Finance (Formerly Financial Services) –
In an era of Great Power Competition and the rise of the People’s Republic of China (PRC), this paper explores the intersection of the U.S. financial industry and national security. The finance industry study focused on three lines of effort: trends in capital markets, financial innovation, and financial statecraft. The research explores how the U.S. finance industry can advance national security in the face of legal, political, practical, and geopolitical challenges.
The United States has held a dominant position in the global economic order for decades, owing in part to the strategic foresight that established the Bretton Woods system. However, this dominance is now being tested by the economic rise of the PRC and a shift toward multipolarity. The PRC’s economic maneuvers, characterized by predatory investments and coercive measures, are challenging the norms and standards set by the United States. Simultaneously, domestic challenges including political polarization, high debt levels, and economic inequality threaten the U.S.’ internal stability and global economic leadership.
U.S. capital markets, a cornerstone of the country’s economic strength, play a pivotal role in national security. They enable efficient capital allocation, foster innovation, and drive economic growth. Additionally, capital markets empower the U.S. to exert international influence through economic policies and tools like sanctions and trade policies. However, the evolving nature of these markets—characterized by a decline in public listings and a shift toward private capital—suggests potential obstacles in maintaining economic dominance and leveraging these markets for national security.
This paper argues for a more purposeful Department of Defense (DoD) approach in leveraging U.S. financial strengths to bolster national security. This includes enhancing the DoD’s strategies around economic statecraft to effectively use financial tools for national security ends, particularly focusing on technological innovations and capital deployment to counter adversarial economic tactics. Additionally, the paper advocates for including diverse human capital in shaping the finance industry to ensure that economic policies and national security objectives are well-aligned. The paper also recommends adjusting regulatory measures to mitigate vulnerabilities in capital markets that adversaries might exploit, particularly in cybersecurity and illicit finance. Finally, the paper encourages closer collaboration between the public and private sectors to align national security objectives with financial and economic activities.
As the global economic landscape becomes more competitive and complex, the United States must strategically adapt its approaches to maintain its leadership role. This involves reinforcing its financial markets’ domestic foundations while proactively engaging in global economic governance to shape outcomes that secure national interests against emerging threats. This paper offers a blueprint for integrating economic power with national security strategy in an era of significant geopolitical flux, while acknowledging the rapidly evolving technological, legal, and geopolitical environments.
The United States is at a critical juncture and must recalibrate its tools of economic influence to address and navigate the challenges of modern geopolitical competition effectively. The recommendations ensure that the United States will continue to harness its economic prowess to support robust national security strategies, thus maintaining its status as a global leader amid changing international dynamics.
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