ASIA
08 December 2023
Underground Empire: How America Weaponized the World Economy
The American government is taking advantage of its central position in many global networks to pursue its security interests through “weaponised interdependence”.
Through the growing interdependence of our economies, globalisation has stimulated prosperity and poverty reduction the world over. A popular vision of globalisation is that of journalist Thomas Friedman. He argued that “The World is Flat,” that economic networks bring us all together, and that everyone can compete on an equal footing.
But today the world is not flat, according to a recent book by Henry Farrell and Abraham Newman. They argue that the world economy has many “choke points,” and an “underground empire” is enabling the US to weaponise the world economy. In sum, US national security policy is bleeding into economic warfare, threatening the very future of globalisation.
Farrell, a professor at Johns Hopkins SAIS, and Newman, a professor at Georgetown University, have produced an impressive body of work on this issue. A 2019 academic paper entitled “Weaponised Interdependence: How Global Economic Networks Shape State Coercion” paved the way for the more expansive and very readable book under review.
The authors argue that the US has been able to “weaponise interdependence” by leveraging global networks of informational and financial exchange for strategic advantage. In analysing these issues, they dig deep into the oftentimes arcane plumbing of the global economy as they examine the operation of the Internet, surveillance systems, financial flows, and supply chains.
What is the origin of this underground empire of weaponised interdependence?
Weaponised interdependence is not a system or policy designed by the US government. Rather, it began to develop organically as the government was looking to respond to the tragic terrorist attacks of September 11, 2001. It realised that it could use various “choke points” for surveillance of communications and financial flows because they pass through US territory and the US can exert a “transit authority.” Today, the US is not only going after terrorists. It has seized the opportunity to use the choke points against adversaries like Iran, China, and Russia.
The US has extraordinary power to cut people and states off through a variety of mechanisms. For example, we can easily imagine that the Internet is up “in the cloud.” But in reality the operation of the Internet involves submarine cables which enter and exit particular territories. And the majority of the world’s Internet traffic passes through the town of Ashburn, Virginia, a major hub for data centers, known as the cloud capital of the world. This enables the US government to undertake surveillance of what is happening on the Internet, as revealed in 2013 by Edward Snowden.
A financial choke point used by the US is SWIFT or The Society for Worldwide Interbank Financial Telecommunication. It is a Belgian cooperative society providing services related to the execution of financial transactions and payments between certain banks worldwide. Controversially, the US views SWIFT as an opportunity to go after adversaries, and to obtain intelligence for the CIA. Iranian banks were first banned from SWIFT in 2012, but were allowed to return in 2016 after the Iran nuclear deal was signed the year prior. In 2018, US President Donald Trump removed the United States from the agreement and SWIFT ultimately banned Iranian banks again.
A few years back, the Chinese company, Huawei, launched its ambitious plans for a 5th generation mobile network (“5G”). This was designed to connect virtually everyone and everything together including machines, objects, and devices. Not surprisingly, the US government saw this as a national security threat, as it might give China access to large volumes of data flows. In this case, the US was able to shackle Huawei’s ambitions by restricting the company’s access to the crucial inputs that embodied US intellectual property, including those produced outside the US. Today, the US is restricting Chinese access to semiconductors to try to strangle its ability to develop certain kinds of military Artificial Intelligence.
These examples of weaponised interdependence offer vivid evidence of the scale of America’s enduring power vis-a-vis its adversaries. But the authors note that weaponised interdependence can also spur innovation and workarounds. For example, when US Commerce Secretary Gina Raimondo made an official visit to Beijing in August this year, Huawei brazenly unveiled its new 5G phone, the Mate 60 Pro. A teardown of the phone revealed it used an advanced, China-made 7-nanometer processor. While this is still a few generations behind the 3-nm and 4-nm chips produced by leading semiconductor firms like Taiwan Semiconductor Manufacturing Company and Samsung, Raimondo said that it was “incredibly disturbing” that Huawei had access to such an advanced chip.
When Trump administration officials read of the work of Farrell and Newman on weaponised interdependence, they reportedly became excited at the possibilities for action. But as the authors argue, weaponised interdependence undermines the credibility of the rules-based international order that the US and its allies created following World War II, and contributes to the disenchantment of the Global South. It is not surprising that much of the Global South has not been supportive of US-led efforts to help defend Ukraine against the Russian invasion. And the US is also ruffling other feathers as Europeans can interpret American actions, ostensibly motivated by national security concerns, as being motivated by industry protectionism.
The American practice of weaponised interdependence should provide China with the opportunity of leading a new world order. But there are few signs of this opportunity being seized. Countries like Australia, Japan, South Korea, and the Philippines have been victims of China’s own high-handed practice of weaponised interdependence. The virtual absence of the rule of law in China was highlighted by the government’s actions against Jack Ma’s Ant Group and also Hong Kong. China’s custom of arbitrary arrests of foreigners and hostage diplomacy undermines the attractiveness of China for international business. And the Chinese Renminbi will never be an alternative to the dollar and play a large role in financial transactions, while it is not fully convertible.
As the authors note, weaponised interdependence is not entirely new. Economic sanctions of various sorts were common during the Cold War. But sanctions have become a vivid feature of great power competition underway. And they are endangering the economic globalisation that has brought many great benefits, as well as undermining the rules-based order.
“Underground Empire” is a rich and fascinating exploration of a critically important issue, and is written in a lively and engaging style. It is one of those books that inevitably raises more questions than answers – notably regarding how the world can avoid the potentially self-destructive consequences of weaponised interdependence. But it should be essential reading for anyone interested in geoeconomics and geopolitics.
But today the world is not flat, according to a recent book by Henry Farrell and Abraham Newman. They argue that the world economy has many “choke points,” and an “underground empire” is enabling the US to weaponise the world economy. In sum, US national security policy is bleeding into economic warfare, threatening the very future of globalisation.
Farrell, a professor at Johns Hopkins SAIS, and Newman, a professor at Georgetown University, have produced an impressive body of work on this issue. A 2019 academic paper entitled “Weaponised Interdependence: How Global Economic Networks Shape State Coercion” paved the way for the more expansive and very readable book under review.
The authors argue that the US has been able to “weaponise interdependence” by leveraging global networks of informational and financial exchange for strategic advantage. In analysing these issues, they dig deep into the oftentimes arcane plumbing of the global economy as they examine the operation of the Internet, surveillance systems, financial flows, and supply chains.
What is the origin of this underground empire of weaponised interdependence?
Weaponised interdependence is not a system or policy designed by the US government. Rather, it began to develop organically as the government was looking to respond to the tragic terrorist attacks of September 11, 2001. It realised that it could use various “choke points” for surveillance of communications and financial flows because they pass through US territory and the US can exert a “transit authority.” Today, the US is not only going after terrorists. It has seized the opportunity to use the choke points against adversaries like Iran, China, and Russia.
The US has extraordinary power to cut people and states off through a variety of mechanisms. For example, we can easily imagine that the Internet is up “in the cloud.” But in reality the operation of the Internet involves submarine cables which enter and exit particular territories. And the majority of the world’s Internet traffic passes through the town of Ashburn, Virginia, a major hub for data centers, known as the cloud capital of the world. This enables the US government to undertake surveillance of what is happening on the Internet, as revealed in 2013 by Edward Snowden.
A financial choke point used by the US is SWIFT or The Society for Worldwide Interbank Financial Telecommunication. It is a Belgian cooperative society providing services related to the execution of financial transactions and payments between certain banks worldwide. Controversially, the US views SWIFT as an opportunity to go after adversaries, and to obtain intelligence for the CIA. Iranian banks were first banned from SWIFT in 2012, but were allowed to return in 2016 after the Iran nuclear deal was signed the year prior. In 2018, US President Donald Trump removed the United States from the agreement and SWIFT ultimately banned Iranian banks again.
A few years back, the Chinese company, Huawei, launched its ambitious plans for a 5th generation mobile network (“5G”). This was designed to connect virtually everyone and everything together including machines, objects, and devices. Not surprisingly, the US government saw this as a national security threat, as it might give China access to large volumes of data flows. In this case, the US was able to shackle Huawei’s ambitions by restricting the company’s access to the crucial inputs that embodied US intellectual property, including those produced outside the US. Today, the US is restricting Chinese access to semiconductors to try to strangle its ability to develop certain kinds of military Artificial Intelligence.
These examples of weaponised interdependence offer vivid evidence of the scale of America’s enduring power vis-a-vis its adversaries. But the authors note that weaponised interdependence can also spur innovation and workarounds. For example, when US Commerce Secretary Gina Raimondo made an official visit to Beijing in August this year, Huawei brazenly unveiled its new 5G phone, the Mate 60 Pro. A teardown of the phone revealed it used an advanced, China-made 7-nanometer processor. While this is still a few generations behind the 3-nm and 4-nm chips produced by leading semiconductor firms like Taiwan Semiconductor Manufacturing Company and Samsung, Raimondo said that it was “incredibly disturbing” that Huawei had access to such an advanced chip.
When Trump administration officials read of the work of Farrell and Newman on weaponised interdependence, they reportedly became excited at the possibilities for action. But as the authors argue, weaponised interdependence undermines the credibility of the rules-based international order that the US and its allies created following World War II, and contributes to the disenchantment of the Global South. It is not surprising that much of the Global South has not been supportive of US-led efforts to help defend Ukraine against the Russian invasion. And the US is also ruffling other feathers as Europeans can interpret American actions, ostensibly motivated by national security concerns, as being motivated by industry protectionism.
The American practice of weaponised interdependence should provide China with the opportunity of leading a new world order. But there are few signs of this opportunity being seized. Countries like Australia, Japan, South Korea, and the Philippines have been victims of China’s own high-handed practice of weaponised interdependence. The virtual absence of the rule of law in China was highlighted by the government’s actions against Jack Ma’s Ant Group and also Hong Kong. China’s custom of arbitrary arrests of foreigners and hostage diplomacy undermines the attractiveness of China for international business. And the Chinese Renminbi will never be an alternative to the dollar and play a large role in financial transactions, while it is not fully convertible.
As the authors note, weaponised interdependence is not entirely new. Economic sanctions of various sorts were common during the Cold War. But sanctions have become a vivid feature of great power competition underway. And they are endangering the economic globalisation that has brought many great benefits, as well as undermining the rules-based order.
“Underground Empire” is a rich and fascinating exploration of a critically important issue, and is written in a lively and engaging style. It is one of those books that inevitably raises more questions than answers – notably regarding how the world can avoid the potentially self-destructive consequences of weaponised interdependence. But it should be essential reading for anyone interested in geoeconomics and geopolitics.