Democracy Requires Allied Competitiveness
While Washington and Brussels focus on mini deals to soothe specific irritants, Beijing is rewriting the rules of the global economy to advance its strategic interests. State-directed capitalism has allowed authoritarians to surge ahead in critical sectors while transatlantic deals are mired in regulatory minutiae.
Remember the Transatlantic Trade and Investment Partnership? That ambitious US-EU trade deal? It died a slow, painful death due to public concerns around regulatory sovereignty. Meanwhile, “Made in China 2025” combined with the Belt and Road Initiative is reshaping global infrastructure and influence. We’re debating, they’re doing.
Post–World War II institutions are creaking under the weight of 21st-century challenges. The World Trade Organization is stuck, unable to address modern trade issues, and other institutions are increasingly weaponized or weakened by autocratic regimes exploiting democratic allies’ uncertainty and complacency. The rules-based order is eroding, leaving a vacuum that rivals are all too eager to fill.
The United States, Europe, and other like-minded partners need an allied competitiveness initiative—an “Economic NATO”—committed to safeguarding the economic well-being and prosperity that helps ensure their collective peace. It is time for “radical change,” as Italy’s Mario Draghi recently put it. Allied nations need to commit to working together to boost their collective security and prosperity while pooling their resources to confront the scale of China’s industrial policies. The core principles of this initiative should boost collective competitiveness, align economic policies and encourage collaboration, and establish mutual support mechanisms to protect against economic coercion and theft of innovations.
First, allies must promote and compete. Each alliance member must be strong, innovative, and competitive in the global economy. Now is not the time to take our foot off the gas; the United States, the EU, and their allies need to be going all-out to maintain or regain leadership in the industries critical to today and tomorrow. Creating attractive environments for investment—just-right regulatory environments, attractive returns—will be critical. Complacency is not an option if the goal is to maintain democratic, market-based societies that can compete with state-driven authoritarian regimes.
Second, allies must partner where they have unique but complementary advantages, or where, coming together, they can achieve greater success and make 1+1=3 (particularly on the breakthrough technologies).
What does this mean in practice? Allies should build on the success of the COVID-19 vaccine development, in which transatlantic partners pooled their individual strengths to quickly create safe, new vaccines in record time. Looking ahead, governments should encourage the creation of joint AI labs to pool the best minds and resources, biosolutions that tackle the most pressing issues across industries, and a coordinated approach to green technology that accelerates the transition to clean energy while creating high-paying jobs across the alliance.
And if countries have concerns about the surge of Chinese-made electric vehicles displacing US- and Europe-made vehicles (and the jobs they support), governments should be equally concerned about the threat to other industrial sectors such as large civil aircraft makers and the millions of jobs in the aerospace ecosystem.
The future depends on how quickly allied nations develop and take up the latest technologies. Durable, win-win partnerships that create an innovative ecosystem supported by appropriate nudges from government are needed. Research collaboration, open-to-allies procurement markets, access to venture capital, and talent mobility will boost allied competitiveness and create an ecosystem that can compete with China’s. The US-EU Trade and Technology Council (TTC) has facilitated useful exchanges but should prune the number of its topics while turbo-charging work in targeted sectors to produce results at the speed of innovation.
Last, an allied economic security initiative would develop common approaches to protecting interdependent markets and supply chains from external threats. Creating a shared approach to economic coercion and joint use and enforcement of economic security tools is essential. The certainty that a country’s most valuable industrial assets will be protected when shared with an ally is fundamental. Trust among allies must be the basis of this initiative.
Identifying common approaches to technology and energy stacks to guard national security is a first step. Ensuring a level playing field for market-based economies to account for differences when competing with authoritarian, state-owned and state-directed competition requires vigilance and coordination, as well as reform of existing trade rules. Tackling dependencies on items such as critical minerals will require joint work with partners.
The United States and Europe cannot dawdle. They must operate on a clock, not a calendar of endless working groups. Pace and prioritization are pathways to breakthroughs. Our rivals are not waiting, and neither should we. Every day that allies fight over smaller, less significant issues is a day that China advances its quantum computing capabilities, expands its 5G networks, or strengthens its grip on supply chains. The United States and the EU must not fall behind due to petty infighting, inertia, or bureaucracy.
This is not just a US-EU effort. Japan, the UK, Taiwan, South Korea, Australia, New Zealand, Canada, Mexico, and especially other OECD members must be at the center of this effort. They are important for supply chains as well as for joint commitment to democratic values and open economies. An “Economic NATO” should be a truly global alliance of like-minded nations committed to fair competition and mutual prosperity.
Of course, building such an alliance will not be easy. But allied competitiveness is imperative, as standing together will make like-minded nations stronger and show their citizens that democracy can deliver future prosperity. And the alternative—watching their collective economic influence wane as China’s “authoritarian capitalism” gains ground—is far worse for their citizens.