In the realm of international commerce, nations have historically balanced economic efficiency with national security concerns. Following World War II, countries embraced the idea of free trade, implementing low tariffs with the expectation that such openness would foster economic growth and political stability. As a result, global trade saw a threefold increase in relation to GDP from 1950 until it peaked in 2008, with approximately half of this trade involving intermediate goods, underscoring the significance of international production linkages. Despite ongoing conflicts, the absence of major global wars akin to those of the early 20th century suggested that globalization and stability had prevailed.
However, the current geopolitical landscape prompts a reassessment of the implications of economic interdependence, recognizing that increased connectivity can lead to vulnerabilities that adversarial nations may exploit in other aspects of international relations. The response to this reality is the development of resilient economies. Nations must secure access to critical resources necessary for prolonged conflict, including essential medicines, microchips, and vital minerals, irrespective of shifting global alliances. Additionally, they must possess the capability to swiftly ramp up production in the face of emergencies, such as the COVID-19 pandemic.
In the United States, the administration of President Donald Trump has initiated efforts to mitigate risks within supply chains and to bolster domestic capabilities across key industries to strengthen economic resilience. This marks a shift from the previous policy of near-unconditional openness. While these new policies may, in some instances, compromise economic efficiency compared to a scenario that disregards geopolitical risks, they are deemed necessary for resilience. Economic modeling that acknowledges these trade-offs can assist policymakers in navigating these challenges, ensuring that protectionist measures are not mistakenly implemented under the guise of national security.
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For many years, the landscape of international trade and investment evolved with minimal constraints. In pursuit of cost efficiencies, supply chains and entire sectors relocated to regions with lower production costs. Trade policies, alongside advancements in communications, transportation, and logistics, facilitated long-distance production collaborations. Disparities in labor and environmental standards incentivized companies to shift operations to countries with less stringent regulations. The stability provided by the US-led international framework allowed these intricate networks to thrive. However, as supply chains expanded and consolidated, underlying vulnerabilities emerged, often surfacing in sporadic or unexpected ways.
Recent events have heightened awareness of these weaknesses, rekindling discussions about the intersection of economics and national security. Disruptions in supply chains during the COVID-19 pandemic highlighted the risks associated with dependence on a limited number of countries for critical goods such as pharmaceuticals and semiconductors. A survey by Deloitte revealed that only 15 percent of chief procurement officers were aware of risks extending beyond their immediate suppliers.
Moreover, Europe’s reliance on Russian energy sources served as a reminder of the dual nature of economic integration—it can foster mutual restraint among countries while simultaneously creating leverage for more powerful nations. In 2022, Russia accounted for 27 percent of the EU’s oil imports and 45 percent of its gas imports. By 2025, these figures had dropped to 3 percent and 13 percent, respectively. However, the process of decoupling from Russian energy came at a significant cost, contributing to increased energy prices and slower economic growth, which the European Commission estimated reduced incomes by roughly €1,000 per person during 2021-22.
In April 2025, China imposed export licensing controls that resulted in shortages of rare earth elements and related materials, jeopardizing production lines in the automotive, defense, electronics, and other sectors in the US and beyond. This was followed by a warning from China about potentially expanding these export controls, underscoring America’s vulnerabilities in critical supply chains dominated by adversarial nations. Consequently, the US must now confront the national security implications tied to these dependencies, making geopolitical considerations regarding trade and trading partners a paramount concern.
This shift does not reject the principles of comparative advantage or the benefits of free trade; instead, it acknowledges that unrestricted trade is not always the most suitable approach. While free trade in functioning markets remains the goal—especially with allies—many of the challenges faced by the US stem from intentional nonmarket forces that distort production and consumption patterns despite the presence of low tariffs.
Strategic state interventions, subsidies, financial repression, protectionist measures, and regulatory arbitrage represent political rather than economic drivers. These tactics become particularly hazardous when employed by significant adversarial nations. Economic analysis must incorporate these factors more thoroughly, and economists should deepen their engagement with these themes. Policymakers require frameworks to assess the strategic implications of their decisions. Questions to consider include whether a policy enhances US leverage or creates vulnerability, how to identify goods needing control for national security without resorting to unnecessary protectionism, which items should be sourced domestically versus from allies, and how to efficiently revive domestic industries.
Furthermore, it is crucial to develop methodologies that clearly outline the trade-offs between economic efficiency and strategic objectives. Economists already possess analytical tools that can aid decision-makers in understanding the trade-offs and unintended consequences of various policies. While tariffs and sanctions are among the most scrutinized policy instruments, other tools such as price controls, stockpiling, export restrictions, and investment agreements are also relevant. Domestic policies like tax and industrial regulations should be viewed as instruments of economic statecraft as well.
There has always been a contingent of economists focused on geoeconomics, and ongoing research in this area continues to expand. Prominent conferences hosted by organizations like The National Bureau of Economic Research and the American Economic Association regularly explore geoeconomic themes, a trend mirrored in international academic and policy circles. Although economic research tends to lag behind significant, rapid developments, it quickly adapts to catch up.
This marks the onset of a long-term, comprehensive shift in focus for both policymakers and analysts, as the field of geoeconomics expands beyond mere trade and national security considerations. The ability to control international payment systems and the dominance of the dollar are geopolitical assets for the US; however, countries that remain nonaligned, having observed the repercussions of sanctions on Russia, are actively establishing alternative payment systems to protect themselves from potential exclusion from the US-led financial framework.
Countries are also competing to secure critical mineral resources globally, often clashing with allies in the process. Future-defining technologies such as artificial intelligence, quantum computing, and biotechnology are increasingly contested and will be influenced by both advantageous and detrimental policies. The necessary transformations will not occur overnight. The process of reconfiguring supply chains and redistributing production across nations will span decades. In the short term, policy changes may lead to price increases, scarcity of certain goods, and require substantial investments.
These immediate costs exist even if the long-term goals are justifiable. The structure of US democracy adds further complexity, as long-term policy commitments can be undermined by succeeding administrations, especially when short-term costs are palpable. As the global context evolves, the balance between economic efficiency and national security has re-emerged as a critical aspect of political discourse. A thoughtful reassessment of national security is essential, but it is equally important to uphold the economic principles that have historically contributed to the strength of the US economy, particularly the ideals of free and competitive markets. Achieving the right equilibrium necessitates ongoing efforts from policymakers and the researchers who support them.
