Jan 31, 2024

The Case for an EU-US Economic Security Alliance

Despite much goodwill on both sides, trade and economic relations between the United States and Europe have remained strained. Working together to collectively improve transatlantic geoeconomic security would offer a way forward.

European Commission Executive Vice President Margrethe Vestager delivers remarks as US Secretary of State Antony Blinken hosts the fifth US-EU Trade and Technology Council Ministerial Meeting at the State Department in Washington, January 30, 2024.
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It might appear fanciful to propose the creation of a transatlantic economic security alliance to deter geoeconomic coercion. Transatlantic trade cooperation remains troubled. Although trade relations initially improved under the Biden administration, the passage of the Inflation Reduction Act in the United States and its protectionist provisions have caused significant consternation in the Europe Union, adding to strained trade relations. 

The US-EU Trade and Technology Cooperation Council, which focuses on non-market-access trade issues, such as technology and security, met for the fifth time on January 30. Judging by the press release, the TTC continues to make only slow progress after more than two years of talks. A revival of the Transatlantic Trade and Investment Partnership (TTIP), a project launched, then aborted during the presidency of Barack Obama, is out of the question for domestic political reasons. And, finally, there is the real risk that a future Republican administration may again shift toward an aggressive unilateralism on international trade issues, treating Europe more like a foe than a friend.

A Formidable Alliance

And yet it makes sense to explore the viability of a transatlantic economic security alliance. The increasing “securitization” (defensive) and weaponization (offensive) of international economic relations makes a common approach to economic alliance worth exploring. To the extent that such an arrangement delivers mutual benefits and at low costs, it may even be sellable to future US administrations with inherently unilateral instincts and a distinctive disregard for multilateralism. 

An EU-US economic defense alliance would be formidable. According to the WTO, the EU and the US accounted for a combined 23 percent of global merchandise exports and 31 percent global merchandise imports in 2022. The respective shares for commercial services exports and imports stood at 40 percent and 36 percent of the world total. According to the International Monetary Fund (IMF), the euro and the dollar account for an even more impressive 80 percent of central banks’ foreign-exchange holdings, a proxy of the two currencies’ importance in international trade and finance. The two economies are also leading providers of advanced technologies and offer foreigners relatively unfettered access in terms of investment. The threat of (partial) exclusion from two of the world’s three largest markets would serve as a powerful deterrent to geoeconomic coercion, provided it can be made credible.

Globalization has given rise to extensive economic interdependence. Interdependence is often asymmetrical interdependence, giving one country the ability to impose or threaten to impose asymmetric economic costs on another by, for example, restricting customary trade and financial relations in an attempt to deter, compel, punish, or degrade. This is often referred to as the weaponization of international economic interdependence. As geopolitics and relative gains are increasingly trumping economics and absolute gains in the context of intensifying great power rivalry, countries must prepare for the greater politicization of international economic relations.

Designing a Credible Deterrence Strategy

A US-EU geoeconomic defense alliance is not meant to be coercive in the sense of forcing third parties to change their behavior or reverse specific actions they have taken. The empirical literature on economic sanctions as a form geoeconomic coercion shows that they more often than not fail in terms of getting the targeted country to change their political behavior—particularly so, if the targeted country is a geopolitical antagonist. Instead, a geoeconomic defense alliance is meant to deter unfriendly economic measures by third parties targeting alliance members. In addition, it can and should foster intra-alliance cooperation to mitigate individual and collective economic vulnerabilities vis-à-vis third parties.

Like in a defensive military alliance, the members would commit to come to the support of any member that becomes the target of geoeconomic coercion, meaning the imposition of discriminatory economic policies for political reasons. Support involves policies to lessen the negative impact of third geoeconomic measures as well as retaliating collectively against the coercer. If the commitment is credible, the alliance may not ever have to make good on its promises, thus providing a cost-effective way of preventing cost-imposing third-party economic measures. If deterrence fails, the combined weight of the US and the EU stands a good chance of imposing significant costs on the geoeconomic aggressor, which should help deter further aggressive action due to the alliance’s escalation dominance.

Managing Alliance Politics

For an alliance to be successful, it needs to address what International Relations literature refers to as abandonment and entrapment. Alliance members confront the risk of both being let down by their alliance partners and being entrapped and pulled into other alliance members’ conflicts. To address the risk of abandonment, an EU-US economic alliance would therefore need to define as precisely as possible what constitutes third-party geoeconomic aggression and thus obligates the alliance to provide support. To minimize the risk of entrapment, the alliance would also need to agree on what “offensive” national security-related economic measures taken by an alliance member vis-à-vis third parties qualify for alliance support. 

A transatlantic economic defense alliance must not provide members with incentives to behave more aggressively, economically or politically vis-à-vis third parties. An alliance will only be viable, however, if its individual members do not feel overly constrained in terms of their foreign and foreign economic policies, particularly as it pertains to national security. But the goal needs to be to deter third-party geoeconomic measures targeting alliance members, not to provoke them. 

Last but not least, deterrence policies need to be credible, proportional, and effective. Given the combined geoeconomic power of the EU and the US, designing credible and effective cost-imposing deterrence policies should not be difficult, either. Credibility may present a greater challenge. It is politically impossible to enshrine an agreement on economic defense in an international treaty. Good luck finding a two-thirds majority in the US Senate. While an executive-level agreement would be much weaker and might prove less durable, it does not mean that it could not be reasonably credible. Adversaries would surely think twice before launching unfriendly policies against a member of the alliance if there is only a small risk of significant retaliation. 

Coordinating Defense and Extending Deterrence

Deterrence seeks to prevent third parties from resorting to geoeconomic measures for fear of retaliation. It does not require much imagination to see how national economic defense policies could be adapted in an alliance context in terms of broader policy coordination, even if some of the required coordination may require domestic legislative support. Defense policies essentially aim to limit the opportunity of third parties to impose economic costs on alliance members. Here Brussels and Washington could seek to coordinate their diversification policies and “innovative substitution” policies to limit their dependence on critical imports in the short- and longer-term as well as coordinate policies aimed at the purchasing and stockpiling of critical goods. The main geoeconomic vulnerabilities of the US and the EU are related to their dependence on critical imports of goods, not their exports or foreign financial dealings.

Finally, the US and the EU could opt for extended deterrence. This would widen the economic security umbrella to selected associate members. US treaty allies could be included to afford them similar or even equal protections than its alliance members. This may increase the risk of entrapment. But it is worth considering in terms of deterring geoeconomic coercion more widely and preventing the weaponization of international economic relations—making the extended “Western world” a safer place.

Markus Jaeger is Research Fellow at the German Council on Foreign Relations’ (DGAP) Center for Geopolitics, Geoeconomics, and Technology and Adjunct Professor at Columbia University.

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