Geoeconomics with Jennifer Harris

Jennifer Harris, a Rhodes and Truman Scholar, is currently a Senior Fellow at the Council on Foreign Relations and co-author of War By Other Means: Geoeconomics and Statecraft. She led a discussion on the role of geoeconomics in the conduct of US foreign policy with Air Command and Staff College’s Multi-Domain Operational Strategy Program this past October at Air University. She sat down for this interview with OTH in November, 2016.

Over the Horizon (OTH): Thank for you for taking additional time to expand upon some of the concepts discussed during your visit in October. I’d like to start with your time in the State Department and whether, in your experience, you perceive space within the interagency process for military planners to advocate for geoeconomic tools independently of, or in concert with, the military applications of power projection?

Jennifer Harris (JH): Not only is there space, there is a need for members of the military to advocate for geoeconomic solutions to American foreign policy challenges. In my experience, the most ardent advocates for geoeconomic-oriented solutions are often uniformed members of the armed services. As I quoted Admiral Mullen in Warfare by Other Means…if you compare the man and woman hours we have spent in the US military thinking through the composition of the Afghan national security forces to the hours spent thinking through what a viable economic future for Afghanistan looks like…it’s night and day. Until we balance those scales, we should continue to expect unnecessary expenses in blood and treasure.

OTH: Regarding the necessity of whole of government representation in the creation of successful lines of effort or engagement towards a given effect; from which US departments and agencies should we seek representation and input? Do you see any specific agencies being inadvertently left out of the design process?

JH: I think examining how decisions are made in the interagency process is indicative of how strategies are formed. The interagency process is inherently, inescapably advocacy-based. Where you sit in the bureaucracy largely influences your position on given issues. Advocacy includes ensuring your principal is appropriately briefed and that you have already conducted the interagency legwork for what might be a more robust, assertive geoeconomic answer to a problem. Decisions are never made in meetings. Today, the approach towards geoeconomics is hampered by assumptions about the elements of the USG that code as economic, like the US Treasury. Certainly, they have a vital role. But there is a tendency to underestimate the credibility each of the military services and the Department of Defense have to offer non-military strategic inputs. Fundamentally, these are issues of foreign policy. This is a conversation about how to better execute foreign policy. Economic ends are not the aim. Economic benefits are great when they occur, in fact our foreign and economic interests are often the same. However, since geoeconomics ought to contribute to achieving US foreign policy objectives, the leaders of our foreign policy will ultimately be the ones responsible to reach for geoeconomic options instead of military options.

OTH: In War by Other Means you cite a “vulnerability of democracies” to geoeconomic coercion. What are ways that the US and European Union can mitigate these vulnerabilities?

JH: This is really a question of geoeconomic endowment. Certain structural features, related to political make-up, make some countries more or less vulnerable to geoeconomic coercion. Non-democratic states in which the government owns the elements of production, like land, possess capabilities that neither the governments of the EU or US have at their disposal (or should). What that suggests is there are reasons to respond differently to non-democratic states in certain foreign policy and international economic matters because these states wield dual-use economic assets that have economic or geopolitical uses. Sovereign wealth funds are a great example. Previously apolitical wealth funds are increasingly being weaponized. It is ultimately a question of capabilities, intent, and opportunity. I am currently writing on whether the US should increase its scrutiny of Chinese foreign direct investment in the US. There are separate questions as to whether we are comfortable ceding entire industries to foreign state-owned enterprises that are inherently dual-use.

OTH: In light of the increasing number and size of state-owned enterprises and alternatives to existing economic institutions like the World Bank, can the US reasonably continue to consider these institutions as free market competitors or does the USG need to immediately address the dual-use nature of these organizations?

JH: Thing number two! The economic and foreign policy community is by no means in agreement as to the nature and scope of these challenges, let alone a strategy to deal with these issues. China already has some dozen or so initiatives that are clearly intended to undercut the World Bank and IMF. I am inclined to believe that this horse is somewhat out of the barn, that is to say that at a minimum the US cannot continue to make our annual contribution to existing institutions and expect the trends we are now seeing will reverse or even slow. It is hard to provide a clear set of guiding principles. However, point one is realizing how much the status quo is already undermined.

OTH: In our examination of the economic domain, the discussion of the apparent fragility of the global economy often comes up. Particularly the relative fragility of the US economy versus, for instance, the People’s Republic of China. Do you perceive an American economic advantage over other aspiring global economic powers?

JH: There are two separate phenomena here, both important. One is the ability of non-democratic states to use economic instruments and power to advance geopolitical ends. Another is how a state’s economic health translates into the ability to project geopolitical power. China has certainly punched well above its weight in its use of geoeconomics in pursuit of its national interests around the world. Economic fundamentals are absolutely important when assessing the power projection capabilities of a given country. In that respect, the US has a whole lot going for it. The major failing is the fuzzy thinking between the fundamental economic health of a country and its corresponding ability to project power. We know there is a link, but lack precise ways to measure the relationship. The energy transformation and shale revolution in the US is offering ways to change various pieces of our foreign policy, particularly in the Middle East. The risks that used to drive our policies there are now more muted due to the improvement in US domestic energy capabilities. This is an example of how long-standing assumptions, that we have almost forgotten are there, can change. Another long-standing assumption is the strength of the dollar, and the ability of the dollar to finance war. I don’t see a near or mid-term competitor to the dollar. China’s renminbi joining the IMF currency basket actually underscores the difficulty and sacrifices China would face to offer a reserve currency that would rival the dollar.

OTH: How much impact does American foreign-held debt and trade imbalance between the West and Asia have on US decision makers? Do you see this influence limiting US freedom of action in the near, medium, or long-term?

JH: A popular view is that the scale of Chinese held US debt, in and of itself, is in many ways a strength for the US. The US could assume economic policies that might affect the value of the debt, or in certain extreme situations, could choose not to honor that debt. My criticism is that this assumes China is viewing its holdings of US sovereign debt as a solely economic issue. If China seeks to communicate displeasure with US foreign policy, for instance with regard to maritime tensions or with respect to Taiwan, is China better off spending billions on weapons that do nothing to offset the American military hyper-dominance in Asia? Or, are they better off shorting the recovery of the American housing market? In the recent past the latter may have been relatively inexpensive to do. However, the unwinding and corrections in the US economy since 2008 have reduced leverage in the US housing market. Still, the ability to hold the US economy at risk remains, and leverage remains, a kind of force multiplier. It is not a point about China’s overall holdings of US debt.

As to the US trade deficit, in general and vis-à-vis China. This is a problem with respect to the US’ ability to achieve strategic leverage. I am concerned about the US trade position becoming a constraint on US foreign policy. In part, because we are continuing to bear the increasing costs in the trading system without the benefits we have traditionally expected. The US-Korea trade agreement that has been in effect for about five years is underperforming by orders of magnitude compared to the expected benefits projected by the US international trade commission modeling. This is not any great conspiracy, it’s just that we do not know how to accurately model trade. But, we are continuing to sign deals and be surprised; the TPP is falling into that same posture. This is more about shoring up American public support for America’s international leadership role and the role the US plays in open global trade.

China has leveraged trade to achieve geopolitical aims in the South and East China Seas. The embargoing of its rare earths to Japan and restricting the importation of Filipino bananas are recent examples. This pattern has had a chilling effect across East and Southeast Asia. To date, the US has no answer to these abuses. In my view, the interagency community still views these issues as trade abuses instead of recognizing the very obvious geopolitical plays occurring in the form of trade disputes. That is not to say we need to respond in kind, but we have a problem recognizing the geopolitical plays that are taking the form of trade disputes. That is largely why only one claimant stepped forward and pursued a claim against China in the UN tribunal. In that instance, the Philippines achieved only a hollow, pyrrhic victory. To me, the scarier question is why only one country stepped forward. It has to do with China’s ability to mute opposition through its trade relationships.

OTH: How do we synchronize geoeconomic efforts with military strategic planning cycles?

JH: From my experience, it may be the military that needs to initiate the requirement. I would love to see the military services convene conversations with experienced economic experts and communicate a set of goals that leads to the fleshing out of a multi-domain strategy that looks to achieve effects over years and decades. The kind of coercion being experienced in Southeast Asia necessitates regular meetings to counter the kind of geoeconomic pressure that regional hegemons are pushing on our treaty allies. I have been advocating for a collective insurance policy to cushion our allies from Chinese geoeconomic coercion. I do not think there is anything keeping the government from using a market-based solution to achieve US national interests in the region. In Europe, the North Atlantic Treaty Organization offers the best surrogate for economic pressure to counter Russian actions in Ukraine. Egypt offers another example where the US military holds significant influence, more so than the Treasury Secretary, to push Egypt towards stabilizing economic reforms. I do think, with respect to Egypt, that the US military is our best surrogate for US policy at-large in Egypt.

OTH: We do not devote a tremendous amount of time at Air University reading about or discussing economic issues. Still, after this phase of education many of us will press out to staff positions in Washington, D.C., Geographic Combatant Commands, and the like. What do you recommend we read so that we can meaningfully contribute and advocate for geoeconomic solutions at this stage of our profession?

JH: My publisher would kill me if I didn’t recommend my book [Warfare by Other Means]! I would probably start with China’s Superbank, by Henry Sanderson and Michael Forsythe. It provides a very accessible lens on the plumbing of China’s financial system. Richard McGregor’s The Party is also excellent. There are many slices to this. If you read a number of articles together, I think they will add up to something more than the sum of their parts. This is really wonky, but I cannot help but to come back to how much bias there is in how we look at economic issues as divorced from political issues since the theories behind them are uncomfortable with them intermingling, concerned as we are with separation between the state and the market. There is an article in Foreign Policy from 2014, “How Putin is Reinventing Warfare,” by Peter Pomerantsev, that I think is the single best article about Russia in the past five years. The article’s author highlights the risks of US private investment overseas and the restraint on US foreign policy desired by US companies operating in some places.

In the 1980s and 1990s, the liberalization of our trade policies largely occurred with states that fell under the US security umbrella. Japan in the 1980s, Mexico and Canada in the 1990s. Today, some of the US’ top trading partners are not military allies. That begins to force us to face the tension between neo-liberalist economics and our national foreign policy interests.

As a last thought, the Departments of Defense and State would be well-served by asking Congress for addition flexibility in its funding for geoeconomically oriented lines of effort. In my experience, the sums of money that would make a significant difference in fast-moving regions like the Middle East are miniscule compared to the overall size of the DOD’s budget.

OTH: Thank you for your time and insights, Ms. Harris.

JH: Thank you. Good luck.

This interview was conducted by Mark Nexon, Senior Editor of Over the Horizon, on November 21st, 2016.

Disclaimer: The views expressed are those of the author and do not reflect the official policy or position of the Department of Defense or the U.S. Government.

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