Over the past year and a half, China has shown the world the power of its economic arsenal—starting with the United States. In April 2025, Beijing retaliated forcefully against U.S. tariffs, imposing matching across-the-board levies and export controls on rare-earth elements. This counterpunch rattled bond markets and disrupted auto supply chains, forcing Washington to seek a truce that persists to this day.

Next, China targeted Japan. After Japanese Prime Minister Sanae Takaichi described a potential Chinese naval blockade of Taiwan as a “survival-threatening situation” that could justify deploying Japan’s Self-Defense Forces, in November 2025, Beijing imposed suffocating bans on rare-earth exports to the country. Reluctant to reinflame tensions with Beijing, Washington offered nothing more than token support. Tokyo has held firm, refusing to walk back Takaichi’s statement; the restrictions remain in force, and Japan’s mineral stockpiles are dwindling.

Then Europe came under fire. Fed up with a trade deficit with China that had reached $1.1 billion per day, the European Union began exploring new tariffs to counter Chinese overcapacity in May. As China threatened “resolute countermeasures,” French President Emmanuel Macron urged U.S. President Donald Trump at the G-7 summit in June to join forces in addressing global imbalances. But the United States elected to sit on the sidelines again, and Europe blinked, opting for talks with Beijing, with an October deadline set by Europe to take concrete steps toward reducing China’s trade surplus.

The EU has since been in tense negotiations with Beijing over reducing exports of hybrid vehicles, chemicals, and machinery, taking on the threat of Chinese retaliation alone.

China, in other words, is exploiting the disunity between the United States and its partners. In a divide-and-conquer strategy that mirrors the Trump administration’s own globe-spanning tariff campaign, Beijing has broken the Western alliance into more manageable pieces, allowing it to fight actors one on one. Its market heft and control over critical minerals have been decisive, and as its fear of retaliation has diminished, it has rolled out more aggressive export restrictions and sanctions. In 2023 and 2024, Beijing added only five Western companies to its Unreliable Entity List, exposing them to financial and legal penalties; in 2025 alone, it added 76.

There is still hope for the United States and its allies—if they can relearn to act in concert. These countries should build a formal economic security alliance that establishes collective defense against economic coercion. The foundation of this alliance would be a pledge modeled on NATO’s Article 5, which considers an attack on one as an attack on all, in this case promising a joint response to economic coercion against any member of the alliance. Over time, this alliance could grow to address other economic challenges shared by members, just as NATO began as a security guarantee before evolving into a more integrated and expansive military alliance. It could adopt joint tariffs against Chinese overcapacity and currency manipulation, coordinate investment restrictions and export controls on advanced technology, and cooperate on critical minerals and AI development.

STRENGTH IN NUMBERS The United States, Europe, and Japan are all confronting a major shared challenge: Beijing is intent on making the rest of the world more dependent on China and China less dependent on the rest of the world. Beijing subsidizes domestic production far beyond local demand, undervalues its currency by 20 to 30 percent, and enacts coercive economic measures—such as export controls and sanctions—to gain leverage over Western governments and companies and undermine policies it deems against its interest. The country’s resulting industrial overcapacity and surging exports, epitomized by a record $1.2 trillion trade surplus last year, threatens U.S., European, and Japanese industrial competitiveness and jobs. Beijing’s record of weaponizing its strengths also means that Chinese advancements in frontier technologies, such as artificial intelligence and connected vehicles, which continuously share data with external devices, pose security threats to Washington and all its partners.

European businesses want to maintain ties with the United States.

If history is any guide, these Western states should be able to coordinate to use their collective power. During the Cold War, they came together to form the Coordinating Committee for Multilateral Export Controls to restrict sales of military and dual-use technology to the Soviet Union. After the 1973 Arab oil embargo, Canada, Japan, the United States, and a large group of European countries established the International Energy Agency, which required members to share reserves with any member affected by a supply cut—effectively a mutual defense pact for energy. And during the 2008 financial crisis, the U.S. Federal Reserve and other allied central banks coordinated rate cuts and established emergency swap lines to avert another Great Depression.

Yet in recent years, collective economic initiatives among Western allies have been underwhelming. In 2021, the U.S.-EU Trade and Technology Council was created to coordinate industrial policy and export controls toward China, but it largely devolved into a talk shop. In 2023, the EU established its Anti-Coercion Instrument after China boycotted Lithuanian goods in response to the opening of a Taiwanese Representative Office in Vilnius, but it has yet to use it. That same year, the G-7 announced a new Coordination Platform on Economic Coercion, which pledged members to warn each other and cooperate against shared economic threats, such as China’s nonmarket policies and economic coercion on critical minerals. But the platform contained no binding commitments and has largely been ignored.

These initiatives foundered from a lack of urgency and a reluctance among European countries to antagonize China, which is one of their largest trading partners. They were also constrained by disputes between European countries and the Biden administration over steel and aluminum tariffs and the large domestic subsidies in the U.S. Inflation Reduction Act. But Trump’s second-term policies have been the nail in the coffin. U.S. tariffs and threats to annex Greenland have rattled trust among American allies.

Washington’s trade truce with Beijing has dispelled illusions that the transatlantic partners form a united front and made European partners doubt that the United States will come to their aid. Calls are indeed growing within Europe for de-risking and “digital sovereignty”—but from the United States, not China.

More important, Europe has finally awoken to the economic threat from China, because the surge of auto and industrial exports from China to Europe poses an existential challenge for the continent’s economic model. Chinese auto exports to Europe increased by 29 percent in 2025 and by over 60 percent year-over-year in 2026 as European auto exports to China have flatlined. Germany’s mighty auto industry alone lost 50,000 jobs in 2025. Even Volkswagen, which lobbied against the EU’s tariffs on Chinese electric vehicles in 2024, has changed its tune. In July, its CEO all but urged the EU to extend tariffs to Chinese plug-in hybrids. Germany, which shed 74,000 industrial workers in non-auto sectors in 2025, has begun quietly identifying chokepoints it can use as leverage over China. Despite a provisional agreement with Beijing to curb Chinese hybrid vehicle exports in October, Brussels appears poised to unveil new measures against China on chemicals and machinery in the coming months as it finally grapples with the threat of Chinese industrial overcapacity.

When it does, the most important step will be terminating every tariff—issued pursuant to Section 232, Section 301, Section 338, or Section 201—and pending investigation against any ally that was imposed during the second Trump administration. This would present both a unilateral demonstration of good faith and an opening gambit for negotiations on an economic security alliance. It would be a decisive break from Trump’s tariff policy and a rejection of Biden’s halfway model, which mostly turned tariffs into quotas and suspensions. It would be both politically popular, considering Americans’ dismal view of tariffs, and good for the economy, as the removal of duties could lower prices and accelerate growth. And because Trump’s tariffs have all been enacted via executive action, they can also be terminated that way.

These unilateral measures would set the table for a formal economic security treaty. That treaty’s foundation would include an economic mutual defense commitment, mimicking NATO’s Article 5, which would go a long way toward restoring Western escalation dominance over China and therefore defanging Beijing’s threats. Such a pledge would have both defensive and offensive components. For defense, members would commit to providing targeted allies with economic assistance, preferential market access, and access to stockpiles of critical goods. Offensively, members would respond to coercion against an ally by applying joint sanctions, tariffs, or export controls. The United States, the EU, and Japan should form the core of this alliance given their individual economic and strategic heft, but other like-minded partners, such as Australia, Canada, and the United Kingdom, should be welcome to join as well.

Ensuring the alliance’s longevity will require more than goodwill gestures carried out by executive action. The most durable approach would be a congressional-executive agreement backed by legislation, which would embed the alliance firmly in U.S. law and make it harder to unwind. Critically, this legislation should protect allies from the whims of future presidents. Over the years, Congress has delegated broad powers to the executive to impose tariffs for national security and other reasons—powers that recent administrations have used with reckless abandon.

Congressional treaty legislation could codify the removal of these excessive tariffs and restrict any additional duties on alliance members unless approved by Congress. This self-limiting measure would give allies confidence that the bargain would survive changes of U.S. administrations. To address the possibility that novel legal theories could somehow be used by the executive branch in the future, the treaty legislation should also enact an automatic sunset after 60 days on any new duties on alliance members unless Congress affirmatively acts to retain them.

Finally, the bill would pre-authorize rapid assistance to any ally facing foreign economic coercion, giving the executive the authority to honor the pact’s collective defense commitment.

These measures would be important not only to improve trust between governments but also between governments and the private sector. Firms make investment decisions based partly on whether they expect relations between countries to remain stable and predictable—often on a five- or ten-year time horizon, beyond any one U.S. presidential term. Today, in light of the transatlantic friction over trade and technology, many companies are debating whether to create separate operational and supply chain ecosystems for Europe and the United States.

By constraining a future U.S. president’s ability to impose new tariffs on alliance members, an economic security pact would give companies confidence to build lasting economic links across the alliance system, even in the absence of a formal free-trade agreement.

Enacting ambitious legislation is always difficult, but there is reason to believe that U.S. lawmakers would be supportive of such an alliance. Chinese economic coercion is a bipartisan concern. Although some members of Congress may be wary of coming out against tariffs, the tool has become significantly less popular during Trump’s second term, and reclaiming congressional authority over tariff policy would serve Congress’s institutional interests. In a February survey by the Harris Poll, 72 percent of Americans agreed that Trump’s tariffs have had more of a negative than a positive impact, with 60 percent of Republicans agreeing that they have negatively impacted consumers. Tariffs on allies are especially unpopular: in an Ipsos poll conducted in August, Americans opposed placing additional tariffs on Canada by nearly three to one. Tariffs have also become closely associated with inflation. In an August poll conducted by the Council on Foreign Relations and Morning Consult, 75 percent of Americans reported being concerned about the price of food and groceries, and 83 percent of that group said that tariffs had increased those prices. With affordability now Americans’ number one concern, lawmakers have strong incentives to vote for legislation limiting tariffs.

MAKING IT OFFICIAL The United States would have to lead the way for an economic security alliance, but just as important would be negotiations among potential members over the rules governing the pact itself. The agreement should spell out how collective defense would work in practice, specifying how allies can facilitate sharing commercial information and economic intelligence; who determines when economic coercion has occurred; and what kind of assistance, offensive and defensive, members can expect in such an event. If the alliance were successful in expanding its membership and scope, it could establish an independent secretariat to help it function, but the goal should be to make commitments credible without creating another sprawling international bureaucracy.

Collective economic defense would be just the starting point. Over time, the alliance could adapt to address a broader set of economic security challenges. On Chinese overcapacity, members could coordinate tariffs on the sectors most distorted by nonmarket practices such as subsidies and preferential financing, preventing Beijing from simply redirecting surplus exports from one allied market to another, or leverage a common baseline tariff on Chinese goods to compel Beijing to strengthen its undervalued currency. The same logic applies to export controls, which Western countries vary widely in applying. To break reliance on Chinese critical minerals, members could use the alliance to simplify the confusing set of international critical mineral initiatives underway by streamlining financing, making long-term purchase commitments, investing in processing, and building up stockpiles.

Crisis has created opportunity for institution building in the past.

To be sure, an economic zone for the free world would be an ambitious undertaking, especially at a moment of unusually low trust between the United States and its allies. But the United States, Europe, and Japan do not need to agree on all matters of economic statecraft to build such a space, nor do they need to trust that future governments will always share the same priorities. What they need are institutions that allow them to cooperate despite those disagreements and that make their most important commitments durable enough to survive political change.

Moments of geopolitical rupture have provided fertile ground for institution building in the past. NATO emerged amid doubts about whether U.S. support would continue after World War II. In 1956, the Suez crisis badly strained U.S.-British relations, but in the years following, Washington and London rebuilt their partnership and established the 1958 Mutual Defense Agreement, which solidified nuclear cooperation and further bound the two countries together. The economic turmoil of the early 1970s, including the United States’ controversial exit from the Bretton Woods system and the Arab oil embargo, ended up pushing the major industrial democracies toward regular economic coordination that evolved into the G-7. In each case, crisis created opportunity.

Today, the hardest part for Washington will be accepting constraints on its freedom to act unilaterally. Presidents of both parties have long been wary of legislative checks on executive power out of fear that binding their hands would signal weakness. But if American power is constrained by predictable rules, allies will be more comfortable depending on it. If allies fear American economic power, they will hedge against it. Washington, in reserving the right to turn its economic weapons against its allies, will struggle to mobilize the collective weight of its alliances in markets, technology, and capital.

China’s divide-and-conquer strategy has capitalized on distrust within the U.S. alliance system. Restoring that trust will require Washington to make commitments that persist no matter who occupies the White House. The central wager of an economic security alliance is that the United States can gain leverage over China by surrendering some leverage over its allies. An economic zone for the free world can turn the tide against China, but only if the United States ties itself to the mast.