A Partnership Approach to America’s International Economic Relations

COMMENTARY Global Politics

A Partnership Approach to America’s International Economic Relations

Oct 3, 2022 10 min read

Commentary By

James Jay Carafano @JJCarafano

Senior Counselor to the President and E.W. Richardson Fellow

Dan Negrea

Previously served at the Department of State

Max Primorac

Senior Research Fellow, Margaret Thatcher Center for Freedom

Anthony B. Kim @akfreedom

Research Fellow and Editor of the Index of Economic Freedom

There is a promising new way for the United States to increase its involvement in the global economy and to help countries around the world. Busakorn Pongparnit / Getty Images

Key Takeaways

A key element of soft power is economic assistance. America will help itself and the world more if it moves from handing out aid to creating partnerships.

Governments can create and nurture these partnerships, but it is the private sector that makes most of them work. And that is a good thing.

America’s partners are looking for an alternative to the Chinese, Russian, and Iranian models. They do not want to live in a world dominated by these three.

Here is the hardest hard lesson from the Russian invasion of Ukraine: Brutal geopolitics has not gone out of style; revisionist powers still strive to take land with a bloody fist. The United States and the free world must take inventory of all the tools in the arsenal of democracy—hard and soft power, alike—and rethink how to use them for greater effect.

A key element of soft power is economic assistance. America will help itself and the world more if it moves from handing out aid to creating partnerships.

The Strategic Context

Today’s geopolitical challenges are daunting.

China is the most capable adversary the United States has ever faced. It is under the absolute control of the Chinese Communist Party, which is ruthless, unprincipled, and rapacious. Its military and economic capacity, lack of inhibition, and willingness to take risks constitute a threat of unprecedented proportions.

Meeting the dangers posed by Beijing must be the primary focus of U.S. strategy. That said, Russia and Iran, who are aligned with China, also pose grave threats that must not be discounted.

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All three nations quest for a world without America. But each knows that in a one-on-one contest with the United States, its odds of winning are slim. Hence, all share one desire: to defeat America without fighting.

Still, that doesn’t mean the competition will be bloodless. Russia is bold enough to invade neighbors that are unallied with the United States; Iran underwrites terrorists in indirect or undeclared conflicts; Beijing is on a collision course with the United States over Taiwan.

As a central goal of American strategy, Washington ought to work to keep this contest peaceful, below the level of military conflict, while assiduously pushing its interests. Backstopping such a strategy is America’s strong conventional and strategic (nuclear and missile defense) deterrent. With this in place, adversaries would think twice before taking on America’s military. Peace through strength is priority number one.

Deterring wars does not, however, prevent conflict. Determined adversaries will always look for a devil’s playground. The United States doesn’t have the means or interests to defend the free world like a fortress.

Mitigating the malicious and destabilizing actions of these and other adversarial powers involves the non-military tools of statecraft. The United States must support the capacity and capability of states in strategic, contested spaces to resist malevolent aggression or influence that undermines their prosperity, security, stability, and good governance.

States that are both at risk of being co-opted by our adversaries and strategically relevant represent home and away games for the United States. Some are in the Western Hemisphere, America’s own backyard. Some—such as Ukraine, Taiwan, India, Moldova, and Georgia—are on the borderlands of the bad guys. Others are contested strategic spaces like the South China Sea, South Caucuses, Central Asia, the Greater Middle East, and Africa.

States that might be prime targets for American engagement vary as well. Some may be stable and prosperous, yet in danger of being undermined. Some may be middling states seeking to steer clear of great power competition. Some, like Libya, may be barely governable.

Economic tools—both sanctions and incentives—are critically important in American statecraft. And they deserve a rethink to increase their efficiency.

The go-to incentives have traditionally been aid and trade: foreign aid and preferential trade agreements. Regarding these, the American Right is from Mars and the Left is from Venus. On one extreme is the impulse to cut aid and trade arrangements. At the other, an inclination to throw money at the problem with little or no accountability. Neither has demonstrated the strategic vision, responsibility, discipline, and competence to wield these instruments of power with skill.

A More Focused Foreign Aid

To use aid more effectively, a necessary first step is to determine if there is a competent recipient partner. Nation-building is a misnomer. No nation can build or rebuild another nation. Nations build themselves. To expect to realize any kind of benefit from engaging with a state that lacks a modicum of governance, security, and functioning society is to dream. Even desperately needed humanitarian operations are likely to fail if these conditions are not met. A long history of success and failure that proves this again and again.

To complicate matters, financial aid is often implemented through international organizations and non-governmental organizations (NGOs) that are themselves a problem. For instance, China and other malicious actors infiltrate international organizations and multinational development banks to press their own parochial outcomes. And large NGOs can be more interested in their own goals, political objectives, and cash flow than in delivering outcomes desired by Washington.

Corrupt governments, oligarchs, transnational criminal organizations, and others can siphon off assistance, enriching and empowering themselves and impoverishing and oppressing the people meant to be helped. We should instead partner with corporations, fund managers, business communities, and local faith-based organizations to carry out our foreign aid programs and promote wealth, not dependency.

Foreign aid is not a global entitlement program. It must be tied to clear, measurable, and executed reforms. The goal of foreign aid is to end the need for it and, in turn, mature the bilateral partnership to one of mutually beneficial gains, shared values, and strategic interests.

Military assistance is a form of aid that encompasses a broad range of activities from training on rule of law and arms sales to exercises that enhance interoperability with partner nations’ militaries. It has had mixed results. Iraq and Afghanistan were just failures. On the other hand, the rapid provision of weapons to Ukraine since February 2022 has stymied Russia’s invasion plans and created the promise of a better future for the country post-conflict.

Traditional military assistance like arms sales must continue, especially to places like Taiwan. And the United States should always be mindful of the intersection between the military and economic spheres, especially regarding competition with China.

To compete with China and other malicious actors, Washington must leverage foreign aid to reward pro-Western reformers and countries that support U.S. foreign policy, including through votes at the United Nations. The main effort should be directed toward strengthening economic partnerships that bring to bear the two most powerful tools in our arsenal—economic freedom and America’s powerful private sector.

Last, but by no means least, is the issue of focus. As a rich and powerful nation, the United States has a moral obligation to provide humanitarian assistance around the globe. And we have done so, from both public and private sources, more than any other nation. But beyond that, the United States must focus its aid on countries that are strategically relevant to it.

If the United States cannot assemble an arsenal of diverse, effective economic incentives—and use it responsibly—we might as well not waste our money.

Rethinking Preferential Trade Deals

For the past century, American trade policy has been based on the assumption that trade deals open foreign markets for U.S. exports and thereby increase domestic prosperity. It has also been assumed that more trade with the United States leads to democracy abroad and thereby to peace in the world. Both assumptions are now being questioned. The economic globalization of recent decades has actually hurt many Americans economically. And neither Communist China nor dictatorial Russia has become more democratic or more peaceful despite increased trade with the West.

It remains true that trade pacts can make nations richer if the parties are free and the deals are fair, reciprocal, and balanced. Bilateral and multilateral trade agreements can also help blunt migration flows and strengthen political ties. And they can serve as a bulwark against China’s efforts to achieve global domination and make the world safe for autocracy; the United States-Mexico-Canada Agreement (USMCA) is a case in point.

But preferential trade deals, usually long-term and often multilateral, are not always beneficial to the United States because they create legal obligations after negotiations in which the United States must accept compromises favoring other countries.

There is bipartisan consensus in Washington that preferential trade deals should remain an option but be used very thoughtfully.

The New Era: Economic Partnerships

There is a promising new way for the United States to increase its involvement in the global economy and to help countries around the world: Partnerships of many forms and with varied memberships. Governments can create and nurture these partnerships, but it is the private sector that makes most of them work. And that is a good thing.

Friend-shoring or ally-shoring is a partnership opportunity that developed because China is becoming an increasingly risky production location. An Atlantic Council report on ally-shoring elaborates on this. As U.S. companies leave or consider leaving China, the United States can help this process, just as the Japanese government has.

One way is to have U.S. embassies use their convening power to ask their respective host governments to prepare tax and regulatory incentive packages for U.S. companies currently in China. Some countries are already doing this. India, for example, sent a letter to 1,000 U.S. companies in China promising regulatory advantages if they relocate to India. There are many winners: Washington advances its goal of establishing more secure U.S. supply chains without spending money from the U.S. Treasury. And the countries receiving U.S. businesses benefit from higher employment from companies that respect their laws and train locals.

The U.S. government can also facilitate greater bilateral trade relations without a legally binding trade agreement. It can sign memoranda of economic cooperation with other governments that simply note their country’s intention to observe international law and to inform the United States of major business opportunities for its private sector. The United States has signed such agreements with nations like Kenya, Ghana, and Albania.

Another promising partnership path is to form flexible and varied economic coalitions of the willing. To be effective, these partnerships don’t have to be universal in their membership and purpose like the UN. They may actually be more effective precisely because they are smaller and more focused.

One model is the recently signed Indo-Pacific Economic Framework for Prosperity (IPEF) which brings together twelve countries representing 40 percent of world GDP. No U.S. aid or preferential trade access to the U.S. market is involved. Instead, the joint agreement stipulates fair rules for the digital economy, business standards (including, importantly, anti-corruption), resilient supply chains, decarbonization, etc. Its contribution is that it creates a positive economic environment for all participants and a framework to explore more areas of common interest.

Another avenue is the formation of partnerships between free-world countries to pool resources for joint ventures. It has become clear over the past few decades that, when companies from the United States or from other democracies compete with Chinese companies, they are actually competing against the resources of the Chinese government, which controls all resources in China. It is also clear that Chinese companies often do business in violation of international law and practices. Under these circumstances, the Chinese Communist Party wins, but all others lose.

One example of pooled resources was outlined in the June 2021 communique of the Group of Seven meeting in Cornwall, England. The G-7 leaders agreed on a new initiative to jointly support global infrastructure investment in developing countries by catalyzing private capital in developed countries. These investments would keep the highest business and construction standards.

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In a specialized field, a think tank proposal in 2020 called “Common Code: An Alliance Framework for Democratic Technology Policy” proposes a technology alliance comprised initially of about a dozen democracies. It seeks to secure and diversify supply chains, protect critical technologies, and reclaim the integrity of international standards-setting. It will also pool resources to create a multinational investment mechanism for digital infrastructure and increased research and development. Importantly, it would counter disinformation and other illiberal uses of technology as well.

Some alliances can be even more focused, like the Clean Network Initiative promoted by State Department undersecretary Keith Krach in 2020 to prevent Huawei from building telecom networks outside China. Under Chinese law, Huawei must share all its data with Chinese intelligence agencies. This represents a long-term threat to data privacy, security, human rights, and principled collaboration in the free world. By the end of 2020, the Clean Network comprised over sixty nations, representing more than two-thirds of the world's gross domestic product, and 200 telecom companies.

Why This Will Work

America’s partners are looking for an alternative to the Chinese, Russian, and Iranian models. They do not want to live in a world dominated by these three. They trust us and know that, in the end, the United States is the better bet to win the great power competition.

The partnership approach to international economic relations has domestic political support in the United States. It is effective and, as proposed here, highly flexible, offering many ways in which partnerships can grow, strengthen, and prosper.

This piece originally appeared in the National Interest https://nationalinterest.org/feature/partnership-approach-america%E2%80%99s-international-economic-relations-205091?page=0%2C1