States have also militarised central banks, inserting security officials into senior roles. For example, a senior military officer has served as CBR deputy governor since April 2023, overseeing the almost 90 field offices that channel state funding to combat troops and bypassing the commercial banking sector. Central Bank of Iran (CBI) officials – including the former governor – and, ultimately, the CBI itself have been designated for providing material support to the Islamic Revolutionary Guard Corps’ Qods Force, demonstrating the role some central banks have played in sanctions evasion and financing destabilising activity. Finally, foreign reserves management – a vital element of sound monetary policy – has also become an object of financial warfare. Following their summit in Italy in mid-June, G7 leaders agreed to loan Ukraine $50 billion using the CBR’s frozen reserves, as debates persist over the status of sovereign assets in wartime.
Disruptive Technology Dominance
Beyond central banks, an array of governmental actors focused on trade, strategic technologies, and innovation are playing an active role in national security. This dynamic is perhaps best illustrated by the US–China AI arms race. The US Commerce Department has been spearheading Washington’s efforts to enforce more rigorous export controls against sensitive technology, such as the semiconductors that form the backbone of sophisticated AI software. Through the CHIPS Act and other industrial policies, Washington has allocated billions of dollars to industry leaders, such as Intel, to increase supply chain security by reshoring manufacturing of semiconductors to the US. This move is aimed at reducing the disproportionate global share of semiconductors (90%) currently manufactured in Taiwan, given the elevated risk to supply that could result from a hot conflict with China over the disputed island. For its part, Beijing has also taken steps to reduce its reliance on US and Western technology. China has accelerated the substitution of Western chips with domestic ones in government systems, a move some observers assess will soon be repeated in the telecommunications and finance sectors, as Beijing has vowed to centralise technology development under the Communist Party.
Against the backdrop of this acute competition, Western powers are also addressing the imperative to modernise their own defence establishments. Through the US Defense Department (DoD)’s Office of Strategic Capital and Defense Innovation Unit, greater emphasis is being placed on expediting acquisitions and integrating emerging technologies into byzantine bureaucracies. US allies are also taking similar steps. In March, NATO doubled the size of DIANA, its transatlantic defence innovation network of technology accelerators and test sites.
These steps are a good start. However, as former NATO supreme allied commander Admiral James Stavridis wrote recently, China and Russia are leveraging multilateral bodies like the Shanghai Cooperation Organization to rival NATO and peel states like Turkey and Saudi Arabia away from the US-led order. At a moment when differing approaches to the Ukraine war and the Indo-Pacific pivot threaten to expose transatlantic fault lines, it is more important than ever that NATO countries not only militarily prepare to counter China and those in its orbit, but also form cohesive economic frameworks that can attract the world’s best talent, technology and investment to maintain their competitive edge.
Battlefield Proving Grounds
Some Western companies are not only helping prepare for future military contests with the Beijing–Moscow axis, but also actively shaping them now. Earlier this year, TIME dubbed Russia’s war against Ukraine ‘the world’s first AI war’, with tech startups and incumbents alike using the country as a laboratory in which to test their products and services. For example, more than half a dozen Ukrainian ministries are now using Palantir. The company’s software uses AI to analyse satellite imagery, open-source data, drone footage, and ground truth reports to present commanders with military options, and is responsible for most of the targeting in Ukraine. Similarly, the DoD’s dependence on Starlink for satellite coverage in Ukraine – but not in Crimea – concretely demonstrates how leading tech companies can offer military advantage. In spite of this ad hoc material support to counter Russia, to say nothing of the West’s economic warfare against Russia in the form of comprehensive sanctions and robust export controls, Russia is still showing it can manage its wartime economy. Its ability to increase trade with China and successfully source critical materiel, such as ballistic missiles and UAVs from North Korea and Iran, respectively, suggests that a more coordinated Western strategy might be in order.
Companies in the Crosshairs
Beyond the sanctions onslaught against Russia, Iran and North Korea, economic warfare between competing blocs is also taking place in the shadows. Given how much cutting-edge research with national security implications is taking place at frontier AI companies and elsewhere in the tech sector, it is no surprise that this broader attack surface has spurred companies like Google, OpenAI, and Sequoia Capital to tighten their staff vetting to protect sensitive intellectual property and data amid warnings of Chinese espionage. In October 2023, the FBI hosted the Five Eyes summit, held symbolically in Silicon Valley. At the event, leaders of the Five Eyes intelligence partnership stressed to business leaders and entrepreneurs the importance of defending Western innovation and high technology against state-backed economic espionage. Leaders from opposing blocs have simultaneously met to reduce tensions. At two meetings in 2023, US AI companies have held back-channel talks in Geneva with Chinese counterparts to establish norms and lanes in the road. The meetings were arranged with the knowledge of the White House, suggesting that governments are leveraging companies to amplify policy priorities, such as responsible innovation in AI.
