NATO and Economic Security: A Political Oxymoron or Inevitability? – CSIS | Center for Strategic and International Studies

The North Atlantic Treaty Organization (NATO) has been considered the main political and military forum to discuss security issues across the Atlantic since its creation in 1949. However, as the United States and EU member states advance in their quest for economic security, a key question for transatlantic policymakers to consider is whether NATO provides a potential space to address geoeconomic issues. This commentary analyzes instances in which NATO has previously tackled economic security and evaluates how NATO allies view the prospect of the alliance widening its focus from traditional defense and deterrence to hybrid threats such as supply chain disruptions or economic coercion.

In April 2007, Estonia faced denial-of-service cyberattacks on public and private servers for 22 days. The operation affected Estonias digital economy by blocking online banking operations and financial transactions, as well as by disrupting government websites and public services. The attackers were from Russia, raising suspicions of Kremlin backing. This possibility could have led to NATO triggering Article 5, the clause of collective defense, where an attack against one represents an attack against all. However, that never materialized due to the lack of evidence against Russias direct involvement and because it was one of the first instances of a large cyberattack against a nation-state, making it difficult for NATO allies to consider it a full-scale attack that would trigger Article 5. Nevertheless, this instance encouraged the alliance to reflect on the nature of unconventional warfare, prompting NATO to establish the NATO Cooperative Cyber Defense Centre of Excellence in Tallinn a year later. In 2014, for the first time, NATO acknowledged cyberattacks as part of Article 5 in the Wales Summit Declaration.

The securitization of supply chains during recent years has pushed NATO allies to reconsider what constitutes an existential risk. In December 2021, Lithuania was subjected to sanctions by China for allowing the opening of a Taiwan Representative Office in Vilnius. Not only Lithuania was impacted by this. Other European firms, like the German company Continental, faced uncleared customs in their Chinese operations. NATO then introduced the topic of economic coercion for the first time in the NATO 2022 Strategic Concept, stating that Beijing uses its economic leverage to create strategic dependencies and enhance its influence. Chinas use of economic coercion in the context of Lithuania was further condemned in the 2023 Vilnius Summit Communiqu, which NATO member states released during the annual summit.

However, NATO did not develop a tool similar to the European Unions anti-coercion instrument and did not trigger Article 5. The reason for this is very similar to that behind cyberattacks: NATO currently does not consider economic coercion as an attack on ones territory, showing that NATOs role is still limited to defense and deterrence, which could prove to be a shortcoming amid escalating hybrid warfare tactics. Additionally, in the same way the European Union has struggled to effectively substitute NATOs role as defense guarantor, the civilian and economic side of security has usually fallen into the formers field of action, leaving economic security outside of NATOs purview. Nevertheless, the acknowledgement of economic coercion demonstrates potential for the alliance to address, albeit in a limited manner, how economic security interacts with NATOs values and interests.

China and the Indo-Pacific are no longer new topics for NATO. This echoes the fact that, in contrast to past understandings, the European Union agrees that Chinas economic dependencies constitute a security threat, resulting in a more proactive stance against Chinese economic statecraft practices. Since 2019, China has become a systemic rival for European countries, and Italy has recently pulled out of the Belt and Road Initiative, for example.

In fall 2023, China retaliated against the U.S. controls on semiconductors by restricting exports of gallium, germanium, graphite, and rare earth processing technologies. These minerals are key for developing defense capabilities in the infrastructure, aerospace, automotive, industrial machinery, and electronics industries, all of which are critical for NATOs missionand China has strong leverage over them. Such dependency begs the question of whether NATO could lay the groundwork for a supply chain resiliency group on topics like critical minerals. Such a workforce could be led by the Defence Investment Division and cochaired with other relevant NATO bodies, similar to the White Houses Council on Supply Chain Resilience. This effort would identify critical supply chains for defense capabilities that would be disrupted if China deployed economic coercion, as well as establish an early-warning mechanism for this purpose.

It is increasingly difficult to separate NATO from geoeconomic risk calculations. However, discussing China still remains controversial within NATO. During the writing of the Vilnius Summit Communiqu, Germany and France were vocal against opening a NATO office in Japan, perceiving it as outside of the alliances mission. These countries are pushing for stronger European strategic autonomy and have been advocating for a close-knit and clear limitation of NATOs role that rests only at the Euro-Atlantic level.

NATO has previously supported efforts to foster investment between its allies in deep tech and critical dual-use technologies through joint procurement. To meet the growing demands of an increasingly advanced industrial defense ecosystem lacking sufficient investment, the alliance launched the Defence Innovation Accelerator for the North Atlantic and the NATO Innovation Fund (NIF) in 2023. This can be seen as the promote pillar of the respective approaches of the United States and European Union. Barely a month after its accession, Sweden has already joined the NIF as a limited partner, showing the relevance of these initiatives in advancing NATOs mission.

Every NATO defense ministry has a close relationship with private contractors and companies due to the need for public-private collaboration in defense procurement. Initiatives like the NATO-Industry Forum have tried to standardize government-industry collaboration across the alliance and push forward projects like NATOs Defence Production Action Plan.

NATO can play an important role in fostering a stronger European industrial landscape in defense procurement. NATO can serve as the prime contractor in a market where European countries have mostly relied on respective national firmsFrance with Thales, Italy with Leonardo, and Spain with Indra, among others. NATO is well positioned to promote both cross-industrial and cross-country procurement, as well as to cooperate with respective initiatives from the European Union and other external partners, including the United States, Japan, and others.

Apart from the supply chain resiliency group and early-warning mechanisms, NATO allies could commit to a fund to stockpile key critical minerals. Such a fund would prevent supply chains for projects on military mobility like railways from being disrupted or boycotted. As the United States and the European Union continue to release their respective lists of emerging technologies and critical minerals, NATO could help in standardizing and narrowing down these lists between allies. Government-industry relations will remain fundamental to the alliances quest for economic security. For example, the organization of military-industry red gaming and simulation exercises on economic disruption and coercion could provide useful insights in securing defense-related supply chains.

The debate about creating an economic NATO has been raised by policymakers, including former British prime minister Liz Truss. However, in terms of existing governance architectures, the G7 is largely considered the closest to what an economic NATO would look like. Economic security was a primary topic of discussion during last years summit in Hiroshima, and many member states responded by strengthening their domestic strategies. As all G7 allies except Japan are also in NATO, their priorities are broadly interconnected. However, the G7 may have some blind spots in covering economic security with a specific transatlantic lens.

Despite its controversial stances and its ambiguous position on Russia, Turkey is one of NATOs key partners due to its military size as well as its strategic position on the Black Sea and the Bosphorus Strait. When Russia decided to weaponize the commerce of grain in exchange for concessions with Ukraine, Turkey negotiated the Black Sea Grain Initiative, allowing such trade to continue for a while. As critical NATO allies like Turkey are not in the G7, the G7 would struggle to understand the full picture of NATOs supply chains and its geostrategic chokeholds from the Baltic to the Black Sea. This is why NATO should, with or without the G7, try to develop its own transatlantic vision on economic security.

In terms of new forums that could operate as an economic NATO, past regional ministerial meetings like the U.S.-EU Trade and Technology Council or the U.S.-Japan-Korea Camp David trilateral summit could produce a more cohesive approach to economic security. Another potential option would be a new multilateral export control regime meant to replace the Wassenaar Arrangement that includes targeted efforts to scale up defense and dual-use technology. As the World Trade Organization (WTO) is increasingly politicized and institutionally broken, the outcomes seem more limited, as shown in its 13th Ministerial Conference (MC13) in Dubai. This demonstrates that the WTO cannot be redesigned to arbitrate matters that interact with national security. However, in a moment when economic security is fast becoming omnipresent, international partners must determine where to house discussions that intersect with trade, technology, and national security.

The same way that cyberattacks were not originally seen as part of NATOs Article 5, NATO allies do not yet seem to have a clear stance on economic coercion and Chinas economic dependencies. Whether NATO should take on a greater role in economic security remains to be seen, particularly since economic security issues do not fall squarely within the mandate of NATO. It is likely that serious disagreements among NATO allies would surface, particularly regarding decisions on when to invoke an economic security instrument. NATOs Article 5 has only been raised once, after 9/11, and it requires the consensus of all its membersexpanding its application to economic coercion may turn it into a more ineffective and diffused deterrent.

However, given the increasing prominence of economic security concerns in global affairs, supply chain security initiatives and broader economic security efforts are not something NATO can ignore. NATO should begin to consider economic security and supply chain security initiatives as critical for maintaining hard security capabilities. Even if NATO does not become a broader economic NATO, it can still play a vital role in pushing for common efforts to monitor supply chain vulnerability, enhance public-private cooperation, and reduce the bite of potential retaliatory measures from competitors.

Emily Benson is the director of the Project on Trade and Technology and a senior fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Pau Alvarez-Aragones is an intern with the Project on Trade and Technology at CSIS.

The authors would like to extend their sincere gratitude to Catharine Mouradian for her valuable insights during the research process.

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NATO and Economic Security: A Political Oxymoron or Inevitability? - CSIS | Center for Strategic and International Studies