Brent Ramsey (U.S. Navy Ret.) is a former Navy Supply Corps officer, and also retired from civil service last serving as Operations Officer, Construction Battalion Center, Gulfport, MS. 

Commander John Kummer, (U.S. Navy Ret.) is a former Submariner and Joint Services Officer. Following his retirement, he worked for SAIC as the SOCOM site project lead for the Guardian Program.