For the first time in history, the United States Department of Defense (DoD) published a National Defense Industrial Strategy (NDIS) at the end of 2023. The document is complementary to the US National Defense Strategy that was published a year earlier and is intended to provide guidance for building a modern defence industrial ecosystem. To this end, the strategy introduces four priorities: resilient supply chains, workforce readiness, flexible acquisition, and economic deterrence. The first three focus on the functioning of the domestic market. The general idea is that the DoD should flexibly acquire goods and services from the US defence industry’s resilient supply chains that are maintained by a ready workforce. Economic deterrence, on the other hand, is a new concept and is broader in scope than just the US defence industrial base. Therefore, it is worth looking at what economic deterrence might mean and how it could affect the EU.

The NDIS is not clear about the exact meaning of economic deterrence. Scholars have used the concept in the past to refer to the strategy of deterrence by economic means. More specifically, they see economic deterrence as the use of economic instruments to affect a potential aggressor’s decision-making by manipulating the expected outcomes of the aggression. Deterrence can be achieved by either inflicting an economic cost on the aggressor (punishment), decreasing the economic capabilities of the aggressor (denial), or decreasing the economic benefits of the aggression (diminution). In the NDIS, however, economic deterrence refers to the economic aspects of integrated deterrence. The general National Defense Strategy describes integrated deterrence as a holistic view on deterrence, in which  policies, investments and activities are aligned. Economic deterrence in that sense means the ‘fair and effective market mechanisms’ that allow the development of capabilities for integrated deterrence. In a way, it could be seen as the American counterpart of the ‘partnering’ pillar of the EU Economic Security Strategy. Although sanctions and export controls are part of the DoD’s concept of integrated deterrence, such instruments are not included in the concept of economic deterrence of the NDIS.

Specifically, the economic deterrence priority stresses the role of allies in overcoming the economic obstacles created by adversaries. The priority includes actions to prevent sourcing from adversaries and encourages the closing of agreements to divert imports from adversaries to allies. In addition, the DoD aims to set common standards and increase interoperability with allies, and wants to share knowledge and technology with them. The inclusion of allies should allow the American defence industry to produce at the lowest cost and highest efficiency, while avoiding vulnerabilities to malign economic strategies and acquisition by adversaries of strategic technology.

Contrary to the three other priorities, economic deterrence focuses on the role of allies and partners in the US defence ecosystem and looks like an open invitation for US allies to cooperate. The EU has been one of the US’ closest allies for a long time, and economic deterrence is therefore of interest to the EU. More specifically, the EU is explicitly mentioned as one of the friend-shoring-suitable allies, and could therefore benefit from increased export opportunities to the US. In addition, the economic deterrence priority encourages standard setting with allies, providing NATO as an example. Of the 27 EU Member States, only four are not a NATO member, so further achieving common standards with the US could increase the possibilities of cooperation. Finally, the economic deterrence priority also announces increased sharing of technology and scientific knowledge with US allies. As the US is a global technology leader, the EU could stand to profit.

Yet, the EU would be naïve to celebrate the apparent turn toward industrial transatlantic cooperation too early. Economic deterrence is part of the US strategy to foster the American defence industry, while avoiding dependency on and transferring technology to adversaries. Cooperation with other countries is therefore not without strings attached. For one, the strategy includes conditions to be a friend-shoring partner. While the EU shares a history and values with the US, other explicitly mentioned criteria, such as shared strategic goals, security assurances, and supply-chain resilience, could lead to more controversy. Recent bickering, such as over American strongarming of the Dutch semiconductor equipment manufacturer ASML into halting its exports to China, prove that the US and its allies have not always shared visions on the last criteria. Additionally, the EU also has to deal with American protectionism and US export controls, as Kathryn Levantovscaia of the Atlantic Council pointed out. US president Joe Biden issued a new ‘Buy American’ order as recently as 2021, which further encourages the US government to only procure American goods and therefore jeopardizes the level-playing-field for EU based firms. In addition, president Biden signed the Inflation Reduction Act (IRA)  one year later. European policy makers are concerned that these lavish handouts will harm the EU’s competitiveness. US export controls, such as the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), include a ‘foreign direct product rule’. By means of this rule, the US appropriates itself jurisdiction over every good that has a part or technology with a link to the US. Consequently, the US government can ban a foreign firm from exporting goods or services to a third country. Each of these protective measures make partnerships in the defence industry more complicated for the EU.

Economic deterrence, as a novel concept included in the NDIS, gives the impression of an extended hand from the US to its allies to enhance the economic security of the US defence industry. Yet, a closer look learns that the cooperation is not unconditional. Likewise, other American policy instruments such as the new industrial policy initiatives and the foreign direct product rule, restrict further transatlantic cooperation. In sum, the economic deterrence priority provides the EU with an opportunity to work closer with the US, but the EU will have to play by US rules.