Operationalizing a Doctrine for U.S. Economic Statecraft
The opening salvos of the U.S. response to Russia’s 2022 invasion of Ukraine came from an unlikely place. As Ukrainian President Volodymyr Zelensky pleaded for ammunition, Commerce and Treasury Department officials rapidly deployed extensive and novel economic weapons against Russia. In Washington, these measures represent the elements of economic statecraft, an important but largely undefined concept. Since at least 2011, senior government officials have used the concept of economic statecraft to explain the tools of U.S. economic power for foreign policy and national security purposes. These include economic sanctions, inbound and outbound investment review, export controls, economic diplomacy, and direct and indirect financial assistance. Expanded use of tariffs and export controls under the Trump administration demonstrated the toolkit available to policymakers that created a nascent bipartisan consensus during the Biden administration.
Major changes occurred under Biden as well. The administration prioritized U.S. industrial policy and other forms of domestic investments to complement mostly extraterritorial, national security-focused actions. Policy pronouncements like National Security Advisor Jake Sullivan’s April 2023 Brookings Institution speech on renewing American economic leadership provided an important high-level framing for international economic policy. More recently before returning to the Biden administration, Deputy National Security Advisor Daleep Singh articulated a “positive vision” of economic statecraft that lays down “principles, rules, and a code of conduct” to anchor elements of what may become an administration doctrine.
However, more work is required to implement these concepts and focus on economic tools deployed for national security (as opposed to economic) purposes. U.S. agencies currently lack the resources, staffing, and organizational design to accomplish this mandate. For fiscal year 2024, the Department of the Treasury’s Office of Terrorism and Financial Intelligence requested $244 million and the Department of Commerce’s Bureau of Industry and Security requested $222 million. Despite the greater emphasis placed on strategic competition and technological advancement in recent National Security Strategies and National Defense Strategies, these two agencies’ requests were less than 0.06 percent of the Department of Defense’s request of $842 billion. For the cost of about six V-22 Osprey aircraft (that the department grounded last year) or less than the cost of Strategic Command’s recently announced cost overrun, the relevant Treasury and Commerce offices could double in size.
Right now, Washington expects too much from its civilian economic statecraft workforce without sufficiently resourcing them. They receive a fraction of the Department of Defense’s appropriations yet the Treasury, Commerce, and State Departments are expected to perform as co-equal departments. With more resources, economic statecraft practitioners can import Department of Defense best practices around doctrine, planning, joint force structure, and training, but these first require more resources.
We propose a permanent architectural change for economic statecraft. The shift in national security priorities should be durable and bipartisan. To achieve this goal, policymakers should pursue the following three lines of effort. First, identify who should coordinate across agencies, monitor the threat environment, and inform National Security Council objectives with respect to economic statecraft, with a special focus on the tools available across the Treasury and Commerce departments. Second, allocate the resources necessary to define, refine, and communicate a doctrine covering the circumstances for their use, particularly those involving sanctions, export controls, and investment review, as well as a positive economic incentives toolkit. And third, establish the workforce, processes, and metrics to manage the tools’ integrated use and evaluate their efficacy.
Congressional Resources for Economic Statecraft
To sustain an economic statecraft doctrine capability, Congress should authorize and appropriate additional resources for the executive branch. Chronic staffing shortages, expanded but unfunded mandates like increased reporting and staffing requirements, and uncompetitive compensation for high-skilled bureaucrats typify the challenges facing the departments and agencies tasked with executing elements of U.S. economic power. For example, two years after passage of the Anti-Money Laundering Act of 2020, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN, the U.S. financial intelligence unit) reported that they had not established key international liaison positions. Unlike their counterparts at other civil regulatory agencies, the Treasury Department’s FinCEN and Office of Foreign Assets Control enforcement offices do not have lawyer billets. Yet policymakers increasingly rely on civilian agencies like the Commerce and Treasury Departments to act as co-equal components for national security and foreign policy decision-making and execution.
Substantially increasing budget and billets for critical national security positions involving economic statecraft will deliver several direct benefits. More personnel will provide the bandwidth to address issues involving doctrine and contingency planning. These functions could include strategic (medium- and long-term) planning functions, net assessment capabilities for bespoke research and expert assessments, and training. Congressional funding for direct hiring authorities to bring in private sector expertise would enhance responses to exigent circumstances and technological advances.
Congress could also develop authorities to create a reserve corps of economic statecraft experts, including former government officials, to train and prepare for limited or extended mobilization as various crises develop. Over the past two years, the Afghanistan withdrawal, the expanded Russian invasion of Ukraine, and the Hamas attacks against Israel on Oct. 7, 2023 taxed the U.S. economic statecraft bureaucracy’s ability to manage crisis issues like economic sanctions and countering the financing of terrorism. Being able to surge economic statecraft expert resources in Washington, deploy personnel to forward locations, and/or place experts within military or intelligence bureaucracies could dramatically improve government capabilities on technical matters like sanctions and export controls. Implementers would need to mitigate bureaucratic concerns about establishing a new, potentially cumbersome personnel function given the challenges described about limited resources. One possible approach could be to modify the military’s reserve “drill weekend” model to integrate these reserve experts into non-crisis workflows such as the net assessment functions while allowing them to receive and provide periodic briefings across the economic statecraft bureaucracy, participate in ongoing exercises, and maintain active security clearances.
Congress could consider adapting some of the critical, if often overlooked provisions of the Goldwater-Nichols Department of Defense Reorganization Act of 1986. This part of the act created mechanisms to implement the “joint” concept for better integrating elements of the military into a unified fighting force. The act included a requirement for military officers to serve on a joint duty assignment to another military branch, also called a detail or secondment in the civilian context, as a requirement for promotion. Fostering similar joint requirements across the civilian workforce would improve understanding across the economic security bureaucracies, create new formal and informal information channels, and benchmark standard practices and capabilities.
One area for Congress to prioritize would be to create and fund a Treasury Foreign Financial Service, thereby formalizing and adequately resourcing the Treasury Department’s existing Financial Attaché program. The program remains limited to about a dozen officers serving in U.S. embassies in a mix of advanced and problematic economies around the world. This change would dramatically improve the reach of U.S. economic statecraft globally with relatively little cost (potentially just tens of millions of dollars) and human capital (a fraction of the State Department’s 9,156 Foreign Service employees). Bringing the Treasury Department’s financial diplomats up to the same standards and organizational structure as the Foreign Service (State Department), Foreign Commercial Service (Commerce Department), and even the Foreign Agricultural Service (Agriculture Department) would improve the Treasury Department’s ability to implement economic statecraft goals overseas involving the department’s key national security responsibilities. Important Treasury functions include economic sanctions administered by its Office of Foreign Assets Control, combating illicit finance such as terrorism financing, money laundering, proliferation finance, and supporting inbound and outbound investment review processes.
Creating an Economic Statecraft Doctrine with the Executive Branch
What’s needed to create and maintain an economic statecraft doctrine? No central resource for techniques, procedures, standards, and lessons learned presently exists for economic statecraft. Congress and the Biden administration can do much more to institutionalize economic statecraft efforts across the executive branch. Sullivan’s 2023 Brookings Institution speech on U.S. economic leadership addressed both incentives and coercive activities but focused heavily on investment and trade. The speech did not mention economic sanctions and only mentioned export controls once. While China will be the central focus of any strategic engagement on economic statecraft, national security and foreign policy crises over the past several years demonstrate that the relevant agencies ought to have a wide range of tools and capabilities to address unexpected global events, as well the need to better develop positive economic statecraft incentives rather than just disincentives. This is equally true for an industrialized Russia as it is for economically ancillary and isolated places like Afghanistan and Gaza.
With adequate resources, executive agencies can begin to build doctrinal texts and training to codify best practices and incorporate each of these considerations within the context of an interagency approach to economic statecraft. Before returning to government, Singh outlined the principles, contents, and method for operationalizing such a doctrine in a recent article that builds on 2023 Senate testimony discussed in more detail below. Such doctrine would enable agencies like Treasury and Commerce to ensure consistency and scale operations that employ key principles to take action in support of the National Security Strategy across economic and intelligence domains. Rather than saddling a small group of people with designing policy guidance, strategic objectives, and tactics, well-resourced and staffed agencies with an informed doctrinal framework will be better positioned to safeguard the U.S. strength and stability.
Critics opposed to articulating an economic statecraft doctrine may argue that publicly communicating a strategy would unnecessarily restrict U.S. policy options while telegraphing capabilities to adversaries. However, adversaries already dedicate significant resources to scrutinizing policymakers’ objectives and seeking to evade economic sanctions and export controls. An economic statecraft doctrine would improve intra-agency and interagency communication, planning, and coordination capabilities, as well as engagement with the private sector, allies, and partners. Further, the increased transparency could incentivize adversaries to alter their behavior earlier in the process before the U.S. government takes concrete actions. Such efforts could both reassure allies and place adversaries on notice.
Baselining Analytical Capabilities and Establishing Infrastructure
Along with developing doctrine, policymakers should expand, and in some places create, the “analytical infrastructure” to measure and assess economic statecraft initiatives. One key element of Singh’s congressional testimony addressed the need to “create an analytical infrastructure that incorporates economic statecraft.” The Treasury Department’s launch of a sanctions analysis unit represents the first of hopefully other offices with such a direct and holistic responsibility. As highlighted by a 2022 Center for Strategic and International Studies report, sufficiently resourcing a similar analytic function in the Bureau of Industry and Security for export controls would also support economic statecraft goals and work in tandem with a fully capable Commerce Department intelligence community function.
More ambitiously, Congress should expand the Department of Commerce’s intelligence function. A formalized and adequately resourced intelligence function in the department would augment existing intelligence capabilities to address the priorities of technological competition, export controls, and investment security. More analytical infrastructure would also enable the types of products envisioned in an economic statecraft doctrine that includes “stress test[ing] and warg[aming] the tools of economic statecraft” and “build[ing] surveillance practices that inform the design of economic statecraft.” At the very least, the Commerce Department should have greater tasking authority for collection by other intelligence community members.
To baseline capabilities, the executive branch should conduct coordinated reviews of specific economic statecraft tools across agencies. Policymakers can look to the 2021 Treasury sanctions policy review as a model for a deliberative process to evaluate specific economic statecraft tools and develop forward-looking guidance. However, this review was limited to Treasury Department sanctions authorities. The executive branch should have an integrated vision to include other Treasury Department capabilities such as inbound and outbound investment review, and the role of multilateral development banks. The Commerce Department can evaluate export control authorities, while the State Department, International Development Finance Corporation, and the U.S. Agency for International Development can look at economic tools under their authorities. Federal regulators such as the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission should assess their role as elements of U.S. economic statecraft. While respecting their independence, Congress can consider amending their mandates to account for foreign policy and national security.
Forward-looking analytical and planning capabilities would enhance the economic statecraft function. Congress should provide the Treasury Department resources to build out net assessment and policy planning functions for medium-term planning and to expand upon Commerce Department capabilities for policy planning. The Defense Department established its net assessment office in 1973, allowing it to contribute decades worth of experience to accelerate the development of civilian economic agency counterparts. Similarly, the State Department’s Office of Policy Planning has an even longer pedigree going back to George Kennan’s creation of the office in 1947. Such a team (or teams) with net assessment and policy planning functions would conduct studies across economic sectors and adversaries’ financial markets to identify coverage gaps, threat patterns, risks, and opportunities.
An economic net assessment capability would draw on existing tools in the private sector and national security apparatus. Conducting medium and long term macroeconomic, financial market, commodity market, and supply chain risk analyses would identify potential shocks and vulnerabilities for which the U.S. government could prepare. Blockades to limit commodity exports or imports like cotton in the U.S. Civil War, coal in world war one, and, more recently, grain in Ukraine have played a major strategic role in each conflict. Weakness in financial markets can leave countries unable to meet defense and critical budgetary needs, and disrupt the lives of everyday citizens. Anticipating potential risks years in advance under a cohesive framework would enable swifter coordinated action and resilience.
These actions should also consider the increasing role of technology, which introduces further risks to the financial markets that can cause panic and exacerbate geopolitical tensions. A recent RAND study found a litany of technology-related risks to the U.S. financial system including attacks on AI-based financial models, selling off bond positions, and the use of technology to engineer behavior or financial decision-making. These changes may occur in a slow insidious manner rather than as a shock, which will be more difficult to address. In March 2024, the Treasury Department also released a report on AI-specific cybersecurity and fraud risks that could inform further medium- and long-term planning. An economic net assessment tool would consider the wide range of potential threats over time and across technologies to better arm policymakers.
Developing a Positive Economic Toolkit
To fully realize an economic statecraft doctrine, policymakers should also integrate a framework around positive economic tools that incentivize desired economic behaviors to achieve foreign policy outcomes. Before rejoining the Biden administration, Singh also recognized the need for more positive economic tools to “balance the pain caused by sanctions with a holistic approach to statecraft that causes mutual economic gain (infrastructure finance, supply chain partnerships, technology alliances, debt relief, revitalizing the World Bank).” Sullivan also discussed some of these positive tools in his April 2023 speech. Outside experts, including at the Atlantic Council, have begun to make the case for “positive economic statecraft.” By coordinating capital mobilization for infrastructure investment alongside the deployment of novel financial tools like debt-for-nature swaps to reduce sovereign debt burdens, economic statecraft can enhance economic growth for American partners as well.
A combined economic statecraft doctrine with adequate resources will prepare the national security bureaucracy for current and emerging threats. America has unrivaled economic tools at its disposal. It should be able to wield them forcefully and nimbly in pursuit of its foreign policy objectives.
Alex Zerden is the founder of Capitol Peak, a risk-advisory firm, an adjunct senior fellow at the Center for a New American Security, and a senior advisor to WestExec Advisors. Previously, he worked in the U.S. Treasury Department, including as a Financial Attaché, the White House National Economic Council, and Congress.
Leland Smith is an international financial markets lawyer and policy advisor who recently returned from the private sector to the U.S. Treasury Department in International Affairs. Previously he worked in the office of a Commodity Futures Trading Commission commissioner, on the trading floor of a major energy company, and served in the U.S. Army as a platoon leader and executive officer conducting ground operations in Iraq. Views expressed are his own and not those of the Treasury.
Image: Mark Orders-Woempner
