The return of President Trump to the White House has brought renewed attention to the relationship between trade and national security. This situation raises questions about how governments should respond to increasing pressure to protect economic security while upholding an open and rules-based trading system.

What is economic security?

The concept of economic security has evolved over the years, reflecting shifting global and domestic circumstances since the end of World War II. Different governments frame economic security risks and threats in various ways, which means there is no universally accepted definition. However, in terms of values, it broadly refers to the absence of a threat of severe deprivation of economic welfare.

Rather than providing a single, rigid definition, the EU and Japan have adopted a principle-based approach. This allows them to remain responsive to the risks generated by a rapidly evolving economic, technological, and geopolitical landscape. For example, Japan has established three core principles of economic security: self-sufficiency, indispensability, and safeguarding the rules-based international system.

In terms of the instruments, it refers to a nation’s framework to maintain national autonomy and economic resilience against risks and threats. This includes strategies and policies that aim to protect fundamental economic functions, strategic industries, critical infrastructure, supply chains and critical technologies and materials.

Economic security and trade

The main instruments used by governments to achieve economic security objectives are rooted in trade and investment policy. Export controls, investment screening mechanisms, outbound investment restrictions, subsidies for strategic sectors (e.g. semiconductors and batteries), and controls on critical minerals are now common policy tools of economic security frameworks. Such interventions influence the behaviour of firms by limiting the transfer of technology, reshaping sourcing strategies for raw materials and components, redirecting foreign investment, and encouraging the development of domestic production capacity (Table 1).

Table 1: Major economic security policy tools

Source: Author’s elaboration

 

Consequently, economic security policies inevitably alter global trade patterns and cross-border investment flows. For example, subsidies aimed at expanding domestic semiconductor manufacturing are designed to reduce reliance on foreign suppliers and increase national technological autonomy. However, they may also fuel competitive subsidy races among states. According to OECD estimates, if countries relocalise supply chains aggressively, global trade could fall by 18% and global real GDP could decline by more than 5%.

Why do we worry now?

The current focus on economic security should be viewed in the context of broader changes in the global economy. Since the 1990s, neoliberal approaches prioritising market efficiency and liberalisation have led to a greater economic interdependence. According to World Bank data, the share of trade in the global economy increased from approximately 39 per cent in 1990 to around 60 per cent in the late 2010s. Global supply chains became longer and more complex, spanning advanced technologies, critical minerals and key infrastructure sectors across multiple jurisdictions.

China’s emergence as a dominant actor in many frontier technologies (electric vehicles, artificial intelligence, batteries, solar energy and semiconductor assembly) has intensified concerns about concentrated dependencies. China’s share in strategic import dependencies for OECD countries rose from ~4% (late 1990s) to ~15% (2020–21).

A series of global disruptions, including natural disasters, the COVID-19 pandemic and the Russia–Ukraine war, further exposed the vulnerabilities of highly interconnected supply chains. The pandemic demonstrated the fragility of supply networks and highlighted the limitations of relying on market mechanisms to handle crises. These events prompted policymakers to focus on resilience, diversification, and the pursuit of self-sufficiency in critical technologies and materials.

US–China rivalry and the normalisation of economic security

The deepening geopolitical and technological rivalry between the United States (US) and China has significantly shaped the economic security landscape. Since the first Trump administration, US policy shifted towards actively using economic statecraft to limit China’s technological and strategic rise. In response, China has institutionalised economic security as a national priority through initiatives such as the Dual Circulation Strategy (2020) and the Made in China 2025 programme. As a result, economic security has become a cross-cutting agenda for advanced economies caught between the US and China, including the European Union, Japan and the United Kingdom.

Trump 2.0 and the securitisation of trade

The second Trump administration has intensified these trends by further securitising trade. The US is increasingly using its economic and military leverage to pressure both rivals and allies. Measures justified on national security grounds (such as “reciprocal tariffs” under the International Emergency Economic Power Act) have been accompanied by the use of trade negotiations to compel concessions. These include commitments to increase imports of US goods, expand inward investment in the US, and loosen domestic regulatory standards in areas such as environmental and digital governance. Moreover, alignment with US economic security priorities has become an implicit condition for concluding bilateral trade arrangements — particularly in export controls, investment screening and restrictions on technology transfer to China.

Challenges for the international trading system

Economic security in a Trump 2.0 administration matters because trade is now a strategic tool of power. The US and China are driven to securitise everything, and are willing use economic and technological coercion unilaterally, making the most of their uneven power dynamics. Countries that rely on both the US and China face four interconnected difficulties in upholding the rules-based international trading system.

The first is how to define economic security. For the US and China, economic security is national security. Internationally, governments increasingly frame multiple issues (economic, social, environmental, and technological) as existential security threats to justify national security measures. In this circumstance, building international consensus on the principle of economic security is the first step. Although the G7 has reached a partial consensus on principles specifying the need for resilient supply chains, further international efforts are necessary to create a detailed and exhaustive definition.

The second challenge is how to maintain open, liberal international trade systems while promoting economic security. Countries are building bilateral and plurilateral economic cooperation frameworks outside existing trade policy institutions such as the WTO and FTAs. These include economic security dialogues and resilient supply-chain partnerships in selected strategic sectors, such as semiconductors. However, these forms of economic security cooperation, created among close allies, may erode existing liberal trade policy institutions.

The third is the need to reduce vulnerability to unilateral measures and to build alternatives to US-centred trade architectures. This may involve revitalising the WTO or deepening existing frameworks such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The fourth challenge concerns the limitations of current trade rules. The existing WTO rules and Free Trade Agreements (FTAs) were designed for a liberal economic model and are increasingly ill-equipped to govern economic security measures. Distinguishing between genuine security concerns and protectionist tendencies is not straightforward: there are factors beyond economics to consider, such as defence security. For example, the broadening of security exceptions, as seen in the steel and aluminium tariffs under Section 232, has raised questions about the scope and legitimacy of national security claims under the WTO (Article XXI of GATT). Additionally, current subsidy disciplines do not sufficiently address large-scale strategic industrial support.

The way forward

Navigating the Trump 2.0 era requires greater clarity and transparency in how states define and pursue economic security. Countries must develop frameworks that distinguish between genuine strategic resilience and disguised protectionism. Coalitions of like-minded countries will be essential to develop a stable rules-based trading environment that does not depend solely on US leadership. Finally, trade rules must be updated to reflect the new realities of state intervention and supply chain resilience. By addressing these challenges directly, the international trading system can maintain its credibility and functionality in an era where economic security and trade are inextricably linked.

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