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The International Lawyer

The International Lawyer, Volume 56, Number 3, 2023

The Theory and Practice of the World Economic Order: Towards the Formation of an "Economic NATO?"

Xu Qian


  • The link between national security and trade is a matter of considerable current concern, nationally, internationally, and multilaterally.
  • A key question is how to manage the gains from continued Chinese participation in a liberal international economic system with very real concerns about Chinese (apparent) geopolitical agenda.
  • The goal of this article is to explain the origins and features of an “eNato” (or “Economic NATO”), an economic counterpart to the NATO military alliance that is to protect Western economies from the actual or potential market distorting practices of other nations.
The Theory and Practice of the World Economic Order: Towards the Formation of an "Economic NATO?"
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I. Introduction

The link between national security and trade is a matter of considerable current concern, nationally, internationally, and multilaterally. Given the combination of events in the last years—COVID pandemic, Russian invasion of Ukraine, apparent reversal of economic and political liberalization in China—this is far from surprising. A key question is how to manage the gains from continued Chinese participation in a liberal international economic system with very real concerns about Chinese (apparent) geopolitical agenda. The goal of this article is to explain the origins and features of an “eNato” (or “Economic NATO”), an economic counterpart to the NATO military alliance that is to protect Western economies from the actual or potential market distorting practices of other nations.

The concern of a trade-centric NATO has been brimming globally and is becoming even more prominent due to the Russia-Ukraine conflict and NATO’s response to it. A consolidated economic counter-strategy to aggressive trade practices is gaining traction on the global stage. In particular, China’s approach to trade has been a vexation to the United States for quite some time, thereby paving a way for the discussion of the formation of an economic NATO at the U.S.-China Economic and Security Review Commission which is primarily concerned with monitoring and investigating economic and security-related concerns arising from the economic relationship between U.S. and China.

The rationale behind forming an Economic NATO is to ensure that cooperation exists between nations which are facing the brunt of China’s economic policies, so as to limit their dependence on China economically and retaliate accordingly if the need so arises. The concept in itself is polarizing for our times and goes against the ethos of the WTO principles of trade. There certainly exist better alternatives to deal with these problems which can be implemented, but many forces are reshaping the international order which requires looking into the potential establishment of an eNATO. With these forces becoming more powerful and prominent day by day, it is of utmost importance to critically discuss the emerging notion of eNATO.

This article aims to unpack the concept of an Economic NATO and explores the need for one. It begins by explaining the emergence of a new international order that starts with the establishment of the U.S.-China Economic and Security Review Commission. The idea of such a trade-related alliance was initially floated at a session of the committee on the CCP Economic Ambitions, Plans, and Metrics of Success, but it has since received extensive discussion at the U.S.-China Economic and Security Review Commission. Since then, several supporters of the notion, including Clyde Prestowitz, have advocated for it by providing instances of the sort of response the NATO nations have given to the Russia-Ukraine war. Before proceeding with the rationale of eNATO, this article focuses on the history of NATO and its functions. It addresses the rationale of eNATO and the role of the Indo-Pacific Economic Framework (IPEF) in the development of eNATO. While floating a concept that has tremendous implications like that of eNATO, the role of other global players is to be considered as well. The article provides for the possible roles that the U.S., European countries, Canada, Japan, India, and other major economies may play in implementing eNATO. The U.S. has not been the only nation to endorse this idea; several other nations have also come out in favour of it. Many supporters of this alliance have said that it will protect free trade and act as a barrier against non-market economies. According to its promoters, an eNATO would, in theory, assist to mitigate the issue in certain respects. It suggests creating a unified front to combat instances of trade coercion, which would make it exceedingly expensive for nations to use such tactics since similar nations would apply harsh sanctions on them. Secondly, it would defend small and medium-sized economies’ interests against powerful non-market economies.

In terms of world economic order theory, eNATO is still a means for the U.S. to rule over others and take control of the situation. It is a highly unconventional solution to tackle the issue at hand. Such activities would also amount to a violation of WTO laws and undermine trust in the WTO dispute resolution procedure. Overall, this article elucidates the economic concerns of countries, along with the national security challenges faced by them. It also enumerates the problem of coercive trade practices and FTAs with regards to their violation of WTO principles. It provides a three-pronged strategy, addressing national security, geopolitical, and economic issues. The entire initiative could fail if these factors are not taken into account. The following sections will delve deeper into how such a possibility came about to be discussed at mainstream economic forums, the journey from NATO to eNATO, and the potential consequences of such an alliance.

This article begins with the introduction of the U.S.-China Economic and Security Commission where the concept of Economic NATO was first broached on the table. This section is followed by a brief background of NATO, how IPEF may become the roots of eNATO, and the reason why eNATO should come into existence. Further, this piece discusses the economic peril that might emerge with the coming of eNATO, the national security challenges, and other concerns associated with it. Lastly, this article concludes by suggesting a three-fold measure to prevent eNATO from turning into a failed initiative.

II. The Emergence of a Bipolar World Economy

At present, international trade is regulated by the World Trade Organisation (WTO). The WTO also has several mechanisms in place to resolve any conflict that might arise out of cross-border trade. But most of these mechanisms have not proved to be of much help and countries often try to opt for faster and more effective measures to resolve these disputes. The eNATO is another such alternative method. With the ongoing Ukraine-Russia conflict, countries are ever more apprehensive about safeguarding national interests. Hence, this discussion has taken the center-stage in recent times. This section’s first sub-section sheds light on the functions and importance of the U.S.-China Economic and Security Review Commission. The second sub-section discusses the evolution of the concept of an eNATO and the need for it. It explores the progression of eNATO from the hearing of the commission on the CCP Economic Ambitions, Plans, and Metrics of Success to UK foreign secretary Liz Truss’s discussion. It also highlights the inadequacy of the existing WTO rules to address the challenges posed by China’s trading system.

A. U.S.-China Economic and Security Review Commission

Established under Section 1238 of the 2001 National Defense Authorization Act, the U.S.-China Economic Commission was set up to “monitor, investigate, and report to Congress on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China.” The Commission consists of twelve members appointed by the Speaker of the House and the Minority Leader of the House as well as Majority and Minority Leaders of the senate. The tenure for Commission members is two years and they are required to have expertise in U.S.-China relations and national security matters. The commission is required to submit annual classified and unclassified reports by March 1st of each year. As part of its congressional reporting duties, the Commission, like many other federal agencies, produces yearly reports detailing its work activities and making policy recommendations. Hearings before commissions are also a way for congressional, independent, or other executive agencies to obtain information about government agency activities, expose operational failures, see congressional committees exercise their constitutional oversight and funding responsibilities, and lead to legislative revisions and recommendations that enable agencies to carry out their responsibilities more effectively. The Commission, its professional employees, and contractors have also published several reports detailing their work on a variety of Western Pacific strategic concerns.

The U.S.-China Economic and Security Review Commission has become a valuable resource for military and civilian policymakers as well as academics seeking to comprehend Western Pacific strategic developments affecting the U.S., its allies and potential adversaries, the changing nature of Sino-U.S. bilateral relations, and the significance as well as impact of Chinese security policy and military capability.

B. The eNato-Related Discussions at U.S.-China Economic and Security Review Commission

In April 2021, at a hearing of the commission on the CCP Economic Ambitions, Plans, and Metrics of Success, it was suggested that the Biden administration give due consideration to a multilateral approach on the global front to counteract China’s changing economic policies. The idea of an economic NATO to protect nations that were being coerced by China was floated for the first time here.

In May 2022, the U.S.-China Economic Security Review Commission on Challenging China’s Trade Practices: Promoting Interests of U.S. Workers, Farmers, Producers, and Innovators, discussed the idea of a NATO for trade to combat Chinese trade aggression where countries threatened by the CCP would come together to take joint action against detrimental Chinese activities. It would essentially involve a consolidated approach of all free-market economies led by the United States to counter China’s aggressive monopolistic policies. Many intellectuals gave their testimony during this hearing.

Clyde Prestowitz, the founder of the Economic Strategy Institute suggested a possible way this eNATO would function. He took the example of the decisions of the NATO countries about the Russia and Ukraine war and suggested that the eNATO would function in such a way that it would no longer depend on “advanced telecommunications equipment, semiconductors, robotics, and essentially all advanced technology products and services” from China and would also refrain from selling high tech products and technological know-how to it. He also mentioned that while such an approach might look harsh at the moment, China’s vision of capturing the market and establishing a monopoly necessitates such measures in the long run. He also suggested that stricter rules be implemented about investment in China.

These views were further reaffirmed by Nazak Nikakhtar. She suggested that the losses that companies would face due to boycotting the Chinese markets can be made good by planning a marketing strategy to increase domestic sales of the U.S., as well as other domestic allies. She pointed out that the crux of the problem is that the multi-national corporations are dependent on the supply chains of the Chinese markets which provide cheap labor. To counter this, she suggests investing and cultivating a domestic supply chain to help augment the shift from relying heavily on Chinese manufacturing.

The concept of an “economic NATO” has not just been something the United States is talking about, global support already exists for this. It was discussed by UK’s foreign secretary, Liz Truss in a speech in April 2022. She suggested that the “G-7 should act as an economic NATO to collectively defend their prosperity.” The rationale behind suggesting this is obvious—that China’s changing outlook on global markets and their continuous efforts to control the free trade markets by imposing restrictive and harsh measures to seize control and dominate the economy.

With the change in outlook towards the global economy, China has been responding actively to the geopolitical events taking place in the global world. Recently at the QUAD Summit, Joe Biden launched the Indo-Pacific Economic Framework for Prosperity (IPEF)—an initiative to promote clean energy, supply-chain resilience, and digital trade between like-minded countries. This is in furtherance of enhancing cooperation between these countries and building a sound and robust economic policy in response to the unfair trade policies of China. However, China in its response has provided bait to the investors with better Belt and Road Initiative (BRI) investments and projects. This is reflective of the fact that China, buttressed by its strong manufacturing position, would continue following a strong stance as a result of all the geopolitical consternation happening around the world. Therefore, it is evident that mere initiative or the coming together of like-minded countries would only result in a counter step by China, further worsening the situation.

At the same time, the existing WTO rules are not adequate to address the prevailing challenges posed by the rule-based trading system of China. The rule-based trading system was established by the immense efforts of countries—like the United States and other WTO members—to make it the linchpin of the liberal international order. Thus, revitalizing the rules, instead of jettisoning them, is imperative. Further, a multilateral negotiation process (within the legal framework of WTO) involving China ought to start, which would allow China to put forward the economic interests of its residents. A WTO Dispute Settlement would aid in setting forth a negotiation table before all the countries while balancing the interests of all.

The “take it or leave it” approach of former U.S. President Trump would not go well with China which has an equal hold on the U.S. economy as the U.S. has on the economy of China. It is better for both the economies to work in concert, rather than work separately, as this would not only save their own interests from being harmed but also lead to a robust global system of trade. With the reins in the hands of Joe Biden, a ray of optimism can be seen in the offing.

III. From (Political-Military) NATO to “Economic Nato”

NATO’s establishment in 1949 via the Washington Treaty was to ensure freedom and security to safeguard all of NATO’s allies by political and military means. Currently, thirty countries including the United States, Canada, and several European countries are members of NATO. One of the most important provisions of the NATO Treaty that has guided the course of foreign military action for NATO is Article 5. This article states that “an armed attack against one or more of them in Europe or North America shall be considered an attack against them all.” This article also mentions that in response to such an attack, the members are entitled to exercise their right to self-defense recognized in Article 51 of the U.N. Charter. Article 6 of the NATO Treaty further gives the characteristics of what constitutes an armed attack—it includes any armed attack on the territory of any of the Parties and any of the forces, vessels, or aircraft of the Parties.

“Self-defense” as per Article 51 of the U.N. Charter, gives members of the U.N. the right to exercise their inherent right to self-defense in response to an armed attack. Measures of self-defense are restricted to responding to physical acts of violence that have a certain element of “force” by using the physical infrastructure. The changing landscape of the twenty-first century should be kept in mind and the definition of “self-defense” should be broadened to incorporate imposing economic sanctions, trade restrictions, and consolidated diplomatic sanction efforts of nations as a method of “self-defense.” Moreover, the twenty-first century has made it clear that countries need not engage in actual physical acts to cause damage. There are multiple examples of using the internet for attacking another country, or cyber-attacks as they are called. China’s recent approach also highlights that economic and trade practices can also be used to cause damage to another country. Hence, an e-NATO approach should look at widening the definition of what constitutes an attack and what can be done in response to it. This new mode of imposing economic sanctions as a penalizing measure instead of engaging in military action has been the preferred mode of the West, as seen in many situations like the U.S. response to the Russia-Ukraine conflict, and the sanctions on Iran by the U.S. in the 1970s, etc.

The members of NATO can implement this idea practically by including an economic angle in Article 5 of the NATO Treaty. This would be the starting step to global recognition that economic measures are also a way of taking a stand against aggressive players like China. As suggested by Bruce Stokes in his essay on foreign policy, an economic Article 5 would send a message of warning to such rogue nations that want to monopolize the markets.

This first sub-section explains the history of the formation of NATO. It highlights the structure of NATO. The second sub-section emphasizes on the intended economic rationale of eNATO. It provides an overview about the trade practices of global players like U.S. and China. It also provides an approach that U.S. and its allies could take to tackle the coercive trade practices of China. The third sub-section assesses the role of the recent Indo-Pacific Economic Framework in the formation of an eNATO. The last sub-section provides an understanding about the U.S.’s role in eNATO and the steps taken by it in this regard.

A. Functions and Powers of the North Atlantic Treaty Organization

In April 1949, the United States and ten European nations, and Canada joined forces to form the North Atlantic Treaty Organization (NATO), which was intended to protect its members against Soviet Union expansionism and ideology. Even before the framework of the United Nations was founded, this treaty tied the United States and its atomic weapons to Europe, but more crucially, it established a collective defense arrangement between Western Europe and North America. After the Korean War broke out in June 1950, the Alliance was formed. Similarly, the USSR organized the eight-Member State Political and Military Alliance—which was short-lived. In May 1955, the Warsaw Pact was formed to counterbalance NATO on the international scene, but when the enormous USSR disintegrated in 1991, the Warsaw Pact dissolved as a result. After the end of the Cold War, NATO took on a new role: it increased its membership by accepting former Warsaw Pact communist member states and it broadened its mandate to include conflict resolution in Southeastern Europe and North Africa, as well as anti-piracy efforts, counter-terrorism activities in South Asia and the Middle East, operations in the Gulf of Aden East, and more recently, the defense of Eastern Europe as a whole against Russian assault (the successor to the former Soviet Union).

There has been a lot of discussion about the expansionist policies of NATO, but peace partnerships are far better-suited measures to provide military security. However, further expansion of NATO can provoke hostile reactions from countries like Russia and China. More so since the EU is increasingly moving towards strategic autonomy and aims to build its own defense capabilities. A special example that would highlight this would be that of France.

Being one of the founding members of NATO, France has had a checkered history with the Alliance itself. France had a special role to play in the early development of NATO due to its strategic geographical advantage. The American and Canadian military went so far as to set up military bases in France in the late 1950s; The Supreme Headquarters Allied Powers Europe (SHAPE) was set up on French soil in 1951. However, political ideology was rapidly shifting in France during this time to a more self-reliant and nationalistic approach. The President at that time, Charles De Gaulle, played a pivotal role in the changing dimensions of French foreign policy. The population of France as well as political parties like the French Communist Party (PCF) were proliferating anti-American sentiment that was brewing in France at the time. They all felt that NATO was being used by America to further its interests in Europe to send a message to the Soviet Union. The French relations with the Alliance started turning sour due to multiple incidents. In a memorandum sent to American President Dwight D. Eisenhower and UK Prime Minister Harold Macmillian in 1958, De Gaulle put forth the French demands for reform in NATO’s integrated system and that France should be associated with the governance of the “Free World.”

According to De Gaulle, NATO’s integrated system was unfair as it put France in a subordinate position where it would be dependent on the American military for support. Finally, in 1966, the failure of any agreement between the French and American sides led to the withdrawal process of France from NATO. They withdrew their French fleet from the integrated command and their land and air forces from Germany. Canadian and American military bases had to be relocated from France to Brussels, which led to logistical problems and financial burdens. It must be kept in mind that France did not completely exit from NATO, it just withdrew from the military structure. France was and still is committed to a unified approach to European problems.

Fast forward to April 2009, when France re-joined the integrated military command structure of NATO on the sixtieth anniversary summit of NATO. Ultimately, France did return but the period of 1950-2009 was a checkered one that highlighted the stormy relationship it had with the Alliance. Moreover, it tells us that while NATO was successful in bringing together European countries to form an Alliance for military cooperation, it has also divided the world to a certain extent by imposing certain measures that compromise the sovereign decision-making authority of many nations.

B. The Political and Economic Rationale of eNATO

The U.S. has time and again imposed bans and levied heavy tariffs on goods from China. Recently, the United States banned all goods made in the Uyghur region of China on account of human rights. Despite these measures being taken, the economic clout of China on the global economic front seems to show no signs of decline. For example, if we consider the U.S.’ imports from Chinese markets, reports have estimated that eighty percent of essential minerals required for various manufacturing processes in the U.S. are coming from China. Apart from this, imports to the U.S. for semiconductors and electronics are also largely concentrated in the Asian region, specifically Taiwan (ninety-two percent) and China (twenty to twenty-three percent). These figures only highlight the tip of the iceberg. Another striking example of China’s rising economic clout was seen during the COVID-19 pandemic. The economic burden that the rest of the world faced was apparent. Most of the leading companies in the world source their raw materials or labor from China. This was highly impacted due to nationwide lockdowns and various supply chains were impacted as a result. Downplaying the might of the Chinese in this instance would not lead to fruitful results.

The main purpose of the economic NATO would be to achieve just that. Unlike the traditional military alliance that we know NATO to be, the economic NATO probably needs to be a subtler and well thought out initiative to counter the growing influence of China. The issue that arises is that the U.S. and its allies are now unable to respond to the types of geo-economic challenges that China poses. The untold story is that when Beijing tries to utilize economic power as an instrument of political pressure, they need a way to take collective action. Such threats should not be faced by any country alone.

Of course, the United States must face up to its economic difficulties and invest in the key drivers of economic success and national security: public education, infrastructure, innovation, research and development, and diplomacy. Instead of acting unilaterally, it seems that the U.S. should reach out to partners on a global level to lead and establish a unified front. With those foundational elements in place, the U.S. can implement a strategy that would limit China’s capacity to use its openness, encourages China to contribute its expanding capabilities to the global common good, and prepares the U.S. to compete more comprehensively in the long run.

This would involve a collaborative effort. Some measures, like collectively imposing sanctions and tariffs on China to keep them in check, creating a global pool of funds to help a member nation of this collaboration when it faces the brunt of China’s policies, etc., would go a long way in countering China. The imposition of unilateral tariffs is already in the pipeline along with investment restrictions to contain the expanding clout of China in the U.S. market. Similarly, the imposition of tariffs can be a double-edged sword too. This is because the economies of the U.S. and China are interdependent, and U.S. manufacturers depend upon the shipments from China in a similar way as the Chinese manufacturers do. Therefore, there is a high probability of retaliation by China with the same stance, thus, reducing competition in the import as well as the export markets. In a scenario where the countries bring a case against China before the WTO, it is imperative that all the countries act together, including the U.S., to urge China for mutual cooperation. The coming together of the countries can also act as a catalyst for a harsher method, i.e., isolating China from global trade. This would entail commitment towards open and free trade and investment regimes, protection and effective enforcement of the IP rights of each country, and efficient channels for legal remedies. State-owned enterprises are the mainspring of China in enlarging their reach over foreign markets. Breaking trade ties with the state-owned enterprises would leave China isolated in global trade.

As evident, the critical technology of the United States is one of the top priorities for China to exercise and promote its unfair trade practices. In the wake of the same, the U.S. enacted a new FDI regime with the Committee on Foreign Investment in the United States (CFIUS) as an investigating agency to review transactions posing any threat to the national security of the U.S. Thus, establishing restrictions on technology access and transfer, which would involve imposing tariffs on tech devices and electronic components, is one way to tackle the unfair trade mechanism adopted by China. But the countries must keep in mind that unregulated restrictions would eventually result in dismantling the global trade mechanisms, therefore, the check should be regulated. Lastly, the countries should look for the WTO economic sanctions through multilateral action rather than taking recourse unilaterally. This may involve the exercising of the rights available to the member countries in the TRIPS Agreement. Irrespective of the effectiveness of this potential remedy, the act would thwart the unfair practices to some extent at the least. By the same token, the problem of subsidies can be addressed pro tempore in accordance with the WTO rules until a robust mechanism has been established. This has recently made some progress with the U.S. President Joe Biden recently introducing the Indo-Pacific Economic Framework in Tokyo.

C. The Indo-Pacific Economic Framework: Is it the embryo of eNATO?

In 2022, President Joe Biden announced the start of a new Asia-Pacific-centered economic partnership, the Indo-Pacific Economic Framework (IPEF). This is viewed as the American answer to the growing influence of China and its alleged unfair economic policies. In many ways, this might be the economic NATO that many are calling for.

The IPEF is a U.S.-led economic partnership with twelve countries in the Asian region to engage in mutual cooperation to strengthen supply chains and enter into trade agreements that aim to shift the heavy reliance that these countries place on China for the manufacture and supply of essential raw materials. This partnership comprises countries that constitute more than forty percent of the world’s GDP, including Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. There are broadly four pillars that this agreement focuses on: trade, supply chain resilience, clean energy and decarbonization, and taxes and anti-corruption measures. The U.S. aims to attack China’s economic might in this region by “presenting an alternative Indo-Pacific approach to China.”

Experts and analysts have claimed that IPEF lacks certain grit and is more symbolic than it is a real policy framework. David Adelman, former U.S. Ambassador to Singapore, indicated that the IPEF is not a breakthrough in global trade across the Pacific but is merely a framework. U.S. Secretary of Commerce Gina Raimondo commented that, through IPEF, the U.S. is planning to restore its economic leadership and is providing an alternative approach other than China’s. Experts from the Atlantic Council’s South Asia Center have also commented about the IPEF falling short of a much-needed Free Trade Agreement. Though the analysts have criticized the IPEF for lacking the pillar of market access, they have appreciated the involvement of countries including the most important members of ASEAN and India. Experts have pointed out the importance of IPEF’s supply chain pillar in reducing corruption and tax evasion that will ultimately rebuild people’s confidence in international commerce. Analysts have time and again highlighted the lack of a U.S. commitment to market access. With regards to India’s decision to join IPEF, analysts have termed it as a “foregone conclusion”. The aforementioned decision of India can be attributed to three factors. Firstly, the lucrativeness that IPEF offers for India. Secondly, IPEF provides an alternative to China’s dominated economic framework. Thirdly, IPEF aids India in its pursuit to reform its trade policy.

How effective this new partnership would be is yet to be seen. Whether the IPEF will meet the same fate as its predecessor, the Trans-Pacific Partnership (TPP), or whether this will be the U.S. answer to the Chinese economic exploitations will be seen over time. The IPEF has already been subject to indirect condemnation by the Chinese authorities. The Chinese Foreign Minister Wang Yi, while addressing the UN Economic and Social Commission for Asia and the Pacific pointed out that “China will continue to make greater contributions to the long-term stability and sustainable development of the Asia-Pacific region through practical action.” While he did not directly refer to the IPEF, he promised that China was committed to ensuring economic development in the Asia-Pacific region and that the Belt and Road Initiative (BRI) was an integral part of this. Ultimately, it will be a collaborative effort from the leading economies of the world that can stand up against China’s economic stronghold.

D. Explaining the United States’ Strategic Approach to eNATO

The U.S. could take strong measures to counter China’s economic stronghold. One such measure would be to strengthen the domestic supply chains of the U.S. and its allies. That way, any revenue losses that the U.S. faces from sales to China could be replaced and can even be augmented by increasing sales within the U.S. Supporting Chinese supply chains would be futile; instead, those resources can be used to set up and develop strong supply chains in the U.S. itself. But there are many considerations that policymakers need to keep in mind before implementing this strategy.

The U.S. Chamber of Commerce and Rhodium Group released a report which said that the “U.S. economy could lose more than $1 trillion worth of production and long-term global competitiveness if the White House pursued a sharp separation from China.” This report was conducted before the global pandemic hit, and these figures do not account for what would be the situation if the U.S. decided to cut ties off now. But it confirms what economists and policy-thinkers have been suggesting for the past decade—that the U.S. needs China more than China needs the U.S. While it is still true that China is primarily an export-driven economy and its biggest consumer is the U.S., China would be better situated to deal with the aftermath of the falling out of U.S.-China trade relations for the simple reason that its supply chains and manufacturing can take the hit and still survive the shock with slightly lesser effects.

The U.S. on the other hand relies on Chinese raw materials and essential minerals to such an extent that large businesses in the U.S. would find it very difficult to function if trade relations broke off. Let us consider the simple example of Apple. Apple’s iPhones are mostly manufactured in China, and its raw materials like electronics, chips, etc. all come from China. A trade fallout would impact the two trillion dollar company at unprecedented levels. It is not just the figures of global competitiveness or production that are worrisome. The above report also highlights that by 2025, more than $190 billion would be the loss faced by the U.S. if it increases tariffs on China. Additionally, if U.S. investors would think of selling all of their direct investments in China, it would lead to losses up to the tune of $500 billion.

Therefore, the lesson learned is that while a complete export ban would result in a counterproductive result, slow collaborative measures can be taken to reduce the reliance placed on Chinese manufacturers. This is where the economic NATO would come into play. The members of this alliance could enter into agreements to set up new supply chains or strengthen existing supply chains in those countries where it would be geopolitically and economically feasible. All members would contribute to establishing this supply chain and the raw materials produced would be shared by all. This would ensure a collective effort to not favor Chinese supply chains. While this method will take a long time, at least three to five years, it is a good place to start.

IV. The Promises and Pitfalls of “Economic Nato”

The U.S. is ferociously advocating for an economic alliance of countries. The recent launch of the Indo-Pacific Economic Framework (IPEF) by the U.S. is just another indication of how serious the U.S. is about curbing China’s economic dominance in the Indo-Pacific Region. Thus, it has become increasingly important for the rest of the world to talk about the implications of the steps the U.S. is suggesting. The following sections discuss in detail the economic concerns, national security challenges, and the problem of trade coercion. The first subsection primarily addresses two possible economic concerns of eNATO. The second subsection explores the coercive trade practices of global players, possible violation of WTO principles by an eNATO and the threat posed by FTAs to the WTO. The third and the last sub-section elucidates the national security implications that the countries have been facing over China’s rise. It discusses the different approaches taken by the countries to counter national security challenges.

A. Outlining the National Security Challenges

Apart from the geopolitical problem posed, national security is also an equally worrying factor for most nations. Countries like India and the U.S. have been facing significant national security concerns over the past few years because of China’s rise. For instance, the Galwan Valley and Pangong Tso lake standoff between Indian and Chinese soldiers highlights the deep-rooted problem posed by China. It is a well-known fact that the Chinese regulate private companies to such an extent that they are obligated to disclose sensitive information, breach privacy, and advance the interests of the PRC. This has huge national security implications, especially if Chinese private companies are operating in foreign countries. The Huawei ban in 2019 by the U.S. was a prime example of how China is influencing and compromising national security on a global scale.

What have been the efforts of countries to counter this problem so far? The European Union, the U.S., and India have time and again banned Chinese imports, tech, and services on account of national security threats or human rights concerns. India banned over fifty-four Chinese mobile applications over national security concerns. The U.S. too backlisted eight Chinese firms due to national security reasons. It further banned imports from the Uyghur region due to human rights concerns. The EU too has considered backlisting Chinese imports from Xinjiang over the issue of human rights abuses against the Uygur community. These steps are just some of the ways by which countries are also standing up to the geo-economic problems posed by China.

For instance, the EU has enacted the EU Global Human Rights Sanction Scheme, wherein they seek to address global human rights challenges. Under this regulation, the EU can target individuals, entities, and state/non-state bodies and hold them accountable for human rights violations worldwide, irrespective of where they might have occurred. They will take cognizance of such violations and impose measures like travel bans, temporary visa suspensions, freezing funds, etc. India on the other hand, has dealt with this situation quite differently. India imposed a mixture of trade and economic measures like reducing its imports, denying China from engaging in projects such as road and infrastructure development, and banning Chinese apps thereby affecting their profitability. This mixed approach has its own pros and cons, but it has had a significant economic impact on China.

B. Mapping the International Trade and Investment Concerns

In essence, the eNATO framework aims to leverage China via trade agreements among Western allies. The pretense is that this way, the Chinese will stop pursuing their economic agenda of global domination. This strategy involves politicizing economic and trade matters with a Cold War mentality, based on a baseless claim that China will capture the global economy and establish a monopoly. This is not entirely true. The other reason why the U.S. is so invested in painting China as the bad actor as someone who wants to monopolize the market is its own concerns that China would overthrow the U.S. as a global superpower or that it will give it enough competition to face its power on the global front. This pretense is also problematic and it will be difficult for the West to agree on eNATO if it bases itself on archaic thinking. This method of friend-shoring might not be the most effective way to counter the China problem and might lead to the failure of eNATO.

C. Addressing the Issue of Trade Coercion

NATO for trade is a far-reaching solution to the problem of trade coercion. Application of arbitrary trade measures, such as quota, anti-dumping, and/or sanitary obstacles, with the purpose of economically hurting a partner are known as trade coercion. Unfortunately, coercive trade practices are supported by some of the biggest players in the world economy. The U.S. widely engaged in this practice by invoking “Section 232” that deals with national security to impose tariffs. The U.S. has also threatened Korea and Japan with tariffs to negotiate trade deals. Similarly, Japan, motivated by diplomatic considerations, removed Korea from its export control whitelist. Beijing imposed trade restrictions including Australian barley, wine, and coal. Fundamentally, it is a system of extrajudicial “trade vigilantism,” in which a small number of self-appointed Western countries take matters into their own hands to administer justice. Moreover, just because China bent the rules and is engaged in establishing its clout on the global stage by disregarding the international frameworks like that of the WTO, the U.S and other Western allies need not follow suit.

Any activities taken by the putative eNATO would be in plain violation of the WTO’s spirit and legislation and would be declared non-compliant if challenged in a formal WTO dispute. eNATO for trade violates the World Trade Organization’s non-discrimination and most-favorable-nation principles (WTO). It is hard to conceive how the WTO and eNATO could coexist. Free Trade Agreements also pose as a threat to the development principles of the WTO. FTAs enable developed countries to be better placed to seize concessions that developing countries would generally not make in trade forums such as the WTO. The WTO principles of special and differential treatment and less than full reciprocity, enable the developing countries to negotiate for non-reciprocal outcomes wherein they are not obligated to open up their markets to the same extent as developed countries. FTAs blatantly violate the principle of non-reciprocity.

Furthermore, the possibility that all such members of an eNATO alliance will agree on similar economic measures is a far-fetched idea. The reason for this is that different countries are affected by the Chinese economic growth up to different degrees. While Europe and the U.S. might be heavily reliant on semiconductors, electronics, and cheap labor, countries like Japan, South Korea, Vietnam, etc. have an additional concern of being at a geopolitical disadvantage concerning China. The growing influence of China in the South-China Sea (SCS) region by initiatives like the One Belt One Road (OBOR) and Belt and Road Initiative (BRI) are proof that apart from economic measures taken by China, geopolitical factors also contribute to the problem.

V. Conclusion

The concept of an eNATO, i.e., a trade-related alliance has been delved into at length at the U.S.-China Economic and Security Review Commission in recent times but it was first suggested at a hearing of the commission on the CCP Economic Ambitions, Plans, and Metrics of Success. Since then, many advocates including Clyde Prestowitz lobbied for the idea by citing examples of the kind of response the Russia-Ukraine conflict has garnered from the NATO countries.

The concept of eNATO has not just been advocated by the U.S. but has gathered support from many other countries. Many advocates of this alliance have stated that it will act as a shield against non-market economies like China and will help maintain free trade. But the actual realities might be the opposite. Article 5 of NATO’s treaty enshrines that “an armed attack against one or more of them in Europe or North America shall be considered an attack against them all.” Just like Article 5 deters countries from taking military action against NATO members, an eNATO would serve as a warning to those engaging in rogue economic actions.

Before the Ukraine war, it was difficult to imagine an eNATO as countries have seldom agreed upon economic sanctions. But the unprecedented invasion has increased uncertainties around the world and has made countries more vigilant. On a principle level, an eNATO would help in mitigating the problem in some ways. It proposes to form a unified front against instances of trade coercion which in turn would make it very expensive for countries to employ such actions as heavy sanctions would be imposed on them by like-minded countries. Secondly, it would protect the interest of small and medium economies against big non-market economies like China.

On a more fundamental level, an eNATO is still a way for the U.S. to dominate over others and take matters into its own hands. It is a very radical approach to the problem at hand. Such actions would also amount to a breach of the law of the WTO and a loss of confidence in the WTO disputes process. A purely economic approach by way of collective sanctions or trade barriers will be insufficient to address the growing problems posed by China. The approach of eNATO has to be three-fold: it must address economic, geopolitical, and national security concerns. If these are not factored in, it could lead to a failure of the entire initiative.

The views expressed herein by the author are hers alone.