Is economic warfare making a comeback?

Largely unacknowledged as such, a fourth arm of the defence forces is shaping our world.

A futurist might mention space forces but after army, navy and air force, there is already a more potent factor at work. It goes back a hundred years and has gone through phases of being in and out of fashion.

It is economic warfare. This has evolved to become almost the first tool out of the locker when diplomacy begins to falter. Often sanctions come to mind, but this strand has depth and prevalence that go far beyond the daily grind of punitive measures.

The more politely packaged theme of “economic security” was explored last week at London’s Chatham House by the UK’s low-profile and efficient Deputy Prime Minister, Oliver Dowden.

Speaking in detail of his responsibilities, Mr Dowden left little doubt that the ratchet is being progressively tightened on the national security impact of investment and trade. As one of his colleagues revealed recently, there is a cabinet consensus that the UK is in a pre-war (as opposed to a post-Cold War) era.

Mr Dowden was asked to address the elephant in the room: that the UK’s laws are not only designed to blunt Chinese economic expansion but that the legislation also enforces a US lead.

Contrasting to the Cold War parallels, he vowed that while the UK would not decouple from China it would de-risk. In the spirit of honesty, he added, London’s rules would constantly adapt to reinforce this process.

For a glimpse at how far the shift has already gone, Mr Dowden revealed that he was already making dozens of decisions every day about transactions in the UK economy. What happens is that he or his cabinet colleagues have powers to call in particular deals and run these through the prism of economic security.

One area of concern is how economic control turns into coercion, meaning that the owner would compel an outcome that the UK would deem as being against its interests. Bluntly, he said, there are areas that are so important that they are held exclusively within the ambit of the UK government.

But once a country starts on this path, the bureaucracy finds it very hard to stop and the politics then tends to go on mission creep. So it is that the gimlet eye is now focused not just on investment coming into the UK but also funds flowing to overseas activity as well.

The vigilance theme extends to efforts to secure its supply chains. The UK, for example, is willing to tackle at source the Houthi attacks on the Red Sea and Gulf of Oman shipping lanes.

“I genuinely believe economic security and economic prosperity are totally interlinked,” Mr Dowden said. “What I don’t want is a situation whereby we don’t do anything about this and then we find ourselves in a situation of heightened geopolitical conflict. And then we have a sort of a screeching turn, and we find out our supply chains are vulnerable.”

Allied to all this is the phenomenon of contestation where cyber-targeting plays a key role.

Some states that are openly hostile to their western counterparts are well-known to harbour hacking and other outfits that can flourish through ransomware attacks. As an active policy, this is an obvious strategy to undermine the wealthy nations. Addressing this vulnerability is as much about national defence as putting a well-armed frigate to sea.

In some research published earlier this year from the University of Oxford, a 1938 manual for the “fourth fighting service” was retrieved from the national archives and published. The author, a visiting fellow from government, said that the Handbook of Economic Warfare operated for 16 years as a cornerstone of British grand strategy to integrate these tools with defence and foreign policy.

The work done by British officials at the time informed the erstwhile League of Nations’ economic deterrence regime and ultimately its successor, the UN sanctions regime. It was only overshadowed on a national level by the primacy of strategic bombing during the Second World War and the reliance on nuclear weapons in the Cold War era.

We have since had three decades of true and all-encompassing globalisation. But now the wind has shifted.

The international community’s stop-start implementation of blockades during the early decades of the economic deterrence strategy was deemed an embarrassment even by its own architects. That does not mean that the experience has been consigned to history.

Take, for example, the G7’s efforts to impose a price cap on exports of Russian crude oil. Could that effort owe something to the handbook rule that made certificates compulsory for goods shipped to the British Empire’s ports through neutral countries that were not part of a pre-clearance system?

The handbook’s author makes a point that the pioneers of economic war probably believed that war itself was rendered impossible by great-power competition in the context of an interconnected global economy that had knitted the interests of nations to each other.

Factors such as advanced shipping, currencies underpinned by the gold standard and instant communications fostered this view at the turn of the 20th century.

These very same thoughts could be said to have predominated in these circles until today.