When it comes to international trade, countries have always weighed economic efficiency against national security. After World War II, they pursued free international trade through low tariffs in the belief that it was both economically efficient and politically stabilizing. World trade tripled as a share of GDP between 1950 and its peak in 2008, with about half of this trade in intermediate goods, reflecting the importance of cross-border production relationships. Although conflict continued, there were no global-scale wars like those that characterized the first half of the 20th century. Globalization and stability had won out.
The world is now reevaluating the role of economic interconnectedness in global affairs, mindful that more interconnection means more dependencies that adversarial nations can leverage to get their way in other areas of international relations. Resilient economies must be the response. A country must have access to the resources it needs to fight a protracted war. It must have a reliable supply of medicines, microchips, critical minerals, and other vital inputs, regardless of changing global alignment. And it must be able to rapidly increase production in response to an emergency such as COVID-19.
In the United States, President Donald Trump’s administration is working to de-risk supply chains and build domestic capacity in key industries to enhance economic resilience. This implies a modification of the policy of near unconditional openness that characterized the past.
These policies will, in some cases, reduce economic efficiency relative to a world in which we ignore geopolitical risk. These are the necessary costs of resilience. Economic modeling that recognizes the trade-off can guide policymakers. The challenge is to minimize the costs and ensure that crude protectionism is not enacted in the guise of national security.
Decades of fragility
For decades, international trade and investment progressed largely unchecked. In search of efficiencies, supply chains—and entire industries—moved abroad to their lowest-cost locations. Trade policy played a role, as did technological advances in communications, transportation, and logistics that made long-distance production relationships feasible. Differences in environmental and labor standards incentivized firms to relocate production to places that valued the environment and workers’ rights less.
The US-led international order provided the stability that helped these complex networks flourish. As supply chains stretched and concentrated, fragilities accumulated. These fragilities were always present but often manifested in limited or idiosyncratic ways.
A series of recent events raised awareness of these vulnerabilities and renewed interest in how economics and national security fit together.
COVID-19 supply-chain disruptions made it obvious to all that critical goods—things like pharmaceuticals, semiconductors, and medical supplies—came from a handful of countries and that major disruptions were both possible and painful. Supply-chain vulnerabilities surprised some companies. A Deloitte survey found that only 15 percent of chief procurement officers could see the risks beyond their direct suppliers.
Europe’s dependence on Russian energy reminded the world of the long-understood idea that economic integration can bind countries together in mutual restraint, but it produces leverage, too. In 2022 Russia accounted for 27 percent of EU oil imports and 45 percent of gas imports, according to the European Commission. By 2025, Russia accounted for 3 percent of oil and 13 percent of gas imports. Decoupling from Russian energy came at the cost of higher energy prices and slower economic growth. Higher energy bills cut incomes by about €1,000 per person in 2021–22, the Commission estimates.
Chinese export licensing controls imposed in April 2025 led to a shortage of rare earths and derivatives that threatened to shutter automotive, defense, electronics, and other production lines in the US and elsewhere. Six months later, China threatened to expand the scope and scale of its export controls in a stark reminder to the US of its vulnerability.
The US must now grapple with the national security risks that accompany key supply chains dominated by their adversaries. The geopolitical considerations of what we trade, and who we trade with, have become a priority.
This does not repudiate comparative advantage and the gains from trade; it is an acknowledgment that free trade is not always appropriate. Free trade in well-functioning markets is still the ideal and should be pursued wherever possible, particularly with allies. Yet many of the problems the US faces are the result of deliberate nonmarket forces, which distort production and consumption despite prevailing low tariff rates.
