Democracies embrace economic security to counter China and Russia

Driving the news: The U.S. struck a deal with Japan and the Netherlands last week to restrict exports to China of equipment used to make chips, Bloomberg reports.

The big picture: The U.S., Europe, Japan, and other democratic countries are taking steps to improve supply chain resilience, diversify trade relations, and reduce dependence on China and Russia in key sectors such as energy and technology.

• Those moves come amid growing awareness that the Chinese government uses its economic heft as geopolitical leverage — including by issuing import bans to punish companies and countries that cross political red lines, offering loans and trade deals to gain support in multilateral organizations, and using private companies to perform data collection or surveillance on behalf of the state.
• Western countries also increasingly see economic security as a way to defend Ukraine, and Europe at large, from Russia by severing its economic ties to the West.

Details: In December, Japan released its first national security strategy in almost a decade. The strategy officially defined economic security for the first time and formally elevated it as a part of national security.

• "The new national security strategy allows Japan to use economic tools more explicitly for strategic purposes," Mariko Togashi, a research fellow for Japanese security and defense policy at the UK-based International Institute for Strategic Studies, told Axios.
• The strategy built on an economic security act passed in the Japanese Diet last year, which contained measures to support supply chain security and core infrastructure security, and to promote public-private cooperation in technology.
• Japan is also the first country in the world to appoint an economic security minister, Togashi said.

The U.S. has also embraced the idea that economic security and industrial policy are crucial components of national security when confronting an economic juggernaut like China.

• In early 2022, the Biden administration unveiled a plan to reshore critical technologies and in October restricted the export of semiconductors to China, crippling the budding artificial intelligence sector there.
• Treasury Secretary Janet Yellen has called for democratic countries to embrace "friend-shoring," meaning supply chains for critical technologies to friendly countries.

Europe, too, is reassessing its previous embrace of open trade. NATO Secretary General Jens Stoltenberg said in December that the war in Ukraine has "demonstrated our dangerous dependency on Russian gas. This should lead us to assess our dependencies on other authoritarian states, not least China."

What to watch: The U.S. government is currently drafting a report, due to be submitted to Congress by the end of February, that sketches out a national security screening process for outgoing investment to China — which if adopted would be an unprecedented step.

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