Economic Interdependency Creates National Security Interdependency

Classical trade models accurately assess the economic inefficiencies that monopoly producers impart on the market: competitive pressures are stifled, production efficiency is lost, and product innovations are depressed over time. However, what the open trade premise overlooks is that economic interdependency across trading partners creates a national security interdependency when some of these traded goods are vital to national security goals. For example, the Ricardian model of open trade fails to recognize the unique role of strategic goods in a way that sacrifices national security for economic efficiency. This model assumes that all goods hold the same strategic value. Yet, when one nation or bloc controls the market for any strategic good (like OPEC in the 1970s), this endangers global economic stability.
 
For instance, rare earth minerals, nanotechnology and telecommunications are all components of military applications vital for protecting U.S. national security interests. Medical devices, pharmaceuticals, testing kits and supplies are vital for protecting the health of citizens during a pandemic. High-tech communications and computer components are vital for protecting the financial and industrial infrastructure of a developed economy. Chinese state-owned enterprises (SOEs) and private producers have pursued and attained a near global monopoly in all of these strategic sectors. This stranglehold not only decreases international competition that ensures efficient global trade, it also severely reduces the substitute sources available to resilient economies.

Classical trade frameworks, while useful in guiding international exchange among open-market economies—as evidenced by the economic and financial development of the U.S. and the West—is deficient in explaining trade outcomes with authoritarian states. It now falls on international business practitioner-scholars to develop a new framework that can guide international trade between open and protectionist economies.