Economic security: vague concepts, difficult policies

‘International economic security’ and ‘geoeconomics’ are common terms whose meaning might seem intuitive. However, research in this area is still in its infancy. Some concepts remain poorly defined and pose challenges when it comes to translating them into strategies, indicators and policy instruments.

Let us take, for example, the definition of the ‘scope’ of economic security. There are two meanings to this term. In the narrow sense, it consists of defending the national economy against foreign behaviour that creates tensions within the productive fabric or depletes the stock of knowledge. Within this scope, predominantly defensive policies are developed: anti-dumping and anti-subsidy tariffs, anti-coercion measures, screening of foreign direct investment, diversification of supply sources and strategic reserves of critical products, and protection against forced transfers of knowledge. In a broader sense, the scope of economic security coincides with the promotion of national prosperity, a significant consideration when international integration is viewed as a zero-sum game or one in which relative gains between countries take centre stage. This includes public interventions, such as industrial and trade policies, which steer productive specialisation towards sectors and technologies with higher added value. The narrower definition is compatible with the liberal international order, which permits forms of defence against hostile behaviour, whilst the broader one is more interventionist and involves actions aimed at enhancing the country’s competitiveness and capacity for influence. This definition is linked to ‘geoeconomics’, that is, the use of economic instruments to achieve geopolitical or foreign policy objectives (Mohr and Trebesch 2025).

Many economic security strategies not only fail to clarify which definition they adopt, but also fail to spell out the link between the measures, expected outcomes and costs – both in the short term and once fully implemented. Consider, for example, strategies to mitigate excessive dependence on a few foreign countries for the supply of critical products, such as rare earths, which exposes the importing economy to risks of coercion. Assuming technology remains unchanged, there are three strategies: diversification of suppliers; concentration of imports from allied, like-minded or reliable countries; and an increase in domestic production and recycling. Each strategy has different effects on international trade: greater integration, fragmentation into blocs, or less integration. The instruments and associated costs also vary. Trade liberalisation agreements remove tariffs and expand the number of suppliers, often reducing costs; promoting domestic production requires direct aid, local procurement clauses and price guarantees high enough to support investment and the transfer of know-how. Policy documents do not always make all these elements explicit.

Diversifying supply sources is no easy task. Requiring businesses – particularly small ones – to purchase a strategic input from a minimum number of suppliers would be burdensome and would require extensive public coordination. Businesses buy from other businesses, not from countries, and supply chain relationships and knowledge are not easily transferable. Furthermore, diversification at the level of individual businesses does not equate to national diversification. Consider three identical businesses that import exclusively from China, Australia and Brazil, respectively. If, following a diversification requirement, each were to start purchasing one-third from each of the three suppliers, national diversification would remain unchanged. Companies cannot internalise this aspect of collective security, nor can one rely on their spontaneous coordination due to issues of collusion and the enforcement of agreements. Choosing the range of products to diversify is also difficult because goods belonging to the same group are often only partially substitutable, as demonstrated by the microprocessor war between China and the US.

A further problem, of a political nature, is the identification of countries at risk, given that perceived risk depends on the expected evolution of the geopolitical landscape. Germany has found itself vulnerable due to its energy supplies from Russia, a country long regarded as reliable but which has become an adversary following the invasion of Ukraine. Even countries that have historically been aligned can shift their position significantly, as demonstrated by Trump’s United States. Various methodologies allow us to deduce, in hindsight, the geopolitical alignment between countries, but an economic security strategy requires ex ante political assessments. These assessments are difficult and sensitive. It is no coincidence that, in the EU’s methodology for assessing the criticality of raw material supplies, supplier risk is approximated by governance indicators, rather than by geopolitical affinity. These, however, are different concepts and risks.