How Britain lost the art of economic warfare

While the use of economic coercion is at least as old as the Peloponnesian Wars, Britain professionalised the concept for the modern era. In the years leading up to the First World War, the Committee of Imperial Defence, a body composed of senior politicians, army and naval officials, drew up plans to paralyse the German economy should war break out. Britain’s heft at the time allowed it to do so: the City of London financed two thirds of world trade through the discount market. Over three quarters of the world’s bunker coal, the fuel used by nearly all the world’s cargo vessels, came from the British Isles. Seventy per cent of the world’s telegraph cable network was operated by British companies. The plan, which evolved institutionally into the Ministry of Blockade, underpinned the successful use of British economic pressure on Germany.

Today, everything has changed. Britain is one of the few major powers to have thought very little about an economic security strategy for its own domestic economy, let alone for the international arena. The UK has opted for a just-in-time economy that lacks the structural shock absorbers necessary to withstand a sudden disruption of global markets. The consequences of such unpreparedness are typically a more expensive fiscal response – in 2022, the UK’s fiscal costs were among the highest compared with other countries after the belated announcement of the Energy Price Guarantee, and today, inevitably, further measures are being considered.

As we shall see, this is the consequence of the strange obliviousness of British policymakers to the growing centrality of economic coercion in international relations.

Over the past decade Washington has created a genuinely all-of-government economic security apparatus – one that treats trade, finance, technology and investment flows as levers of national power and national defence. The core enforcement spine runs through institutions like the Office of Foreign Assets Control (OFAC) – which, set up in 1950, can rapidly weaponise access to the dollar system through sanctions – and institutions like CFIUS (the Committee on Foreign Investment in the United States) set up in 1975, whose remit and tempo have expanded since 2018. Industrial policy is part of the justification for the new apparatus, with CHIPS explicitly intended to protect supply chains and strategic technologies. The economic security rationale has also been stretched to trade, as in President Trump’s notable, now legally challenged, effort to deploy IEEPA as a tariff tool.

In Europe, the Commission is trying to make an open, trade-dependent economic model workable in a world where coercion is routine. To do this, it is building a parallel economic security architecture, as detailed in the Commission’s 2023 European Economic Security Strategy. The initial focus was de-risking from China in areas of dangerous dependence, but has shifted as the transatlantic relationship has come under strain. Europe wants to reduce vulnerabilities whenever they create political leverage over Europe, while also building the ability to respond quickly to threats.

The EU’s new economic security contains the Anti-Coercion Instrument (essentially a menu of retaliatory measures in trade, investment procurement and market access), ready to be used since 2023. It was nearly triggered by President Trump’s tariff threats over Greenland. The EU’s foreign investment screening framework is being tightened to better police sensitive acquisitions across the single market, and the Commission is also moving towards outbound investment screening in a narrow set of critical technologies. Alongside these are more structural measures that blend industrial policy with security aims – such as the 2023 EU CHIPS Act to bolster semiconductor capacity, and the 2024 Critical Raw Materials Act to reduce dependency on strategic inputs. None of this is moving as quickly as it should – the European chemicals sector has lost a tenth of its production capacity and 20,000 jobs over the last ten years – but Europe is trying to tread a fine line between credible instruments to protect against economic pressure without sliding into blanket protectionism.

Beyond the US and Europe, other developed economies such as Japan and Australia are also thinking hard, with Japan creating a dedicated Minister for Economic Security in 2021. China warrants an entirely different discussion, as it has been deploying its economic power as a tool of planning or foreign policy for decades. Indeed, one way of framing recent developments is that the Western powers are having to become a little more like China in order to compete with it.

Where is Britain in this new great game? Britain’s uniquely relaxed approach was recently laid bare by the UK Parliament’s Business and Trade Committee, which noted that the UK has no overall economic security strategy, Its toolkit is limited and disjointed, with responsibility for sanctions and investment screening lying between the Treasury, Cabinet Office, HM Revenue and Customs and various other departments. Government assessment of economic security threats is scattered over five different reviews on broader topics. Meanwhile, at the centre of government, the wiring has been weakened rather than strengthened – the Economic Sub-Committee of the National Security Council was abolished in a recent bureaucratic shuffle. The committee’s recommendations on the topic received only a perfunctory government response and barely a few column inches in the British press.

British officials tend to dismiss the need for co-ordinated economic security planning as another unnecessary top-down re-organisation. They say that Britain does foreign investment screening better than Japan and Europe – e.g. as part of the 2021 National Security and Investment Act, Britain has ‘called in’ around 200 deals for review. They concede that Britain does stockpiling and resilience worse than those economies. The conversation then – remarkably but typically – turns to international law, about which economic remedies and subsidies are permitted under current UK-EU and WTO agreements.

In short, on the issue of economic security Britain is seemingly content to approach the new multipolar global environment with a worldview anchored to the ‘rules-based international order’. Indeed, historian John Bew has suggested, ‘Britain is the last man at the bar at Davos’. The demonstrated preference is for a patchwork of policies and case-by-case improvisation over a more explicit economic security doctrine.

Moreover, woolly thinking is a perennial problem. Even the report calling for a new economic security doctrine refused to settle on a conceptual definition, instead opting for ‘6 core principles’, or the ‘6Ds’: ‘Diagnose, Develop, Diversify, Defend, Deter’ and, inexplicably, ‘Dovetail’. As the Royal United Services Institute argued, the absence of a definition has led to ‘fragmented policymaking’.

We would put it another way: if you cannot name what you are doing, you do not know what you are doing.

‘Economic security’ is the unimpeded functioning of the United Kingdom as an effective and efficient economy. This is the definition used in the Netherlands’ 2022 security strategy and captures, with brevity, the purpose and trade-offs involved.

Even more concerning than the UK’s thin, fragmented toolkit is how little this new geo-economic reality seems to penetrate even informed public debate. In the US, a years-long, very public push – by industry, think tanks, and bipartisan lawmakers, reinforced by national-security commissions – built momentum well before key pieces of legislation like CHIPS were published.

The UK remains at a much earlier stage – lagging behind even the belated geopolitical shift at the European level. Despite increasingly loud warnings from security services and military sources – MI5 has briefed university leaders that foreign states are intent on stealing British intellectual property, and a Defence Minister has warned of growing numbers of adversaries using economic levers to undermine the UK and its allies – there is comparatively little going on at the political or policy discussion level on economic security.

Most recent influential contributions to Britain’s economic debate have tended to focus on Britain’s lacklustre growth performance, in addition to the traditional focus on public finances and domestic redistribution. While all are important, proportionality is the issue. The lack of geo-economic thinking is even more stark when considered how much oxygen the debate over Brexit and relations with the EU continues to absorb.

National security debates have done a bit better on integrating economic security concerns via three big picture documents (two Integrated Reviews and a National Security Strategy, all led by Bew). The emphasis on sanctions, supply chains and investment screening has become stronger over time. But as was noted by RAND at the time, these efforts ‘fell short of giving economic security initiatives the much-needed cohesion that only a dedicated strategy can provide’. The House of Lords also noted that the documents can sometimes fail to offer prioritisation or a sense of trade-offs.

At the political level, UK Chancellor Rachel Reeves’ 2024 Mais Lecture on ‘Securonomics’ hinted at a new way of doing things, but the scattershot approach has broadly continued. Economic security featured just once in Reeves’ 2025 budget speech, in a passing nod to the government’s recent bailout of British steel in Scunthorpe.

It is worth briefly touching on what economic security is and why it has become so important a concept. As intellectual historian Quentin Skinner has pointed out, channelling an older Nietzschean idea, concepts with a history resist definition. The phrase ‘economic security’ in the 1930s and 1940s would have meant social insurance, pensions and the welfare state – security from the market. By the 1990s, ‘economic security’ would have meant the security of the global trading system, a definition stripped of its welfare-state baggage. In the 2020s, economic security means something different altogether: national competition and even national survival, supply chain resilience, de-risking and so on.

These definitions are not just different; they are sometimes opposites. Think of the use of industrial subsidies like the US CHIPS Act, which would have been derided as protectionism in the 1990s but are now canonical examples of economic security expenditure.

On some level we shouldn’t ask ‘what is economic security?’ but rather ‘what is being done by someone who invokes the term?’ Here things are clearer. It is perhaps best understood as an effort to expand national security thinking into the economic domain. That leads to a perspective shift: the global economy is not purely a market or arena for powers to benefit from interdependence in supply chains, technology, investment, finance and infrastructure, but a place where interdependence is an instrument of competition and coercion.

Perhaps that is why the UK has resisted a comprehensive review of ‘economic security’, let alone a minister or a ministry on that topic. The official sector in Britain, both at the Treasury and at the Foreign Office, has historically seen interdependence as an almost unalloyed good to be promoted. The idea that economic interdependence could be a source of weakness, as Mark Carney recently put it in Davos, has not come easily to British policymakers. Laissez-faire thinking, which made the country rich when it was at the technological frontier at the turn of the century, may now threaten to hobble it as it falls further behind, in a procyclical spiral.

Yet a shift is inevitable. Part of the reason Britain needs to think about economic security is the rise of geo-economic thinking among its trade partners. Blackwill and Harris were among the first to define geo-economics in their 2016 book, describing it as using ‘economic instruments to promote and defend national interests’. In other words, geo-economics is a concept that is not purely defensive and as inward looking as economic security. Instead it is something more like economic statecraft.

Energy has been a traditional geo-economic preoccupation for western states for decades, but the field of economic activities through which states exert influence has grown broader. A notable instance is the energy transition, which has cemented the centrality of critical minerals and natural resources to economic strategy because of how metal-intensive the resource transition is. For instance, EVs use four times as much copper as petrol-based cars. A disproportionate amount of mining and refining capacity for a number of different metals is concentrated in the top three countries for that metal. As chokepoints for every economy increased, it was inevitable that policymakers would make an effort to ensure continuity of supply.

The lack of attention paid in Britain to these international developments is particularly surprising because the country is one of the most vulnerable in the G7 to economic coercion. Broadly, there are four categories.

Britain’s first vulnerability is that it is unusually open to cross-border flows of goods, services, capital  and information, and that openness is central to how the country earns its living. After Houthi attacks in the Red Sea, insurance costs for shipping through that corridor more than doubled – exactly the kind of price shock that matters disproportionately to an import-reliant island running just-in-time supply chains. Moreover, Britain is becoming more dependent on openness. From 2000 to 2023 the import dependency ratio for basic materials (imports minus exports as a share of consumption) rose to 28 per cent from three per cent even as total consumption fell. The open-economy model is also sustained by external financing, with Britain running persistent current account deficits for many years averaging around three per cent of GDP since 2000. Financing this deficit requires the UK to attract net financial inflows – either by selling assets abroad or by increasing external liabilities.

Britain’s second vulnerability is geographical. As an island nation, the UK’s critical supply chains rely on secure shipping lanes, ports and undersea infrastructure, such as subsea cables, as pointed out by the Business and Trade Committee’s economic security report. Britain has 51 major ports moving 400+ million tonnes a year. If energy cargoes, refined fuels, fertiliser inputs, basic metal products, or components get disrupted, that is a problem.

What is novel is that the island constraint now applies as much to data as to containers. The Joint Committee on the National Security Strategy (JCNSS) states plainly that the UK’s internet system relies almost entirely on subsea telecommunications cables to connect to the outside world, and that these cables carry the data that power every aspect of the economy and critical services. In other words, Britain can diversify suppliers, but it cannot easily diversify from the fact of being cut off by sea. It must treat undersea infrastructure as strategic terrain rather than benign plumbing. All this should make economic security planning – stockpiles, redundancy, planning and rapid crisis coordination with the private sector, plus the use of new technologies to circumvent cut-offs – a feature of a coherent national strategy rather than a reactive afterthought.

Britain’s weakness in geo-economic thinking is also striking because the UK has grand-strategic reflexes that require geo-economic competence. The government’s own Integrated Review Refresh frames the UK as an active power trying to shape an open global economy and resist coercion. It reaffirms a firm commitment to shaping an open global economy, adding that the UK will use trade policy and diplomacy to update international economic rulebooks for an era of systemic competition. The same document also emphasises the UK’s desire to ‘balance and shape’ in the maritime domain, including protecting shipping lanes and chokepoints. There is a clear and growing asymmetry between ambition and capability.

Finally, Britain is unaligned. It is tightly enmeshed with the EU in trade and geography, but it is outside the EU’s internal market machine; it is tied to the US strategically and financially, but it is not the US economy and does not get US-style insulation. Britain does not sympathise with China’s values and geopolitical goals, but is increasingly dependent on China’s economy, for example in the renewables sector. Britain is vulnerable to becoming a client state with regard to all three. But the problem also exists for Europe as a whole, as the debate around ‘strategic autonomy’ indicates. French President Macron has said that the EU must avoid becoming a tech ‘vassal’ of the US and China.

In response, Britain needs to recognise the limitations of its political and economic reach. Unlike the economic colossus of the late 19th century, Britain does not possess significant global market power either from the demand side or supply side. This is true across energy, critical minerals, manufactured and semi-manufactured goods. Its sanctioning power is far less potent than that of the US or of the EU, despite London being a major global financial centre. These limitations are not debilitating, but their reality necessarily informs policy. For the UK this means a more acute trade-off between domestic costs and effective geo-economic capability. For more resource-rich and powerful states such as the US this trade-off may not exist very strongly.

What does it really mean to assert this principle? At the very least it means abandoning pulpit-type rhetoric with no basis in Britain’s economic and material reality. Proclaiming Britain will lead a new glorious era of global free trade by unilaterally lowering tariffs on the one hand, or that Britain will ‘set the global agenda’ on climate change through leading on fulfilling emissions targets are not only deeply unserious propositions. They actively muddy the debate and take up time to refute analytically.

Britain needs to be clear about where state intervention is appropriate and where it is not. A line will need to be drawn in the sand. For instance, creating a new financial infrastructure to reduce Britain’s dependence on foreign payment providers, as was announced recently by the Bank of England and major UK banks, leverages Britain’s existing expertise, improves resilience, and does so without any meaningful disruption to the economy. But creating an advanced semiconductor vertical supply chain from scratch would clearly be an impossibly resource-intensive and inefficient white elephant. In areas where the UK can harness relative economic endowments and improve strategic resilience at the same time, such as via greater exploitation of its mineral resources in the North Sea, or Rishi Sunak’s championing of the 2023 AI Safety Summit (now in its fourth iteration), this should be an obvious goal for policymakers. In areas where Britain’s strategic resilience is under threat, but where a state-led approach would be inefficient – for example when it comes to chokepoints for key commodities such as oil and gas – contingency plans, stockpiling and diversification of supply chains should be the order of the day.

Britain needs a clear-eyed approach to economic alliances. British policymakers should recognise that the world of multilateral institutions engineered to reduce barriers to trade in goods and services as well as other forms of international economic transactions is long gone. One could argue the British public was well ahead of the game in understanding this by voting for Brexit. But since then, a cold appraisal of Britain’s international economic and strategic interests has been lacking. Instead policy has been characterised by vague and grandiose aspirations largely drawing on the past, rather than the future. Last year’s landmark free trade agreement with India has its cogent advocates and detractors, but geo-economics played little role in the debate, as was illustrated by the unfortunate fact that punitive US tariffs were slapped on India just a week after Starmer hailed the deal with Modi in Mumbai. More awareness of the changing international environment might have led to a better bargaining position for Britain. Moreover, Britain needs to be realistic that foreign policy and economic interests can diverge even among traditionally close allies, and that the relationship is dynamic, across both time and products. There has been little to no critical thinking about potential economic dependencies on the US, for example, perhaps because of the axiomatic status of the ‘Special Relationship’. But to take just one example, the UK has replaced its reliance on Russian gas supplies with US ones, a fact that is stimulating debate in EU states on the receiving end of US economic coercion, but not in the UK.

In the broader European context, the adoption of an economic security toolkit has hit its own snags, with one example being the long hesitation over using frozen Russian sovereign assets to fund Ukraine. Yet the changing nature of global affairs has also forced substantive rethinks of longstanding policy commitments, such as Sweden’s historic decision to join NATO in 2024. The Swedish example is a useful one in another respect, by highlighting the unintended economic consequences of failing to adapt to new political realities. Sweden was initially one of the economic winners of the First World War, maintaining a position of neutrality and supplying raw materials and semi-manufactured goods to the belligerent powers. But subsequent tightening of the economic blockade on Germany and a fall in Baltic trade severely impacted its economy, leading to a crisis and food shortages in the last years of the war. These themes should stimulate an urgent debate about Britain’s place and policy in an increasingly lawless and dangerous economic world.