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The expanding horizons of national security and the China-US strategic competition—where are we heading?

From Wall Street to Beijing Finance Street and beyond, one of the most important issues in international business and law is the changing conceptualization of national security. Corporations, businesses and investors are all affected by governmental decisions with respect to defending national security in the contexts of international investment, trade, and finance. The recent US ban on solar panels from Xinjiang and China’s restriction of Tesla vehicles exemplify the China-US hegemonic rivalry’s transformative impact on the conceptualization of national security.

Solar panels, electric vehicles, and social media do not comport with traditional notions of defending national security. However, although once ensconced in the context of military defense and territorial integrity, two primary and often inter-related factors are driving a new conceptualization of national security. One factor is the sweeping and revolutionary new technologies such as AI, 5G, blockchain-based central bank digital currencies (CBDCs), and robotics. Such technologies may offer a pathway to degrade an adversary without resort to a military option. For example, non-US dollar (USD) CBDCs could serve as a pathway for bypassing the US-centric financial system depriving the US from imposition of USD sanctions, which the former US Treasury Secretary admitted was a replacement for US military intervention. Fostering the ability for a payments system which does not touch upon the US financial system (thus depriving the US of the power to track or stop the transaction) is a form of attack on the US although no US territory is invaded or threatened. The potential of a digital Yuan and China’s global digital leadership undoubtedly is considered as a threat by the US, and the threat encompasses any related technology to a digital Chinese currency.

Another proximate cause driving the re-conceptualization is the comprehensive rivalry between China and the US, which is rapidly expanding notions of security beyond emerging technology and into the economic and ideological realms. By doing so, political-economic ideology, social media, as well as capital markets are subject to enhanced scrutiny and regulation. China’s unique and successful state-centric economic governance—the partnering of private actor businesses with state-direction and often governmental ownership—is increasingly viewed by US authorities as possessing unfair advantages whereby US businesses cannot compete fairly. In response, China argues that measures against China are cloaked in the language of security but are in reality attempts to contain China’s rise and/or constitute economic jealousy and attempts to constrain her ascendancy.

To be sure, several important factors demonstrate that a more liberal conceptualization of national security is worthy of consideration. Military attacks are no longer the sole means of degrading or conquering another state; territorial integrity is not the only marker of sovereignty that is subject to being attacked. To a large degree, economic battle is a replacement for military conflict. Moreover, emergent technology such as AI does have significant military application besides civilian use. Furthermore, security threats may in fact be completely virtual such as computer viruses that devastate infrastructure leading to economic breakdown and social instability; cause missiles to self-detonate; or manipulate elections to elect a favorable candidate. Thus, degrading an enemy can be accomplished by ideological, economic, and technological means and territorial integrity or armed conflict is not necessarily implicated or needed to accomplish the goal of proximately causing substantial harm to an enemy state.

“Where does legitimate security end and improper protectionism commence?”

From a legal perspective, the ever-expanding conceptualization of security is a slippery slope and risks invoking the security exception in investment and trade agreements as a cover for protectionism. There are no easy answers nor is there a bright-line test. Where can legitimate lines be drawn; does legitimate national security encompass any and all social media and payments platforms? Data is crucial to AI, but does that translate into all devices and virtually all apps being data transfer points that constitute security threats? Where does legitimate security end and improper protectionism commence? Is there a difference between imposing national security measures against allies versus adversaries or is doing so sometimes legitimate? Moreover, is defending technological dominance or national champions in emerging technologies a legitimate exercise in defending national security? Is wielding technological superiority the equivalent of defending national security?

And as the slippery slope exists with respect to technology, the slope appears in the economic realm as well; both economic powers are at risk of expanding the security exception to such a degree that the exception can overtake the rule. Indeed, the new US security conceptualization does not stop at the technological or ideological but encompasses the economic as well. The US has been in the process of, or is discussing, numerous measures: de-listing of Chinese ADRs traded on US capital markets; advising US academic institutions to avoid investing in Chinese shares; considering eliminating the exemption for foreign issuers on audit inspections in a move widely acknowledged as targeting Chinese shares; and prohibiting US government pension funds from investing in Chinese shares. While economic superiority has not been considered as constituting an essential security interest, the line between defending property and defending economic dominance is not demarcated. Indeed, the broadening of the exception to include relative economic performance or dominance would unquestionably risk creating an exception that dwarfs the rule.

China is also vigorously expanding notions of security including social and economic stability as well as including extraterritorial application of new laws such as the Data Security Law and the Hong Kong National security Law. In early 2021, China enacted a Blocking Statute which might serve to counter-act foreign measures believed to threaten Chinese national interests. The language in China’s Export Law related to banning exports to nations or regions based on security threats to China may be a far-sighted assessment of the potential forming of coalitions based on mutual security interests.

The current trend of broadening the horizons of national security does not comport with international cooperation and globalization but supports decoupling and enhanced de-globalization and realignment of supply chains . There are indications that the main economic powers are at-risk of de-coupling as the US endeavors to maintain its edge and China is also preparing. Moreover, the injection of human rights in the rivalry may also be a harbinger of increasing regionalism or a split into coalitions as allied nations may begin forming coalitions based upon mutual economic self-interest. The formation of US and Chinese allied trade and investment coalitions may lead to increasing economic nationalism, regionalism, protectionism, and retaliation and ultimately to a fracturing of the existing trade and investment architecture.

Conceptualizing security as a fusion of economic, ideological, and technological supremacy has immense implications on international economic governance and law. Going forward, sovereigns may need to select which hegemonic contestant to form an alliance with. Doing so may take time but would likely cause a dramatic re-alignment of international trade into blocks of allies and/or regions. Moreover, future dispute resolution arbitrations will come under pressure to test the contours of the exception. Future rulings on the security exception will need to carefully balance the legitimate security interests of nations while guarding against an unfettered expansion of the conceptualization of security. While there are no absolute answers, one aspect is certain: the conceptualization of national security will become increasingly vital to global trade, investment, and economic governance.

Featured image by Markus Spiske. CC0 public domain.

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