This is an excerpt from Critical Conditions: An Operating Framework for Allied Economic Statecraft, a new publication by Hoover’s Allied Coordination Working Group and the Hoover History Lab. Download a copy of the report here.
Allied governments have no shared methodology for identifying and prioritizing the most dangerous economic dependencies. Many goods and technologies are called critical these days—but if everything is critical, nothing is. Resources are spread too thin, allies are working at cross-purposes, and no one has institutional cover to say, “This one can wait.”
The United States and its allies broadly agree that critical commodities, products, and technologies lie at the heart of strategic competition with China. But they lack a robust, shared framework for defining economic criticality and evaluating which resources, technologies, and products are more critical than others. Policymakers are rushing to act without weighing which dependencies are most likely to be weaponized, how the global economy and third countries would adapt to weaponization, and how much it would cost to “correct for” critical dependencies in advance.
Market interventions are democratically legitimate and politically sustainable only when the public accepts that they are necessary. Thus, our political institutions do not have unlimited space to trade efficiency for security. In an era of strategic competition with China, we need a conversation between the state and society about criticality, bringing together different areas of relevant expertise. A four-layer rubric in our new paper seeks to achieve this by addressing some specific problems with the current conversation.
This is not just chokepoint analysis. Mapping bottlenecks in supply chains and identifying nodes where adversaries could exert leverage does not tell policymakers any of the following:
- Which chokepoints matter more than others.
- How likely they are to be weaponized.
- What second-order effects would follow if they were weaponized.
- What to do to make our most critical dependencies less critical as fast and as cheaply as possible.
Our rubric presents a systematic set of questions that policymakers can ask to quickly get to the heart of the problem in a wide range of cases, prioritize quickly, and identify a menu of policy responses.
Why we need a new approach to criticality
Markets become critical when adversary states can distort them to threaten US and allied national security. Weaponization can work through multiple channels. If a hostile state monopolizes production of a resource or product, it can disrupt supply. If it enjoys technological leadership in an area, it can regulate and selectively share access to intellectual property to build coalitions with other countries and disadvantage its rivals, eventually placing them in a position of entrenched technological subordination.
Economic coercion involves the entire global economy. If production is concentrated within a state that is itself vulnerable to economic coercion, adversary states may be able to restrict supply indirectly. To understand the criticality of a certain resource, product, or technology, we need to understand it in the context of the world market and the global balance of power, rather than in terms of a bilateral trading relationship or single supply chain.
Governments tend to manage critical commodities, products, and technologies through separate bureaucracies—but this is an institutional choice. In the real economy, they are all interrelated. Our four-layer rubric therefore applies a single structure to all forms of economic criticality. The layers hold whether the good in question is a natural resource, a manufactured product, or a digital platform. The questions within each layer shift in emphasis—geographic concentration and stockpiling for commodities; network effects, switching costs, and standard setting for technologies—but the basic architecture is the same.
Criticality is relative because it is defined in connection to national interests and national conditions. Policymakers in different countries will not always agree in their criticality assessments, because even close allies will not always share common assessments of geopolitical threats. However, they still need a common rubric to help identify what kinds of cooperation may be mutually beneficial.
Economic actors have perverse incentives to confuse the public conversation about criticality. Domestic companies that want subsidies, trade protection, or regulatory forbearance have incentives to exaggerate their products’ criticality. Foreign governments and firms that want sustained access to overseas markets can understate the criticality of certain products or technologies they export.
US and allied policymakers therefore face a noisy and dynamic information environment. They need a consistent rubric to assess criticality.
Autarky is expensive
When a product or technology is labeled “critical,” the political reflex is often to seek a blunt-force solution that maximizes sovereign control. For example, the United States is concerned about the spillover effects of China’s steel dumping, so it has restricted steel and aluminum imports from Canada on national security grounds. The more countries are involved in a supply chain, the more complex the possible dependencies that have to be mapped, and the more tempting it is to try to bring everything onshore. Some firms will lobby for these autarkic policies. Who wouldn’t want to enjoy indefinite, protected access to the US market?
The impulse toward autarky is understandable. It is also—almost always—a mistake. The more of the global economy that is mobilized to mitigate a dependency, the lower the economic cost and the greater the geopolitical and technological benefits.
This logic is clearest for natural resources. The more states participate in reducing criticality, the smaller the price increase caused—and the better for the US economy. The same is broadly true for advanced products and technologies. It is far less distorting to encourage a function to move out of one country into the broader world economy than to force it out of the broader world into a single country. Roughly one-third of global gross domestic product (GDP) sits in countries that are neither formal US allies nor adversaries. Their participation in production networks can quickly diversify any single state’s monopoly control over production.
There are limits to this principle. If neutral states can’t enforce rules of origin or export controls, or if they are acutely vulnerable to coercion themselves, the United States may not be able to rely on them. There are also strategic technologies where the United States needs to control production to retain technological leadership.
But as a general rule, pursuing autarky in the name of “critical” production is both economically and strategically costly:
- Trade barriers invite retaliation, reduce access to foreign markets, and dampen innovation.
- Achieving autarky often involves heavy ongoing subsidies and forces consumers to pay higher prices for inferior products.
- Trying to copy China’s strategy of building a “complete industrial system” forfeits the United States’ main comparative advantage: its ability to mobilize its large and efficient capital market and organize broad coalitions of countries that need access to the US market and US technology.
The default presumption should be that most dependencies are of low to medium criticality. High criticality is an exceptional designation that must be earned. No single layer of analysis is sufficient to establish the degree of criticality: production concentration, adversary intent, and adaptive capacity must be weighed together, against real-world evidence of how markets and states have actually responded to attempts at weaponization.
The rubric should identify a small number of dependencies that demand urgent government action and a much larger number that are worth monitoring but do not warrant costly intervention. It involves moving beyond “friendshoring,” which risks becoming a euphemism for a command-and-control approach to moving supply chains. It encourages policymakers to consider how much of the world—including neutral countries that work closely with China in other areas—can safely be enlisted to dilute adversaries’ leverage and reduce criticality efficiently, ideally with strategic co-benefits.
Not everything is a crisis
There is a dangerous temptation to label every dependency a crisis. To avoid wasting resources, the United States and its allies should align around a robust method for speedily identifying the most acute vulnerabilities—then tackle them first.
Defining criticality correctly allows for smarter, less expensive policy responses. Rather than reflexively seeking autarky through domestic subsidies, the United States should prioritize broadening the coalition of producers. Leveraging allies and neutral nations lowers the fiscal cost of resilience and creates a better buffer against coercion.
Only by narrowing our focus to what is truly critical can we ensure that our economic security policies are not only strategically sound but also democratically sustainable.
Read the full description of the four-layer criticality rubric here.
