When the world's at stake,
go beyond the headlines.

Editor’s note: This article is the first in an 11-part series examining how the United States should organize, lead, and integrate economic statecraft into strategy, defense practice, and the broader national security ecosystem. This special series is brought to you by the Potomac Institute for Policy Studies and War on the Rocks. Prior installments can be found at the War by Other Ledgers page. 

The United States loses upwards of $225-$600 billion each year to stolen trade secrets, pirated software, and counterfeit goods, mostly through activities orchestrated by China’s government.

Right now, the two countries are locked in a struggle that looks nothing like the wars of the past. The stakes are existential with prosperity and national security on the line, not to mention global influence. This is an economic war, and it’s being fought according to principles that date back more than two millennia.

Economics is no longer just a lever of national power — it is an operational domain of warfare and economic statecraft provides an effective means to operate in that domain. Defined broadly, economic statecraft is the use of economic tools — trade policy, investment controls, and sanctions — to achieve strategic objectives.

The United States and China are engaged in a protracted economic conflict, and America’s approach to dealing with it is evolving. The Chinese Communist Party’s primary goal to stay in power drives its wielding of economic tools to sink U.S. industries and gain market advantages — a reality American policymakers are actively grappling with. Military commanders and national security professionals should understand the dynamics of economics if they expect to gain advantage, deter, and win, if necessary, on the modern battlefield.

The timeless maxim attributed to Sun Tzu — “The supreme art of war is to subdue the enemy without fighting” — has found new life in the 21st century. In 1999, two People’s Liberation Army officers published Unrestricted Warfare, a book that argued for a broader conception of war. Their thesis: Modern conflict transcends the battlefield. Financial systems, trade networks, and information flows can be weaponized in a broader societal approach to war to achieve strategic aims without firing a shot.

While Unrestricted Warfare is not official Chinese doctrine, its influence is undeniable. It echoes through Beijing’s policies and ambitions, both hidden and unhidden. China’s Belt and Road Initiative, for example, binds dozens of countries into a web of infrastructure and trade relationships, while Made in China 2025 outlines a path to dominate high-tech sectors, from AI to advanced manufacturing. Ambitious military modernization has complemented these efforts, ensuring that economic power translates into geopolitical leverage. These pursuits are not mere economic plans — they are instruments of China’s national power, wielded to secure its rise and reshape global norms in its favor while keeping the communist regime in power.

It’s All About the Party

For the Chinese Communist Party, economic dominance is not a byproduct of growth. It is a deliberate strategy pursued vigorously across a wide spectrum, from coercion and obfuscation to seemingly innocuous compliance with global norms, always with the survival of the Party’s rule at the forefront. Since 2006, the Party’s successive five-year plans have prioritized science and technology innovation, self-reliance, and global competitiveness. The goal is clear: reduce dependence on foreign powers, control critical supply chains, and position China as the world’s preeminent economic and technological force.

Contrast this with the United States: For decades, Washington viewed economic engagement with China as a win-win proposition. American policymakers assumed that integrating China into the U.S. and other global markets would liberalize its politics and create mutual prosperity. By failing to understand Chinese culture and strategy and mirror-image its assumptions, America underestimated the Chinese Communist Party’s resolve to maintain power and pursue its goals. As Zachary Karabell observed in Superfusion , the United States helped create the China it now faces. While both countries certainly prospered and hundreds of millions of Chinese were raised out of abject poverty, Beijing’s path exploited the openness of U.S. and global markets along the way. The consequences of this misreading become clear when China’s leverage of U.S. and allied systems is examined across certain sectors.

In the 1990s, Chinese researchers became deeply embedded in Western academic and research ecosystems, particularly in telecommunications, leveraging open scientific norms to absorb innovation and transfer it to state-linked firms. Open access to academia enabled trade-secret theft, coerced technology transfer, and standards manipulation. Backed by massive state support, political top cover, and protected domestic markets, Chinese firms could scale quickly, underprice competitors, and dominate global markets while excluding foreign rivals domestically. U.S. markets were aggressively undercut and collapsed in the melee, with domestic manufacturing in key strategic areas — solar panels, lithium-ion batteries, wind energy components, and electric vehicles — caught in the crossfire. As a result, in a relatively short time, China gained notable competitive advantages militarily, economically, and technologically on the global stage. The commercial drone industry illustrates how this strategy unfolds.

U.S. Drone Market Shot Down

China absorbs foreign technological advances, converts them into industrial capability, and leverages state support to dominate markets. Their pattern of behavior tends to exclude U.S. competitors and uses new market advantage to threaten U.S. security. The erosion of U.S. advantage in drones and its subsequent exclusion, provides an example.

In the early 2000s, the United States and its allies led drone innovation, driven by dual-use military research, academic robotics programs, and a hobbyist and startup ecosystem. Chinese firms exploited this open environment through academic exchange, appropriation of publicly funded research, and reverse engineering, enabling the transfer of critical knowledge from Western universities and firms into China’s industrial base.

At the industry and state level, China translated this appropriated knowledge into market capture, through firms such as DJI, which came to dominate more than 70 percent of the global commercial drone market by the late 2010s. These advantages allowed Chinese firms to underprice and outscale U.S. competitors, consolidate control over drone manufacturing, software ecosystems, and data platforms, and ultimately lock American firms out of both the Chinese market and key global supply chains.

This model of intellectual property appropriation, rapid scaling, and market exclusion — done largely through nominally nonstate firms — generated two main durable strategic advantages for China at relatively low cost. First, it introduced significant vulnerabilities for the United States across critical mineral and component supply chains, including rare earth elements, lithium-based batteries, specialty magnets, sensors, and electronics essential to unmanned systems. Chinese dominance across multiple nodes of these supply chains enables leverage over pricing, availability, and downstream manufacturing, increasing U.S. exposure to disruption in both commercial and defense sectors. Second, because drones play a central role in intelligence, surveillance, reconnaissance, and precision-strike operations, China’s leadership in drone technologies and in the critical minerals and components confers potential battlefield advantages. China is reported to be expanding its drone deployment capacity, with low-cost systems increasingly proliferating across conflict zones. In some cases, drones provided by the People’s Liberation Army to local partnered forces have subsequently entered into the hands of hostile actors, including terrorist groups, elevating the risk of threats to U.S. personnel, infrastructure, and assets overseas. The drone sector thus demonstrates how adversarial economic statecraft can undermine U.S. national security, transforming what begins as commercial competition into concrete threats to both economic resilience and military security. This pattern ripples across many sectors critical to U.S. national security.

America Reconciles with China’s Reality

The 2018 National Defense Strategy marked a significant pivot for the United States from the decades-long post-9/11 focus on counterterrorism, acknowledging “great power competition” as the new defining challenge of the era. A competition, however, implies a level playing field and shared rules — not the rules China was playing by. A systemic shock would make the imbalance unmistakable.

Indeed, it took the global shortages of medical equipment and pharmaceutical ingredients during the COVID-19 pandemic to highlight the grave risks created by heavy U.S. reliance on Chinese manufacturing hubs and key supply chains. The pattern of structural dependence, however, long predated the pandemic and is particularly evident in critical mineral supply chains — including rare earth elements, lithium, cobalt, and graphite — and is combined with state-backed overseas investment, multi-year contracts, and downstream-processing dominance. These dynamics are further reinforced through infrastructure finance (including inside the United States) and development projects such as the Belt and Road Initiative. Regardless, the pandemic initiated a sudden and stark realization of the supply chain chokeholds China had on the United States and its willingness to leverage that advantage, serving as a catalyst for a broader strategic reckoning.

The Biden administration’s 2022 National Defense Strategy generally echoed the competitive sentiment of its 2018 Trump predecessor, transcendent of political party lines. The rhetorical repetition reflected wider realization and rare consensus among policymakers and others about the real threats China posed: not competition, rather, a war fought in boardrooms, with supply chains, and in research labs. A war where victory means shaping the future of technology, trade, and global governance. In other words, economics as a domain of warfare — sometimes also called gray zone aggression, hybrid warfare, or adversarial economic statecraft — is experiencing a contemporary resurgence with unique 21st century attributes. The question then becomes how the United States should organize to fight in that domain.

Carl von Clausewitz proposed that the aim of war is to disarm the enemy. Today, disarmament occurs without kinetic force. Entire U.S. industries, including those with critical military relevance, have vanished under the weight of Chinese manufacturing dominance. Key technologies, strategic materials, and infrastructure have been captured, not by force of arms, but by force of economics. Jobs have disappeared. Supply chains have fractured. Vulnerabilities have multiplied. Across multiple industries and domains, China has demonstrated a recurring, evident pattern that threatens American prosperity, including attracting foreign capital and expertise, coercive or illicit acquisition of intellectual property, leverage over infrastructure, coercive regulatory pressure, state–private–criminal blending, and disruption. These developments underscore why economics should be treated as a core function of modern warfare.

This is classic Sun Tzu in action: Know your enemy, know yourself, and you need not fear the outcome of a hundred battles. Beijing studies America’s strengths — and its weaknesses. What Americans view as strengths, such as relatively open U.S. markets and a fragmented political system of representative democracy, has been exploited with precision by China, along with vulnerabilities from reliance of the U.S. economy and military strength on global supply chains. As such, if you control your adversary’s access to critical technologies, rare earth minerals, or global markets, you have effectively neutralized their ability to act strategically — militarily or economically — presenting existential threats. This is the essence of contemporary economic warcraft: enduring, non-kinetic, and deeply integrated into daily geostrategic activity with consequences that can rival or exceed those of traditional warfare.

The Path Ahead: Economic Statecraft

The deliberate exercise of economic statecraft offers a way forward. This includes industrial policy, manifested recently by U.S. investment in publicly traded companies like Intel and critical minerals firms to protect resources and technologies important to national security. Wielding these tools effectively requires more than tariffs and export bans. It demands sound strategy, coherent doctrine, clear authorities, and robust public-private partnerships.

Successive annual defense authorization bills have included meaningful legislation like the Creating Helpful Incentives to Produce Semiconductors Act of 2022, giving intent and direction on economic statecraft from Congress, supported by the House Select Committee on Competition with China, the U.S.-China Economic and Security Review Commission, and others in the policy ecosystem. The Trump administration has issued parallel guidance in executive orders and in the recent 2025 National Security Strategy. The strategy highlights the economy as the foundation of U.S. global posture supported by a strong, well-equipped, and ready military. And while the peace-through-strength-equals-deterrence approach is not new, how to operationalize it given the complexities of modern geopolitics, tightly woven global supply chains and markets, and unprecedented information hyperconnectivity, is yet to be coherently addressed. The limiting factor is not policy ambition, but institutional design. The next step, therefore, lies in fixing structural weaknesses within the U.S. system while holding true to national values.

The United States lacks a dedicated authoritative body at the strategic level to proactively identify and analyze economic threats to vital supply chains, and to prioritize and share those findings appropriately across industry, academia, the business sector, the federal government, and then partner with parties from across those areas to act on those threats with relevant authorities, speed, and effectiveness. A central challenge is not a lack of data, but a lack of analytic integration across space and time. This fragmentation obscures patterns, delays attribution, and leaves policymakers and agencies reacting to individual events instead of disrupting activity at its source.

The United States also lacks a systematic, integrated framework for understanding and addressing China’s holistic military-civil fusion approach to statecraft. While effective work is being done to counter economic-based threats, be it at Treasury, Commerce, or the Department of Defense, the approach is piecemeal. Without such a framework and an entity to referee, responses will remain reactive, episodic, and disparate across the U.S. government, and detached from a broader unifying strategy.

These gaps have direct implications for military readiness and deterrence.

The Military Challenge

Vigilance by U.S. military commanders should therefore span beyond air, sea, space, land, and cyber to identify indications and warnings of economic vulnerabilities to military operations and capabilities. At risk is unfettered access to supply chains that enable military missions at the speed and capacity required for modern conflict and ultimately lend to prosperity, security, and credible deterrence around the globe. Meeting the challenge will require breaking old molds and building new skill sets, partnerships, and ways of thinking.

Complicating the challenge, full-time career military members and their civilian counterparts typically do not have the expertise in global markets, financial services, acquisitions processes, and proficiency in statecraft and military strategy to engage effectively in economic statecraft planning or operations. Hence, identifying and nurturing such talent is an imperative that may require sourcing from uncommon areas where it does exist (and/or investing intentionally in the development of those skills). For example, certain individuals across the reserve components might possess the right expertise by having one foot in the civilian financial services, corporate risk, or business intelligence sector and the other in military logistics, acquisitions, or counterintelligence.

Service members should also be prepared to collaborate with America’s partners and allies on economic statecraft activities, especially those with whom the United States shares significant economic and military ties. Operators should be able to recognize, comprehend, and address methods of economic warfare to safeguard shared supply chains essential to interoperability and core military missions, irrespective of the origin of the threat.

Working with private sector partners is equally vital for military and other national security professionals. Industry is fundamentally in the driver’s seat when it comes to successfully addressing adversarial economics. Business leaders should be incentivized to proactively identify risk indicators within their industries and to educate their workforce on highlighting and mitigating economic-based risks to military missions. A successful economic statecraft campaign relies heavily on decisions and actions made by private sector actors, not just the government. Attuned to the situation or not, U.S. firms are crucial front-line actors in economic warfare.

Economics has been weaponized on a global scale, driving it to be an active domain of statecraft with strategic, operational, and tactical dimensions. Durable partnerships should be mobilized between government and industry, at home and abroad, to secure technologies and supply chains critical to national security while preserving the values we aim to defend. America’s greatest strength has always been its ability to innovate — to harness imagination and enterprise for the common good. That strength is still intact and should be directed with purpose. Economic warfare will be won by recognizing the battlefield for what it is, and by mobilizing the full spectrum of national power — economic, technological, and political — to secure our future prosperity and security.

Tim Welter, Ph.D., is a senior research fellow at the Potomac Institute for Policy Studies where he started and leads the Global Competition Project. Leveraging experience from Capitol Hill, the Pentagon, industry, and academia, his research is primarily focused on national security policy development and implementation, and economic statecraft.

Margaret McWeeney, Ph.D., is a research analyst at the Potomac Institute for Policy Studies and International Center for Terrorism Studies. Her research focuses on hybrid warfare and nonstate actor security threats.