Economics shapes wars. Throughout history, armies have marched and navies have sailed in conquest and defense of land, resources, trade and wealth. But wars, in turn, have shaped economics.
The changing nature of war profoundly impacts how the United States and its Allies and Partners think about the role of economics in achieving victory. Historically, such thinking has evolved. In the ancient and medieval worlds, victory often hinged on a numerical superiority of forces. The economics behind this was relatively simple. The amassing of war chests to pay for vast numbers of soldiers and sailors was all that really mattered. But with the increasing application of technology in warfare, this proposition shifted. Not only were numbers important but also equipping combatants with the latest and best weapons, logistics and equipment increasingly proved pivotal.
Consequently, since World War I, nations have seen the dramatic evolution of the economics of war, shifting from passive financier to key enabler, supporting at first increasingly mechanized warfare to the present sophisticated requirements in high technology, artificial intelligence, cyber and space. Industrial and technological forces are now routinely enlisted in national security and the prosecution of war.
Increased attention to the fundamental importance of a robust defense industrial base is emblematic of the institutionalization of this enabling role. Efforts such as the Partnership for Indo-Pacific Industrial Resilience, endorsed by U.S. Secretary of War Pete Hegseth in his address at the Shangri-La Dialogue security forum in Singapore in May 2025, play vital catalyzing roles accelerating defense positioning among partners.
But adversaries persist with further challenges. Their gray-zone or hybrid warfare and organization of military, industrial, financial and technological complexes under the doctrine of civil-military fusion have weaponized economics. Alongside military arsenals, they have developed financial instruments capable of delivering first-strike blows to paralyze military capabilities and vital economic functions.
Even before a first shot is fired, the war could be lost. The U.S. and its Allies and Partners should deepen understanding of the nature and scope of this threat to marshal economic defenses.
Developing Economic Arsenals
Like-minded nations must collectively conceive of offensive economic instruments to leverage adversaries’ economic dependencies and present a compelling deterrence. What combined economic weapons can they bring to bear on these critical dependencies?
Allies and Partners must no longer limit their thinking to how traditional elements of national economic strength — economic size, finance, industry, agriculture, technology, trade, currencies, human and natural resources — might optimally be configured to deliver a foundation supporting forces in war.
Coordinated and integrated optimization efforts generate powerful momentum, strengthening aggregate economic and industrial resiliency, and the combined lethality of military power.
Allies and Partners must determine how specific elements of their combined economic strengths might be harnessed to generate targeted economic fires that hold adversaries’ crucial economic dependencies at risk.
The economic strength of the U.S. and its Allies and Partners should reside not only in an unparalleled ability to muster, equip and sustain a combined force of overwhelming lethality. It also must rest in the wielding of an intimidating economic arsenal capable of sowing chaos in adversaries’ vital civil-military fusion nodes.
An essential first step is to map adversaries’ economic dependencies, ideally as a collaborative effort that taps into partners’ diverse insights and expertise. Private sector participation also will be invaluable.
This mapping will inform a second step: matching economic instruments and points of leverage capable of affecting the targeted dependency. Coordination will generate a cascade of effects ranging in severity and impact.
Allies and Partners also need to repeatedly war-game the interplay of economic weapons, with realistic and iterative exercises to refine planning and practice in approaching a unique challenge. Such a commitment will enforce timeliness, bringing to bear technological and commercial innovations.
Vulnerable Dependencies
It is rare for a single dependency to exercise sufficient deterrence over an adversary. Rather, Allies and Partners must leverage a range of dependencies to generate a combined deterrence.
Take China, for example. Financial stability is a key dependency for Beijing. Despite efforts to institutionalize the yuan as a global currency, China remains beholden to a U.S. dollar-denominated system of international finance and payments. China’s domestic banking system remains on shaky ground because it’s overladen with nonperforming debt that is propping up long-term money-losing firms that are often state-owned and effectively insolvent but kept afloat by continuous bank loans and government subsidies. China’s power structure is also more vulnerable to industry downturns and increasing unemployment because of its design as a command economy.
These factors conspire to confer significant financial clout on the U.S. and its Allies and Partners. Measures such as freezing the assets and reserves of China’s central bank and other national entities can be brought to bear. The international banking community can also exclude China or other countries run by a central bank from key financial institutions such as the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, which enables the smooth and rapid transfer of money across borders. Embargoes or restrictions on key hard currency-earning goods and services can also be applied, such as those imposed by the international community on Russian oil exports after Moscow invaded Ukraine. China depends on oil and coal imports.
There are other levers in China’s economic system and industrial supply chains that present opportunities for Allies and Partners. Technology, for example, is crucial, with China dependent on imports in vital areas such as semiconductor design and manufacturing equipment, and software for cloud computing and operating systems. Additional restrictions on technology exports could create leverage and deterrence.
Shipping also is key. China has the world’s largest commercial fleet but relies on European-based organizations for maritime insurance that is indispensable for international shipping. Denying or canceling such coverage could provide leverage and deterrence.
In short, across a range of strategic needs — energy, technology and shipping among them — dependencies exist and can be placed at risk.
The threat or curtailment of essential goods and services might be accomplished through a combination of embargoes, sanctions, and export and technology controls. But the tool kit can go further, with the potential to harness measures such as tariffs, exchange rate adjustments, interest rate settings, antitrust laws, and sector-specific regulatory and technical requirements, such as those pertaining to digital industries, cryptocurrency, cyber and e-commerce, and telecommunications.
These represent the foundation of the economic arsenal of like-minded nations. By adopting a proactive and preemptive posture, the U.S. and its Allies and Partners can seek or create dependencies and leverage to continually enhance combined deterrence.
For example, research by the Center for Strategic and International Studies suggests that in 2023 as much as 57% of China’s rare earth imports were sourced from just one country, Myanmar. Enabled by a corrupt relationship with a military junta, nearly all that extraction occurs in territories controlled by ethnic groups fighting a bitter civil war against the junta. This presents a possible dependency to exploit. Perhaps the U.S. and its Allies and Partners could find ways to compete for such critical minerals and hold China’s supply chains at risk.
Countering Clear Dangers
Adversaries pose a growing and formidable threat. Witness the collaboration among China, Iran, North Korea and Russia. From troops to missiles, drones, cyber capabilities and space technology, the regimes are increasingly intertwined.
A comprehensive economic arsenal can deliver precise weapons to deter and, if needed, cripple such interactions.
Strength underpins peace. And in the 21st-century battlespace facing the U.S. and its Allies
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