The Rise of the Economic Security State

DAN KURTZ-PHELAN

Henry and Abe, great to have you here and great to have a magnificent essay by the two of you, “The Weaponized World Economy,” leading off our new issue.

HENRY FARRELL

It’s wonderful, and we’re really excited to have it in the world.

ABRAHAM NEWMAN

Thanks, Dan. It’s awesome to be here.

DAN KURTZ-PHELAN

That new essay builds on work the two of you have done over the last several years in Foreign Affairs, but alas, not only in Foreign Affairs, on what you call weaponized interdependence. It’s really one of the most important concepts to have emerged from political science in the past several decades, and also explains and illuminates what’s going on at this rather astonishing moment in global politics as well, or perhaps better than any other framework. So, let’s start at the beginning. What’s the history of weaponized interdependence? How do you trace its increasing centrality in post–Cold War U.S. foreign policy and in geopolitics more generally? Henry, perhaps you could start by taking us up to the start of Donald Trump’s first term, and then Abe, take it from Trump One until the start of Trump Two.

HENRY FARRELL

So I think one of the things about our idea of weaponized interdependence is that it really builds on the idea that this was happening before Donald Trump. So a lot of the dynamics that we identify are dynamics that really built up in the system in the aftermath of the September 11, 2001 attacks. And this is the moment when the United States began to realize that it could take advantage of some of the dependencies that had built up in the global system, and effectively turn all of these global networks, which up to that point U.S. authorities have been somewhat reluctant to think about in national security terms—it could turn these into tools of national security and into tools, in effect, of coercion against banks, against individuals, and eventually against entire countries that did things that the United States considered to be against its interests.

Now, one of the things that we really stress—and this is something which we wrote a book, Underground Empire, which talks about this at length—we really stress how it is that these developments didn’t all happen at once and they were not the product of some grand strategic plan by the United States. Instead, this was more or less a story about officials improvising, looking at some very specific threat—first of all the threat of global terrorism after September 11, then a much greater variety of threats over time—so looking at these threats and trying to figure out improvisations for how to deal with them, and in the process building on what their previous predecessors had built in the past.

And so, in a sense you get this structure being built, which is never really considered, which is never really something that is the subject of long-term foresight or planning. But instead, you get these somewhat overworked and overwhelmed officials building up a pretty extraordinary machinery of coercion bit by bit, piece by piece, in a somewhat unconsidered fashion, thinking about the shorter term but not really thinking about the longer-term consequences. And now I think we’re in a world where some of those longer term consequences are really coming back home in some very unfortunate ways.

DAN KURTZ-PHELAN

Henry, let’s just stick with you for a moment. Can you talk a bit about some of the specific networks and resulting chokepoints that were especially important as you see the rise of the use of weaponized interdependence? There’s the dollar, and payments networks, and surveillance infrastructure, but just walk us through the machinery of that.

HENRY FARRELL

Well, where Abe and I really started to think about this was with regard to the SWIFT network. So, Abe and I had written a book where we had written about SWIFT, and Abe figured out that there was something there that really needed to be paid attention to. People in international relations—the field of academic international relations—didn’t really pay much attention to SWIFT, with a couple of exceptions like Erik Jones. Instead, they just treated it as being part of the banal infrastructure of the global economy.

So Abe suggested this and we began to pull on these threads, and we really began to realize how much of the rest of this apparently boring infrastructure, the plumbing of the international system of finance and of information and also of manufacturing, how much of this plumbing was in fact being politicized and even being weaponized in these quiet clandestine combats, which never really got the attention that they deserved because they seemed to be happening in very, very tedious, infrastructural ways: the kind of things where you might see an article on page three or page five of the Financial Times or the Wall Street Journal, but nobody ever really picking it up.

So we ended up saying that there are really three major forms of network that we can pay attention to. One is, as I say, the financial network, and here we’re talking about not just SWIFT, but also the dollar clearing system, which is in fact much more important. This is the system through which currencies get swapped in and out of U.S. dollars in ways that give the United States hooks into the international system. We looked at information which has been primarily used for surveillance during the first period, although it is perfectly possible that this might change. We’re seeing much more fights happening over information now that the United States has abandoned, I think, its commitment to a global open internet. And finally, we looked at manufacturing. This is something that really came more into focus as we wrote our book, looking in particular at the battles over semiconductors and what kinds of politics those have unleashed on the world as this incredibly complex international system for manufacturing, again, has been weaponized by the United States in ways that really have some very important consequences.

DAN KURTZ-PHELAN

Abe, let’s take that story up to the first Donald Trump term. In the new Foreign Affairs essay, you two note with understandable surprise that officials in the first Trump administration actually seized on the idea of weaponized interdependence as a “beautiful thing.” How did they understand your research, and how did they start to expand on its use?

ABRAHAM NEWMAN

Yeah, so I think the key thing was starting in the first Trump administration, the government starts to use these tools in a more traditional national security vein than had previously been used. In the Obama, the Bush administration, they were used primarily to reach what you would call international legal objectives: contain terrorism, nonproliferation issues against North Korea, Iran. They were generally used—things that, let’s say, the international community, maybe they didn’t like the way the United States was doing it because it was too unilateral, but people agreed, at least our allies agreed, that this was an objective. But what the Trump administration starts to do—and this really happens with the ZTE order (ZTE was a major Chinese telecommunications company) and then Huawei—where the U.S. government starts to target China in an effort to degrade its technological capabilities. And that, I think, is a more great-power politics vein of using these tools.

And the Biden administration, they just escalate these efforts. If you think about what the National Security Council was doing with the [AI Diffusion Rule], it was a whole effort to limit China’s ability in advanced semiconductors, and that it was not because there’s some global norm against terrorism, corruption, democracy, but it was really about U.S. national security. And that, I think, is where we’re seeing a real shift in the current Trump administration, because the aim is no longer clearly about national security or international legal objectives, but it’s really increasingly about parochial interests of the president for domestic politics. So if you think about sanctions against Colombia because the president wants Colombia to take deportees, or the tariff policy against Brazil, punishing them for going after Bolsonaro, we’ve really lost the thread from either of those previous objectives, international legal objectives or national security, and it’s become just really domestic politics. And that’s, I think, in the piece that we wrote, one of our biggest concerns, is that if you start to do that it just looks like brutal coercion.

DAN KURTZ-PHELAN

It does strike me, Abe, that it’s not just that the kinds of objectives that the Trump administration has focused on when using these tools have expanded and become much more domestic, but that Trump has really learned just how powerful and varied the American weapons of interdependence are, and he’s using them extremely aggressively. Does, in addition to the objectives, just the way he’s using those tools strike you as different from either the Biden administration or the first Trump administration?

ABRAHAM NEWMAN

I don’t think that there’s a clear strategy. I think they’re just being used as a first toolkit in every toolbox. And so you just see them being used almost willy-nilly against any objective—the first thing you do is punish. I think the second thing is that they’re being used in a completely arbitrary way. Traditionally, if you were going to—let’s say CFIUS—the way you do foreign investment screening—it went through an interagency process that was trying to create predictable rules for firms about what they might expect and how they would respond. That process is no longer really there and it is just an escalation of, it’s kind of like a dominant strategy. It’s not about, “We reach a deal that is a new equilibrium.” The goal is just to squeeze. And so these tools are being used because they’re good at squeezing. They’re not necessarily good at getting a permanent deal or some kind of stable outcome, but they’re great at resetting the negotiation table so that you’re the dominant actor.

DAN KURTZ-PHELAN

One other striking thing, before we get deeper into some of the dynamics around these tools in the Trump administration, is the extent to which your idea of weaponized interdependence is really a repudiation or at least a corrective to the standard accounts of globalization. I’m slightly caricaturing this here, but it was supposed to be a source of comity and convergence around democratic systems and capitalist systems. What you make clear in your work on weaponized interdependence is that those assumptions were almost exactly wrong. Henry, how does this change the view of globalization and how we think about its role and its place in global order, which was supposed to point history in a very different direction?

HENRY FARRELL

Well, I think that it does really point to some of the flaws in the triumphant narrative of global liberalism. And here, if we think, for example, about the standard arguments about interdependence, as you suggest, were really arguments about how this would promote peace and how this would promote commercial relations, which were pretty stable, where everybody knew that they had no great incentive to upset the apple cart. And so I think that as this was happening we saw a two-fold strategy where a lot of United States policy was focused on promoting this world, but also at the same time taking advantage of this, providing a dealer’s edge through the use of these capacities of interdependence in an extremely strategic way.

And here I think Abe and I, the ideas that we had, really have, I think, provided a very different view of globalization. And here it was very interesting to hear Bob Keohane, who appeared on a previous example of this podcast, talking about this and really talking about the ways in which his vision of the world and his vision with Joe Nye, we had entered into a very different world in which weaponized interdependence was a key part and a crucial part of the story. Equally, I think that in a very important sense, Abe and I, and we disagreed with a lot of the diagnosis of how these systems would work, but we also both think that having an economy, a global economy and a global security system in which there is some recognition of interdependence and of the incentives that that provides to actually do things together, we think that this is a pretty good thing. We think it is much, much more difficult to achieve than many people thought, the kind of Thomas Friedman view of the world in which all of this stuff would happen in a sort of magical and a self-reinforcing way has turned out to be wrong.

This is a lot of hard work. It’s very, very hard to see, given the Trump administration, given China, given many of the other things that are happening in the world, how you ever put Humpty Dumpty back together again. But even if you can assemble some pieces of the eggshell together in a future administration in ways that provide for a somewhat fractured, somewhat shattered, somewhat less effective way of trying to figure out how to work together, this is going to be really important because the challenges that require us to think together, including, for example, climate change, which is something that Abe and I have not really written about all that much, but which is perhaps the greatest example of interdependence you can possibly think of—that is, a situation in which our actions individually have massive and potentially grave global consequences—we really need to figure out how to put this stuff back together again as best as we can.

So for us, I think Abe and I—this is not a sense of a triumph on our parts. This is more a sense of, we’ve really got to realize the gravity of the situation and we’ve got to figure out ways to get ourselves out of this trap, which we wandered into through not really paying attention to some of the implications of the systems that we were creating.

ABRAHAM NEWMAN

Yeah, I just want to say I think for many people they had this caricature of globalization where it was going to de-center power, and it was going to put states on the sideline. And so we were going to have markets that were very decentralized, and the consequence for global politics was firms were really going to be the main actors and states were going to be neutered. And that’s really our intervention, is to say: the markets, the prediction about the markets, was totally wrong, is that in most of the most important global markets we do not have decentralized economic activity. We have centralized economic activity. So if you think of your phone, it’s run by one or two operating systems, Apple or Google; a chip by one or two companies, TSMC or Samsung; and if you make a global financial transaction it’s just through a few global banks.

So once you get that hierarchical centralized economic world, then you can’t separate states and markets, they become fused and governments increasingly use that structure to get at their enemies. And so I think for people, we want to just shatter that caricature that is somewhere it’s lodged, even if you’re like, “Oh, Thomas Friedman, I don’t buy that ‘world is flat’ thing,” it’s there. And so we’re trying to offer people an alternative, and it’s a very simple story. It’s just “centralized markets create opportunities for control, whether that’s choking people out of them or surveilling them,” and I think it opens up a whole different playbook of how firms, citizens, and governments need to prepare for this new world we’re in.

DAN KURTZ-PHELAN

And Abe, just to linger on that point: is the thing that all of us were missing for all those decades of this very different view of globalization, the chokepoints that gave powerful actors control, that even if networks were distributed involved millions or billions of people, that there would still be these chokepoints that powerful actors could control to really manage those networks and use them to their own ends?

ABRAHAM NEWMAN

I mean I think we just lied to ourselves that security and economic issues were decoupled, and that markets were about efficiency and not power. You would never go to India and say, “You know what? British colonialism was about market efficiency, and that’s really what that was about.” It’s like, through history, these things have been coupled and in the post–Cold war period, because we had U.S. hegemony, it was under the surface. People just believed that they were in a world of peace, and so you didn’t need to worry about those things. And so the key point is that the market structure is not neutral; the market structure creates a topography, so you can look for chokepoints. I think in the piece that we just recently published, we’re thinking even more about technological stacks that are intertwined. It’s really about, instead of having mutual dependence, you have asymmetric dependence. And that could come about in a bunch of different ways. And you really have to understand the economic logic of specific sectors to then think about, “Where are these dependencies created?” and then how to respond. And if you just keep going on like, “Well, this is just a market and it’s just about neutrality,” I think you’re missing the picture. Apple is never about competition; that’s not what they want. Microsoft doesn’t want that either. They want rents, and the government, once they see that, they want power and those things are coupled together.

DAN KURTZ-PHELAN

The really striking point, and the thing you show very clearly in the new essay, is that these weapons that the United States had used more or less unilaterally and more or less uniquely for a couple of decades after September 11 have become weapons that lots of others can use. And you talk about the proliferation of these weapons. There were, I think, growing warnings over the last decade or so, including from senior U.S. officials like Jack Lew when he was Secretary of the Treasury, warning that American abuse of this power would lead to a backlash and that could be the erosion of their effectiveness because people would create workarounds or others turning them against us. As you look at the counterfactual, as you look at that history, was there a way to avoid this proliferation? Was there self-restraint on the U.S. part that might’ve gotten us to a different place?

HENRY FARRELL

So I think that in theory, yes. In practice, it turned out to be extremely difficult for U.S. officials to actually deliver on the self-restraint front. It’s like the St. Augustine thing, back when he was a lively young man, sort of a “Lord make me chaste but not just yet.” I think that that has been the standard story of the United States when it comes to using these tools in a somewhat restrained fashion. So you saw Jack Lew—he made the speech, but he made the speech effectively when he was on the way out. So this was, in very important ways, I think this was a warning to his successors, and it was a warning to his successors that really turned out to be extremely difficult to deliver on. And I think this is partly for reasons within the administration, of any administration, you are trying to use whatever tools you have to deal with whatever crisis it is that is right in front of you at the moment. And it is very, very difficult to call for restraint at any point in time.

This is also partly to do with, I think, the U.S. Congress. U.S. Congress has seen sanctions, economic sanctions in particular, increasingly technological restrictions, as being a magical self-licking ice cream cone, where the more you use it, the more powerful it gets, rather than the opposite, which is of course what we argued about. So, we describe in the piece for Foreign Affairs, we rely on some reporting from the Washington Post about efforts to try to restrain sanctions power, which is a big part of this, with this 40-page document, which effectively gets whittled down through interagency review into eight pages of toothless recommendations. There has been no great appetite to restrain—

DAN KURTZ-PHELAN

That was during the Biden administration, is that right?

HENRY FARRELL

Correct, that was during the Biden administration. There are extremely smart people within the system who recognized the problems associated with it. I think if we had seen a Kamala Harris administration where [former Deputy National Security Advisor for International Economics] Daleep Singh was involved, I think he very clearly was trying to figure out what is the equivalent of a national security strategy for economic security, which might have brought some of these issues to the fore. But obviously we find ourselves in a world where restraint is not exactly something that the Trump administration is interested in. Instead, not only is it shoving its fingers to the stove when it is red-hot; it seems to be doing so again and again and again in the assumption that maybe this time we won’t get burned quite as badly.

There is some recognition of the problems. Clearly, Marco Rubio has spoken about Chinese ability to counter-coerce, but then we see Donald Trump suggesting that we are going to be able to hit them back. And basic notions such as escalation dominance, such as whether or not this is going to be in the long-term interest of the United States, these questions—I’m sure there are people thinking about them privately, perhaps there is some discussion that is happening behind closed doors, but I don’t see any particular evidence that the people who perhaps would like to see a more restrained approach to this are going to have any influence in the Trump administration, barring some catastrophe after which everybody starts to try and figure out what the hell to do next.

DAN KURTZ-PHELAN

You open the new piece by noting China’s response to Trump’s use of some of these weapons, and especially the Liberation Day tariffs, and you really focus on the framework deal between the U.S. and China in June, earlier this summer, that, as you say, “marked a silent shifting of gears in the global [political] economy.” Quoting you here: “it was the true opening of the age of weaponized interdependence, in which the United States is discovering what it is like to have others do unto it as it has eagerly done unto others.” Abe, what was so striking about that deal and China’s response to Trump’s tariffs? Why does this seem like such a turning point to you?

ABRAHAM NEWMAN

Well, I think the key thing was that it was not just that China responded with an economic threat, but it also had the institutional capability and also the strategic positioning in a sector to do that. And so one of the things we talk about is, it’s not just that countries are responding by creating new economic solutions, but they’re also building up their capacities. And so it was creating a set of export control laws, the bureaucracy to implement these kinds of things. So I think on the one hand, it’s really about how weaponized interdependence usage then creates institutional responses. You see this also in the European Union: they create an economic security strategy. Japan did this as well in the 2010s in response to Chinese coercion. So it’s: as you do this, then the state tries to learn and respond.

And the second thing that we try to highlight is that it’s also not just about commodities. Everybody, when they focus on rare earth metals, it’s about, “We need the magnets for the electric vehicles or the whatever, the technological product.” But what you increasingly see is that China is dominating the processing sector. And so it’s not just that you can’t get the commodity; it’s that if you want to have your indigenous production system, you’re dependent on China for the technology. And so it’s very much a mirror image of the U.S. use of ASML against China for semiconductors. ASML is the Dutch company that makes the lithography for the semiconductors. It’s this key machine tool part for the semiconductor industry. You’re now seeing that strategy being run against us, but in the critical minerals sector. And so I think this is where actors are realizing that they can’t just find an alternative supply because they need the whole stack of technology and China has come to dominate that.

HENRY FARRELL

So I just wanted to add to that, that there’s another piece in the same issue of Foreign Affairs, which I think is useful to think about this. This is the piece by Arthur Kroeber and Dan Wang, whose book came out a couple of days ago on Tuesday. And one of the points that I think Dan, in particular, hammers home again and again and again is the crucial importance of process knowledge. This is something which doesn’t really appear very much in the planning of grand strategy because it’s very, very difficult for people, say for example, in the State Department or whatever to get their heads around it, but the capacity to build up a detailed understanding of manufacturing processes can provide a powerful source of advantage, but also can provide something which is much, much more difficult for the United States or for other actors to manipulate than chokepoints.

So I think when we begin to move to thinking about stacks of technology as well as chokepoints, we need to pay attention to the ways in which these not just enable chokepoints, but they also have positive advantages in terms of the capacity to actually produce good stuff at scale. And if we want to look at U.S.-China competition, clearly the fact that China is leaping ahead of the United States in the energy sector and the energy industry in its capacity to do all of these physical things is an extraordinarily powerful source of long-term advantage. And it is really, really difficult for the United States or anybody else to use chokepoints to try to manipulate this because it has to do with much more informal, much more tacit forms of knowledge, which don’t really lend themselves as well to national security tools. You see bits and pieces happening around the semiconductor industry, where the United States, under the Biden administration, did look to prevent U.S. persons from engaging with the Chinese manufacturing sector in ways that might be helpful to them, but these are pretty crude instruments and it’s pretty tough to do well.

DAN KURTZ-PHELAN

Abe, Henry alluded earlier to the speech by Secretary of State Rubio, where he talked about just how effectively China had cornered the market, as he put it, for rare earths and how completely American industrial capacity was dependent on Chinese supply chains. The two of you see a very deliberate effort by the Chinese government to develop these tools over time, really going back to 2013 and the Snowden revelations. Describe that process. Describe what the Chinese government did to develop these sources of leverage. What is the Chinese way of interdependence? Henry started to allude to this, but China seems to have refined approaches that perhaps started in Washington.

ABRAHAM NEWMAN

I mean, I wanted to start by saying I think all of this just shows the lack of planning and how important interactions are between great powers. So this is not, from the beginning, some U.S. plan to dominate global infrastructures. And also I think we have to be very careful about thinking about China as all-seeing, all-knowing about how these interactions are going to play out. And at least in our book, one of the things that we are continually just shocked by is how key actors talk about the lack of downstream thinking, about what are the consequences of using these tools? So, we have this one quote in Underground Empire where an interviewee talks about “What would this button do?” sanctions. And it’s just the lack of thinking about yes, they can see, like, “Would it cut off supplies of key elements to an adversary?”, but then what is the adversary going to do in response? And that’s in sanctions and export controls, the lack of that.

And what we, together with some co-authors, Yeling Tan and Mark Dallas, what we show in a paper that was in International Studies Quarterly, we show when the U.S. starts to use coercion, both in surveillance in the case of the Snowden revelations and in chokepoints in the case of Huawei and the ZTE coercive efforts, that what you see in China is a movement in a set of bureaucracies to elevate self-sufficiency as opposed to interdependence as the strategy in technology spaces. And I don’t think this is rocket science. If you start to say, "We’re monitoring you and you’re not going to get key things and we’re going to box you out of key parts of the global economy," of course China is going to start to try to think about self-sufficiency. And of course, they had already been doing that in other sectors. That’s what the [Made in China 2025 initiative]—it’s not like they hadn’t been thinking about, "We need to develop our own economic systems." But you see that really escalating after the United States puts the thumb on the scale in these different sectors.

And what we describe in the most recent piece is really how China is developing dependencies for the United States and Europe in key sectors, most specifically energy, in which there really is an asymmetric dependence on these technology stacks, and that that is, I think, very clearly being done intentionally. The government is sponsoring those types of efforts. And what we’re very worried about is that U.S. efforts to respond to that are being kneecapped right now. So you basically see the entire renewable sector—batteries, EVs, those areas the government support that had been put in place—is being eviscerated. And so we are basically, at the same time that China is pursuing a very clear strategy, we are left without anybody at the wheel.

HENRY FARRELL

So one way to think about this is to get back to your earlier question about the earlier vision of liberalism that, in a sense, we began by criticizing, and talking about the ways in which this paradoxically worked in favor of U.S. power and U.S. strategy in ways that would not have been possible had it been a deliberate strategy, that is: people bought into U.S. systems because they seemed attractive. They bought into the internet, they bought into all of these platforms, which have turned out to be problematic in a variety of ways, because this seemed to be the way forward, because the United States seemed to be offering a positive vision of the world in which everybody was going to do well. So I think that paradoxically the weaponization that we described would never have become nearly as possible as it was if the United States had been thinking about this strategically in ways that almost inevitably would have leaked out.

And so I think we see two versions of why this is so much more problematic at the moment. One is the remarks from the U.S. administration which suggested that the reason why the United States was providing China with access to chips again for training AI was because they wanted more or less to keep China hooked. And this turned out to be a particularly unfortunate statement given the history of the nineteenth century and the Opium Wars and what the United Kingdom did. But even without that, I think this is not exactly how you get people to buy into your technology by saying, "We want you to buy in order to create dependence."

And I think the other side of what Abe and I are saying in the longer term is if the United States wants to restore genuine strategic advantage in the global economy, it cannot just do this by keeping on building chokepoint after chokepoint after chokepoint. It has to figure out ways to provide a genuinely attractive vision of how people can work together. And probably, given all of the stuff that has gone down over the last couple of decades, it needs to figure out ways to actually build in some actual external forces, which would allow it effectively to credibly commit that it is not going to use these to screw over powers and other countries that become dependent on the United States.

Of course, we don’t have a specific strategy for how to do this. This is an extraordinarily difficult challenge to meet. Nonetheless, I think if the United States wants to reestablish itself, it cannot just think about, “How can we retaliate against China?” It has to think about what it can do to make itself more attractive than China or other powers in a world where other countries, I think, increasingly are going to have choices. The Donald Trump approach has been to assume that they don’t and that they can be manipulated and coerced without any blowback. I think that, over the next couple of years, we’re going to start seeing some very stark limits to that assumption, and the United States is going to have to start thinking differently.

DAN KURTZ-PHELAN

Abe, you wrote a piece, not with Henry but with another co-author shortly after the November election last year, arguing that Europe needed to get much more serious about building up its economic security state, its ability to use some of these tools. That did not really seem to have happened. I mean, it developed tools but it hasn’t really used them. And I imagine there are lots of other players out there right now—India comes to mind as it faces these somewhat surprising, really draconian economic penalties from the Trump administration—other actors who probably wish that they had an ability to play this game as effectively as the United States and China did. Does it strike you that others are in fact developing the ability to do this, or is this really just a tool that will be used by the two great powers and others will have very little leverage or ability to influence them?

ABRAHAM NEWMAN

I mean I think there is a glass half full. I’m a very optimistic person, I like to be an optimistic person. And on the one hand, Europe has made a radical transformation in about five years in the sense that its whole DNA was the old vision of globalization. It’s the Treaty of Rome, it’s based on the freedoms of movement, of labor, of capital, of finance, of goods. It’s all about openness, it’s about peace through trade. So it is a big step to say, “We are actually in a world where this is creating vulnerabilities.” And whether it’s the president of the [European Commission], Ursula von der Leyen, former Vice President Vestager, multiple actors in the EU have said, “We’re in a world of weaponized interdependence and we need to prepare.” So, that, I think, is quite dramatic and we shouldn’t underestimate that.

That being said, the piece that I wrote with Agathe Demarais was basically saying it’s not enough to recognize this world. You have to, A, create the institutions to protect yourself, like we were talking about with the Chinese. In Europe, just take sanctions: there’s no org chart that, if you’re in Germany, who do you call to enforce sanctions in Malta, or Cyprus, or Poland? There’s no clear coordination mechanism in these very basic parts of the economic security landscape. And then, at the same time, what is the strategy in terms of your interests? And that, I think, is another place where for too long Europe has just been willing to defer to the United States. And again and again we’re seeing the United States and EU diverging.

So take the threats basically daily against EU digital policy. This isn’t going to be solved by some deal negotiation. This is a fundamental difference in values about how you should run your political system, where the Trump administration is saying, “If you try to regulate social media, we’re going to threaten you with coercion.” So in that case, Europe has to realize that they need the institutions and also a strategy that they’re willing to back up. And too often they basically go short-termist and say, “Well, how can we keep our head down, get a deal, stop any kind of long-term change?” But the reality is we are at a once-in-a-generation transformation in world order where that system, that postwar system is basically over and Europe is really in a bind because they were so embedded in that order.

DAN KURTZ-PHELAN

Henry, I want to go back to this idea of the tech stacks and that being the really important tool here, the important question here. You’re, of course, relatively pessimistic about what Trump’s use of these weapons means for American power over the long term, but when you look at the American technology sector it looks pretty strong, the stack looks pretty good. Is that too optimistic?

HENRY FARRELL

So I think it depends on what you think the stack is going to do. So here, I think that if you look at the United States, I think that there is a doubling down on a small set of technologies in the assumption that these are going to be transformative. And here, AI is the obvious example of this, where I think that in the United States, there has been a general bipartisan agreement in part promoted I think by the AI labs, by people like OpenAI, by people like Anthropic, which I think centers on two fundamental assumptions. One is that we are right around the corner from artificial general intelligence, or AGI, or even artificial superintelligence, and that once you get there, whoever gets there first is going to be able to reap profound advantages. And secondly, that this then means that this is a fundamental question of geostrategic competition, that if the United States gets there first it will be able to create a new American century.

The idea here is that once artificial intelligence gets sufficiently powerful, once it gets past human capacities, it can improve itself in an iterating process where it builds very quickly an absolutely insurmountable technological lead, which provides a cornucopia of other technologies: some sort of military technologies, health technologies, other things that will flow from that. And I think that this is a really tricky bet to make. Myself and a few co-authors have a piece that came out in Science a few months ago where we suggest that this is simply not compatible with how large language models work, which is, of course, the form of intelligence that most people are doubling down their bets on. And so I think we might end up in a world where some of the U.S. advantages will still remain, but they won’t turn out to be nearly as much of a game-changer as people expect. The consequences of AI as it becomes generalized are going to be much messier, much less predictable, and much less easily converted into a military and strategic advantage than people expect.

And the other big bet that the United States is making at the moment, which is getting much less attention, is the bet on stablecoin. So, I think that if you look at how the United States thinks about currencies, it is now effectively looking to integrate stablecoin into the U.S. dollar system on the assumption that—this is a particular kind of cryptocurrency, which is usually very closely associated with U.S. dollar—on the assumption this is going to create new forms of payment channels that are going to effectively magnify U.S. power and become deeply integrated into the financial system of other countries. And here again, this is the kind of thing which would’ve worked much better a couple of decades ago, at a time when the United States was not as overtly looking to secure strategic advantage. The European Union is looking to rapidly accelerate progress on its digital Euro. China is obviously looking to try and figure out its options and it has a more complicated set of options for a variety of reasons. And other countries aren’t necessarily going to want to buy into a system which both promises the risk of greater instability and also promises the possibility of increased U.S. coercion.

And here, this goes together with all of the stuff that is happening about the [U.S. Federal Reserve]. If we’re in a world where the U.S. Fed is effectively having its power watered down, and also a lot of the action is moving to much less controllable cryptocurrencies, which actually do hold significant amounts of Fed reserves at the moment, we could see a rapid destabilization, which could turn out to be extremely problematic for long-term U.S. power. So I think that you can take the over on the bet or you could take the under. I am most emphatically taking the under. I think that this is going to be at best much more complex and messy and difficult, and at worst could actually fundamentally damage the foundations of U.S. power if we are not quite lucky.

DAN KURTZ-PHELAN

Let’s broaden that question to world order as Abe, you alluded to this earlier: what is a world order that is driven by weaponized interdependence used by all actors? As you think about what that order might look like, what the key questions we should be asking now are, as we understand that order, what are you focused on?

ABRAHAM NEWMAN

I want to maybe just pick up on what Henry was just talking about and connect the two, which is I think a lot of people focus on overuse of these tools by the United States or by China, that that will lead to this backlash. But I want to just emphasize that in much of our work, the thing that we point to as a thing that will really undermine U.S. power in the system is the demise of the rule of law in the United States, because the credible use of these tools and the legitimacy of these tools rely on the idea that this is not just a king forcing people to bend the knee; it is a system that is based on transparency, accountability, and predictability. And that’s why people continue to use the economic markets that create that structure I talked about earlier, those hierarchical points.

Weaponized interdependence—the whole vision is that globalization creates a topography of economic interaction, and that that creates chances for power. If you destroy the rule of law, you are going to transform those markets. Those markets will no longer be the center of economic exchange because people will not be able to rely on them. If there’s just rampant government taking of economic activity, then people will decentralize because they see that that is not safe. I mean, go back to the Glorious Revolution. I mean, this is a story as old as time—cue the Disney princess song. We need to think about how the order that we have just come to understand, it really relies on basically rule of law and democracy. So, that’s the first thing I just want to say.

The next point I think is if we want to create a stable order in this world, because I think Henry and I both believe, you can’t go back. We’re not going to go back to the neoliberal heyday. And so we’re going to be in a world where economic interaction creates coercion. First, we have to create some level of norms, principles of how to use these tools. As we talked about earlier, so much of the actions have been the fog of war of people just using these without really thinking about consequences. So you need to have an understanding of what is the use of economic coercion in the system? So, Elena Chachko and I—she’s a law professor at Berkeley—we have a piece coming out that’s looking at that. “Well, how could we think about the norms of economic coercion? What is responsible use?”

And it goes back to, in the piece that we just published in Foreign Affairs, drawing out the nuclear weapons analogy. When nuclear weapons come on the scene, there’s no rule book. We don’t have mutually assured destruction, all these kinds of ideas that we have, escalation scenarios, those have to be created by these kinds of conversations. So I think the first order of business is just saying, “In this world, how do you create equilibria that are more stable than not?” And right now actors aren’t even thinking about that.

And then the last point I just want to make is what Henry and I have always been emphasizing. People need to study, think about direct policy in a way where economic and security issues are linked, because for too long they’ve been siloed from each other, and you’re never going to get an international order, a stable order if people keep doing that because they’re so intertwined in this world that we currently live in.

HENRY FARRELL

One super quick point I’d want to add to that is that increasingly the things that Abe and I are concerned about are not just being applied in international politics, but in domestic politics, too. So here, if you think about our fundamental initial intuition that led us to this was how it is that the apparently boring infrastructural parts of the global economy are being weaponized. That is happening domestically a lot, and the ways in which it is happening are very often linked to national security justifications of one sort or another for doing things that really are aimed, I think, much more directly and much more crudely at securing particular advantage in political fights. And the more that this happens, the more that the rule of law questions that Abe and I are concerned about are going to be increasingly damaging to the capacity of the United States to actually get things done.

DAN KURTZ-PHELAN

Let me linger on the nuclear weapons analogy that is in some ways at the center of the new essay. If you look back at the history of nuclear weapons, it took almost two decades to get from their initial development to real frameworks governing their use, and in some ways took not just developing real expertise and scholars and policymakers who understood the connection between nuclear weapons and geopolitics more generally and policy more generally, but also a really serious nuclear crisis, the Cuban missile crisis, which was the beginning of an effort to get really serious about arms control and strategic stability and everything else. What would a Cuban missile crisis look like that might get us to the kind of agreements that Abe, you were referring to recently? Abe, since you conceded to being the optimist, we’ll start with you here, and then Henry, I’ll cast you as the pessimist and you can close.

ABRAHAM NEWMAN

I think in some ways we’ve already seen those moments. So in Underground Empire we describe the way that The LIBRA initiative, the Meta-led stablecoin initiative, really was a moment like that for China. They started to see where dependency on such infrastructures that were going to be foreign would get them in a place where they would be dependent, and that that pushed them to really think differently about how infrastructures and power were linked. At the same time, my concern is that these conversations keep getting back-ended because the crisis isn’t as transparent as a mushroom cloud going off in a city, but they are just as consequential in terms of the economic and security ramifications for the system. And so it is easy to collapse that 40-point thoughtful strategy on how to use sanctions responsibly to a few basic principles that become voluntary. And so what I’m very worried about is short-termism by policymakers, of looking for the easy answer. And usually that’s in this case coercion, rather than thinking about creating a sustainable policy environment.

But it is amazing, in just five or six years, how the conversation about economic security, about weaponized interdependence has gained traction. I mean, when Henry and I started working on these things, people thought we were just so weird. This was such a marginal set of conversations for most people, and we’ve been working on this for almost 20 years, and for the first half, we were sidelined at basically every intellectual conversation because people just couldn’t see how this was such a critical set of issues. And today there is an explosion of people thinking about these very questions, about responsible use, about downstream consequences, about how countries will react to create their own hubs, evasion. And so I’m very optimistic. Now, whether it’ll happen in time is a very different question, but that there’s an effort happening. It’s clear to see that that’s the case.

DAN KURTZ-PHELAN

So Henry, if that’s what passes for optimism, what worries you as you look forward?

HENRY FARRELL

Okay, so let me give the bear case for this. First of all, I don’t know where the crisis is going to happen. I feel like the world system is like—there’s a famous XKCD cartoon, if you’re a tech person, which shows—so this is basically: there’s some hugely important technological system and it’s all maintained, and there’s one crucial support, which is some random dude in Utah who’s doing it in his spare time. I sometimes feel like the global financial system and infrastructural system is a little bit like that, that is: there are many, many different pieces, which if the wrong one is pulled out the whole thing collapses like a badly constructed toy tower. And I do worry that we are going to see that happening, but I don’t know which particular piece it is that is going to be pulled. And if that happens, I think it’s going to be really much more difficult in some important ways than it was back in the 1960s after the Cuban missile crisis to put things together.

And I think you’re absolutely right. The Cold War system really begins after the Cuban missile crisis, because this is the moment at which you begin to get the Soviet Union and the United States constructing telephone lines. They begin to get their various generals and their nuclear scientists to meet together to try and figure out informal understandings, which involves, as far as I can tell from people who’ve looked at this like Emanuel Adler, getting drunk a lot together and figuring out how each other work. Now the problem is that this is not just about generals and nuclear scientists. This is about huge swathes of the commercial sector. This is about AI; this is about semiconductors; this is about a multitude of different economic sectors, all of which are outside of the ambit of the state, all of which involve their own very difficult and complicated internal politics.

And so really trying to do this at scale involves trying to pull these people together, these various quarreling groups, into some kind of minimal form of agreement. I don’t think that this is impossible, but trying to figure out even how you begin to do that is at the moment, for me at least, something I just don’t see how you begin to take those first steps.

DAN KURTZ-PHELAN

Henry, let me try to pull you into optimism to close. If you look at the June framework agreement between the United and China that the two of you focus on in the piece, and you look at the ongoing diplomacy between [Chinese President Xi Jinping] and Donald Trump, two leaders who have a degree of control over the private sectors in their country that we have not seen in the recent past, is this in fact a formula to get to that kind of agreement?

HENRY FARRELL

Okay, I’m going to take the second part of this because I was actually thinking about this as you were posing the question, which is: we are seeing a fundamental transformation, possibly, of the United States economy. That is we’re seeing the government being much more willing to take stakes in Intel, we’re seeing [U.S. Secretary of Commerce Howard Lutnick] talking about how Lockheed Martin and other companies need to be partially nationalized, and how much of this stuff actually happens I don’t know. And it’s also interesting to see people like Adam Tooze, who are perhaps not entirely averse, on the left, to seeing these big steps happening because they think that we do need some kind of coordination to happen.

So if you want to take the optimistic bet on this, and it is a form of optimism which is salted with so much pessimism that I don’t know it’s even palatable, I think that you could say that at the same time as these more complex threats are emerging, we are seeing increased hierarchy in the economy, which can have all sorts of other terrible consequences. But if you’re focused on this very specific question of how you get agreement across the board, might be capable of doing so in ways that might have been impossible in a world of a decade or 15 years ago, where we saw, for example, a much more direct hostility and unwillingness to coordinate between the tech sector, for example, and the government. How this is going to work: I think you would need a ton of optimism that this is not going to have disastrous consequences of the short term. Perhaps in the longer term, there might be some extremely qualified optimism.

DAN KURTZ-PHELAN

Let’s close there before we take a pessimistic turn. Henry, Abe, thank you so much for the fantastic recent essay in Foreign Affairs and the series of pieces you’ve done over the last decade or so. And thanks so much for joining me today.

ABRAHAM NEWMAN

Thanks, Dan.

HENRY FARRELL

Thank you so much.