By: Rishya Dharmani, Research Analyst, GSDN
The Indian External Affairs Minister S. Jaishankar outrightly rejected calls for an Asian NATO, reaffirming that Indian foreign policy calculus does not count alliance building as a foreign policy tool. Similar responses were made from South East Asian capitals with even the US seemingly reluctant. This development comes even as US ambassador to Japan Rahm Emmanuel had proposed a North Atlantic Treaty Organisation (NATO) like grouping to resist Chinese “economic coercion”. A prominent reason to eschew coordinated actions is that different security perceptions and dependencies vis-à-vis China preclude harmonised actions resisting predatory policies. For Euro-Atlantic countries, a “quartet of chaos” (Iran, Russia, China, and North Korea) are systemically pushing the envelope on security concerns.
China’s grey zone tactics in geopolitical and geoeconomic spheres entail the use of hybrid coercive diplomacy. Rasmussen Report presented at the 2022 NATO summit sketched an economic NATO highlighting the link between strategic and economic interests in the background of retreating globalisation. It suggested the inclusion of an “economic guarantee” in NATO’s architecture with options including direct and indirect sanctions and import tariffs. Other measures may include blacklisting of firms, especially State-Owned Enterprises (SOEs), coordinated WTO action, and favourable market coordination with partner economies.
Rudiments of this policy are already in operation, pursued by different states. Several Western states deny technology and dual-use exports to Russia and China. European Union (EU), China and the US pursue punitive economic sanctions to reign in adversarial nations. Even protectionist measures of the developed world under net zero commitments can be construed as penalising growth for developing countries. When former UK PM Liz Truss suggested an economic NATO to ‘collectively defend our prosperity’, she probably did not have the global south as a target in mind, which is struggling to respond to a disproportionately higher burden of climate change impacts and socio-economic needs of burgeoning populations.
NATO in 1949 had established a Coordination Committee for Multilateral Export Controls (Co Com) to stymie the availability of military-grade technology to Warsaw Pact members. But the marriage of strategic imperatives with economic measures has weaponised trade, something especially milked by China. The flag follows trade as the state of the economy has political and social colours. This is clear in the Ukrainian war, where the Russian war economy is sustaining itself with a little (or a lot) of help from friendly states while the West attempts to weaken it.
China’s grey zone tactics in geopolitical and geoeconomic spheres entail the use of punitive diplomacy. Its irridentist area denial measures in the South China Sea fall short of inviting war but have the region at the edge. It had blatantly used strong-arm tactics using economic coercion when it banned Norwegian salmon imports after the 2022 Nobel Peace Prize was awarded to Chinese dissident Lio Xiaobo. It has pursued retributive measures against countries in the Pacific and in Europe (Lithuania) when they attempted to strengthen ties with Taiwan. Another illustration is Russia’s ‘gunboat diplomacy’ in blocking grain shipments from Odesa port. The isolationist measures of the West to weaken Russian, Venezuelan and Iranian economies are already in operation, albeit with questionable success.
NATO as a collective defence alliance is widely seen as a remnant of Cold War bloc politics, which has no place in an interconnected and interdependent world. But the weaponisation of geo-economical tools is also a reality. Countries, including India, are racing to brace and shield their economies from China Shock 2.0. The infiltration of cheap Chinese exports in electronics, iron and steel, and Electric Vehicles (EVs) is deepening economic chaos across the world as job losses and industrial disruptions amount.
Sophisticated cyber-attacks, surveillance infiltration in technology products (Huawei-5G controversy), and social media manipulation of election results point to a messy cocktail of new-age warfare. Economic NATO is relevant not only for Euro Atlantic engagement with China and Russia but also in India’s neighbourhood. Iran is using Houthis as a proxy to disrupt trade by attacking vessels supposedly affiliated with Israel and the West. China’s String of Pearls threatens India’s territorial integrity; its vast trade imbalance and routing of exports to ASEAN to dump goods is hurting the Indian economy.
While alliance building and camp politics are relics of the past, strategic pluri-laterals like QUAD, Supply Chains Resilience Initiative, and Minerals Security Finance Initiative to redirect control, supply and benefits from resources of future to trusted geographies, lattice-like structures for cooperation proposed by President Biden are key for US to secure partnerships in a world that increasingly seeks strategic autonomy. Decoupling and friendshoring are new foreign policy maxims as there is a reworking of Clausewitz’s dictum to economics is a continuation of war by other means. China is entangling India’s neighbours into coils of indebtedness, siphoning off strategic assets.
An article in Global Times concludes that securitisation of Asia with a NATO-like structure is difficult, ‘economic NATO’ even more so. China’s paranoia at the prospect of facing collective punitive actions for its maritime intransigence in the South China Sea is clear when it called QUAD “ocean froth”. However, as a bulwark, as the largest trading partner to many countries in Asia, Africa, Europe, Pacific – it has deeply institutionalised trade and investment networks. It claims that Europe’s autonomy has been compromised by its dependence on the US for security and economy, while South East Asia, especially ASEAN, values its autonomy and independent foreign policy manoeuvrability as seen most recently in the balancing act between China and Western allies by the new Vietnamese administration.
And yet, China’s dominance in key industries has enabled it to coordinate the use of informational, economic and economic tactics to pursue a rebalancing strategy both at home and abroad. It selectively limits or bans exports of critical raw materials that its adversaries are dependent on – careful not to upset the supply chains, which it yet does not have full control of.
Its “dual circulation” seeks to liven up consumer appetite and boost demand within. The endgame seems to be to create an economic security architecture to bind dependent and client states with its own strategic goals. The three global initiatives, namely, the Global Development Initiative (GDI), the Global Security Initiative (GSI), and the Global Civilisation Initiative (GCI), are constituents of a meta-diplomatic exercise to lay the ideational foundation of the next Great Power. Such partnerships are lucrative to shady autocratic rulers who resist democratising and need a deep-pocketed financier to bail them out of gross economic mismanagement.
Proposals ranging from D10 (G7, Australia, India, South Korea), a German suggestion of the ‘Alliance of Democracies’, Treaty of Allied Market Economies underscore the need for sustained and collective actions against the use of penal economic policies. This goes the other way, too, as Indian companies made windfalls trading with Russian oil bypassing SWIFT. Even as some members of NATO pursue divergent foreign policies, there is no hard and fast rule that an economic Article 5 will constrain legroom for policy motility. India is already navigating its economic goals within strategic bottlenecks created by geoeconomic disruptions by economic mini-laterals. India has a case to balance economic ties with the West while advocating for a more egalitarian economic order- a delicate act since it needs to resist attempts to promote Renminbi within BRICS while pursuing de-dollarisation.
This is why commitments of ‘one for all, all for one’ in the economic sphere seem implausible at the moment for India. But a low-hanging fruit in the context of the Indo-Pacific is rule-based regulatory regimes to foster just multilateral lending practices, responsible AI, and climate-sensitive growth could be the way forward. The non-compete clauses with partner nations, restrictions on procurement from aggressor’s firms (Press Note 3), and export controls are some of the suggested means. While pacts and alliances are a thing of the past, the VUCA world is witnessing disorder and chaos while the currency of multilateralism weakens. The IMEC corridor, if it survives the Israel-Gaza conflict, will be a shot in the arm for India and its partners. The demands of Industrial Revolution 2.0 call for a green-clean-AI transition needing collaboration with concurring states to gain a foothold in global supply chains and evolving strategic reworking of world order.
Whether an economic NATO could be possible in a Trump Presidency is a moot question. Overlapping memberships of mini-laterals in the Indo-Pacific have created mind-boggling geopolitical permutations. For instance, Indonesia is a member of SQUAD, China-led Regional Comprehensive Economic Partnership (RCEP) and BRICS+, with all three groupings espousing some agenda that is contrary to the other two’s goals. SQUAD strives to maintain the US-steered hegemonic balance of power in the Indo-Pacific, whereas BRICS+ aims to upend it. Despite the US being in a pseudo security alliance QUAD with India, it has threatened 100% tariffs were it to pursue a BRICS currency plan. Another more serious problem is that President Trump considers “tariffs as the most beautiful word in the English language”. He aims to disrupt the liberal internationalist agenda of globalised trade networks and politico-economic collaborations that are the bedrock of US hegemony abroad.
Decades of tangible cooperation and goodwill is wiped off by bombastic tirades and threats of punitive measures on long-term allies – fastening the demise of US preponderance. For US allies and partners, one of the very first acts of the Trump administration to withdraw certain federal aid domestically and internationally questions the rationale of investing in building connections with the US. If there is no systemic stability or long-term returns built into cultivating and maintaining beneficial relationships, any multilateralist idea like economic NATO will remain only a mere idea. As ‘America Comes Home’ and seeks retrenchment and internal balancing to counteract competitor states. Secretary of State Marco Rubio recently lambasted China for having “lied, cheated, hacked, and stolen their way to global superpower status, at our (the United States’s) expense”. The so-called Peaceful Rise was just a garb to hide behind the Deng Xiaoping dictum of ‘hide your strength and bide your time’. Having arguably milked the architecture of globalisation to its fullest possible extent, the nature of the China threat, whether limited China capturing global manufacturing spaces or broader seismic shifts with repercussions in the fundamental balance of power, should be probed. The ‘AI Sputnik’ moment of DeepSeek shaking the core of American tech hegemony is a wake-up call that there is a vast gulf between real and reputational economic dominance. By building a foundational LLM model from scratch and using less advanced computing chips – China has planted a volte-face to elaborate sanctions and the technology denial regime of the United States.
The idea of economic NATO sounds like a geoeconomic tool per se but actually is a potent geopolitical counter to disruptive and revisionist forces. By privileging a transactional approach to international relations, the Trump Presidency may do more harm than simply a lame-duck agenda of business as usual. And yet, there are green shoots. A nuanced analysis of Trump 1.0 brings to light, bold cooperative experiments that could if pursued proactively, offer a holistic counterbalance to China’s threat. For countries like India – favourable relations with China and Iran are a must, complicating its participation in any such US-led attempt to ‘punish’ the Russia-Iran-China trilateral. For other US partner states, unilateralist and frankly illegal measures of demanding sovereign territories like Panama, Greenland, or even Canada itself is not only a contravention of international law but irreparably harms the reputational aspect of US leadership.
What, then, are the prospects of an economic NATO? Should we in India be asking more fundamental questions of whether we can afford to openly align against a (group of) country(ies) when we are heavily import-dependent in several critical sectors like oil and natural gas, pulses, solar modules, EV batteries to name a few sunrise focus areas. Instead of relying on ad-hoc and knee-jerk protectionism by eschewing trade deals like CPTPP because they harm nascent domestic industries or even mixing geopolitics with economics (as in economic NATO) – India might mollycoddle and ‘save’ some elements of the Indian economy. But it cannot rely on the friendly umbrella of like-minded countries to trade with as trade and economic policy tools are increasingly weaponised by not even sparing close affiliates. The hard way forward of next-generation political-economic reforms to ignite the animal spirits and strengthen economic resilience and competitiveness is the only way forward which can be supplemented by geo-economic partnerships.
