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Underground Empire: How America Weaponized the World Economy



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A deeply researched investigation that reveals how the United States is like a spider at the heart of an international web of surveillance and control, which it weaves in the form of globe-spanning networks such as fiber optic cables and obscure payment systems.

America’s security state first started to weaponize these channels after 9/11, when they seemed like necessities to combat terrorism—but now they’re a matter of course. Multinational companies like AT&T and Citicorp build hubs, which they use to make money, but which the government can also deploy as choke points. Today’s headlines about trade wars, sanctions, and technology disputes are merely tremors hinting at far greater seismic shifts beneath the surface.

Slowly but surely, Washington has turned the most vital pathways of the world economy into tools of domination over foreign businesses and countries, whether they are rivals or allies, allowing the U.S. to maintain global supremacy. In the process, we have sleepwalked into a new struggle for empire. Using true stories, field-defining findings, and original reporting, Henry Farrell and Abraham Newman show how the most ordinary aspects of the post–Cold War economy have become realms of subterfuge and coercion, and what we must do to ensure that this new arms race doesn’t spiral out of control.



Order Underground Empire: How America Weaponized the World Economy from Henry Holt and Company



Abraham Newman received his BA in International Relations from Stanford University and his PhD in political science from the University of California, Berkeley. He is a professor in the School of Foreign Service and Government Department at Georgetown University. His research focuses on the ways in which economic interdependence and globalization have transformed international politics. He is the author with Henry Farrell of Underground Empire: How America Weaponized the World Economy (Holt/Penguin 2023); Of Privacy and Power: The Transatlantic Struggle over Freedom and Security (Princeton University Press 2019), which is the winner of the 2019 Chicago-Kent College of Law / Roy C. Palmer Civil Liberties Prize, the 2020 International Studies Association ICOMM Best Book Award, and one of Foreign Affairs’ Best Books of 2019, with Elliot Posner of Voluntary Disruptions: International Soft Law, Finance, and Power (Oxford University Press: 2018), which won an Honorable Mention from the American Political Science Association’s International Collaboration Section Best Book Award 2018 and an Honorable Mention from the International Studies Association’s International Law Section Best Book Award 2019, Protectors of Privacy: Regulating Personal Data in the Global Economy (Cornell University Press: 2008) and co-editor of How Revolutionary was the Digital Revolution: National Responses, Market Transitions, and Global Technologies (Stanford University Press: 2006). His work has appeared in a range of journals including Comparative Political Studies, International Organization, International Security, Nature, Science, and World Politics.



Leslie Johns is a professor of political science and law at UCLA. She is also Associate Director of the Burkle Center for International Relations. Her research focuses on international law, organizations, and political economy. In 2022, Cambridge University Press published her newest book, Politics and International Law: Making, Breaking, and Upholding Global Rules. You can access related news stories on the book's Twitter account: @PoliticsIntlLaw. Her work appears in the American Political Science Review, International Organization, Journal of Conflict Resolution and the Journal of Politics. Her first book–Strengthening International Courts: The Hidden Costs of Legalization–was published in 2015 by the University of Michigan Press. She received the Michael Wallerstein Award for political economy in 2017. She is a former term member of the Council on Foreign Relations, and a former research fellow at the Niehaus Center for Globalization and Governance at Princeton University (2012-2013 and 2021-2022).

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Leslie Johns 0:00

Hello, everyone, welcome to today's Burkle Center webinar. Before we get started, I have a few brief announcements. First of all, we're making audio and video recordings of today's talk. You'll be able to access these later on YouTube as well as on various podcast formats. While we are recording, the audience cannot be seen and heard; only me and today's speakers. As you listen to today's talk, please feel free to submit your questions for the speakers using the Q&A button that's at the bottom of your screen. As you type your questions, please be sure to be brief and clear so that I can easily read the questions to the speakers. We're going to be joined today by two authors, Abe Newman and Henry Farrell. So Abe Newman is a professor at the School of Foreign Service and Government at Georgetown University. He studies economic interdependence and globalization and he has degrees from Stanford and UC Berkeley. We're also going to be joined by Henry Farrell, who's a Professor of International Affairs at Johns Hopkins University. He studies international and comparative political economy and tends to focus on democracy and the politics of the internet. He has degrees from University College, Dublin, and Georgetown. And together, this is, I believe, their third book together. Their previous books have looked at issues having to do with a transatlantic struggle over freedom and security. It's called Of Privacy and Power from 2019. And their first book together is called Voluntary Disruptions, International Soft Law, Finance and Power. And today, they're going to be talking about their third book together, which just came out recently. It's called Underground Empire, How America Weaponized the World Economy. So Abe and Henry, if you'd like to come on, on screen, our audience would love to hear you present your research.

Abraham Newman 2:10

Great, thank you, Lesley. Henry, are you there?

Henry Farrell 2:16

I'm there, but it looks like the host has prevented me from turning on my video.

Abraham Newman 2:23

Okay, well, I'm gonna share my screen. And then we can start the presentation. Henry you are visually, there now

Henry Farrell 2:41


Abraham Newman 2:48

You want to start us off Henry?

Henry Farrell 2:49

Yep, sure. Okay, so we are super grateful to have the opportunity to talk to you today. And we're going to talk to you about the book Underground Empire, as Lesley mentioned, which came out in September, which also builds on earlier work that Abe and I had done, which came out in a 2019 article in international security. And this article was called Weaponized Interdependence. And so what we want to do in this is really to get at a set of global transformations, which are poorly understood, and very often misunderstood in international political economy, and in our understanding of the global marketplace more generally. So if we look at globalization, it's pretty straightforward. And it's pretty generally agreed that globalization depends in some very, very important ways on global networks. So if you think about how global markets work, they actually need these networks in order to function properly. You need to have financial networks such as the SWIFT network of messaging, in order to allow money to travel from one country to another, you need to have the dollar clearing system to allow trade transactions to be consummated. You need information networks, such as the Internet to allow people to talk to each other, and to communicate over economic relations. And finally, as we've seen the wealth of nations become the wealth of the world, we have seen an increasingly complex manufacturing network transformed trade, so that much of trade is no longer in finished products. But is instead, it is a network of relations of contractors and subcontractors, sometimes spanning 100 or more countries, which allow for complex products such as computers and iPhones to be made in a kind of international network of production. Now, these networks, for a long, long time, people who studied international political economy did not pay attention to them, because they seemed to be blunt, extremely boring and non political. They seemed technical, they seem to dull, they didn't seem like the kind of thing that you wanted to devote your time to. If you You were an ambitious, young or even middle age scholar of international politics, you just didn't necessarily have any reason to care how these networks worked, as long as they worked. Nonetheless, Abe if you can change the slide, there were theories about what the political consequences of these networks were. And we saw these theories among some liberal Institutionalists in international relations. But perhaps the most, the most broadly understood theory of what was happening was associated with the New York Times pundit and Opinionator Thomas Friedman. So back in 1999, Thomas Friedman set out an argument, which is a very, very nice crystallization of a broader understanding of how these networks might, if they did affect politics, what kind of consequences they might have. And here, Friedman, in a sense, he delivered an early version of arguments that he would make at greater length later, when he said that what these networks did was that they transformed the world from a world of geopolitical power maneuvering into a world of free and equal market interactions. And the metaphor that he used for this was to say that we've moved from the world of the wall to the world of the web. In other words, we had moved from a world which was characterized by the kinds of divisions that we saw, during the Cold War, when you saw the Berlin Wall, a result of geopolitics, making it impossible for people to communicate and to move across land barriers to a world in which everybody was going to be able to work together more or less harmoniously and market competition in a global economy that was bound together by these networks. And here, when Friedman used the metaphor of the web, he was using an effect the worldwide web as a synecdoche for this much broader phenomenon, this much broader set of economic and financial and informational networks that wove the world economy together. Next slide. So, fast forward to the last few years. Well, on one level, people like Friedman are correct. We do live in a world of much greater interdependence between countries than we have seen. This interdependence is much, much deeper in certain important respects than before. But in other respects, this has not been the kind of world that people like Thomas Friedman anticipated. Instead, we live in a world where, effectively these networks, these interconnections between countries have become not a replacement for a geopolitical power maneuvering, but instead have become a vector through which it happens. And this is not only due to the gentleman in the top left corner, this is the a much, much broader phenomenon. And the roots actually, even if we weren't paying attention to them, the roots go back much, much earlier. We now live in a world in which these forms of economic contention are much more visible, are much more open, are much more obvious. Very clearly, the the contestation that is happening between the United States and China, over semiconductors and AI, I think that really illustrates what is happening. But we also see similar things happening with regards to the sanctions applied by the US and the European Union, after the Russia invasion, on a smaller scale, some of the tensions that we saw a few years ago, between Japan and South Korea. Everywhere, all of these relations, which are seen as being apolitical, which were seen as being a fundamental piece, fundamentally peaceful and harmonious have been replaced by power politics. In a sense, all of these networks that seemed boring, have become rather distinctly less boring. They used to seem like the plumbing of the global economy. Now the plumbing has become political. Next slide. So how does this happen, even though and this goes back to our argument in Weaponized Interdependence, but we expanded it, and we provided with a lot more historical oomph in the new book. This goes back to an understanding of how it is exactly that these global networks look. And they look very, very different than the kinds of networks that people like Thomas Friedman assumed. So when Friedman and other people thought about networks, they thought about these networks as being effectively networks that almost militate against power relations and power politics, because these networks were flat networks in which no one point was necessarily any more important than another point. And when you have networks like that, which in which there aren't any, any points, which are that much more important than other points, and where there are lots and lots and lots of connections between the different nodes in the network, then it becomes very, very difficult to actually apply power relations. As a famous statement about the internet, put it back in the 1990s, the internet, quote, "views censorship as damage and routes around it". And here the notion behind this is, is that networks such as the Internet, they don't have any central points of control, they don't have any central choke points. And hence, if you want to evade somebody who's trying to censor you, evade somebody who's trying to block or damage or disrupt your use of the network, you're going to be able to find multiple, multiple routes to any destination, making it impractical for anybody to stop you. Now, unfortunately, these are not the networks in many cases that we actually ended up with, the networks that we ended up with are much more likely network that you see illustrated here. This is an illustration for those of you who travel by air, you may be familiar with this map. This is Delta's map of its route system. And as you can see, like most Airlines, Delta adopts what is called a hub and spoke route system, where more or less, if you want to get to anywhere, you're probably going to have to go through Atlanta, if you want to get from Acapulco to Aruba, if you want to get from Carrika to to Cincinnati. All of these involve routes that traveled through Atlanta, Atlanta is where the connections happen. Atlanta is a hub in the network. And the result of that is that something happens if something happens in Atlanta, if there are storms, if it is otherwise disrupted, then it suddenly becomes, the entire network effectively grinds to a near halt; you find yourself incapable of getting from point A to point B. And the point that arises from this is very simple. Atlanta, in a sense is a choke point in this network. And if somebody is in control of a choke point of a network, then they are able to influence and shape what happens across the network on a much, much, much broader level. And that is the story of the international networks such as SWIFT such as dollar clearing, such as the Internet, indeed, even though it was supposed to be a distributed network without any single choke points. It turns out that in many important respects, these networks are in fact, they're much more like the hub and spoke system, in that there are central choke points. And these central choke points allow government a back door in. Next slide. So this gives a very, gives rise to a very, very different way of thinking about the metaphor of the web. As I say, Thomas Friedman thought about the web as the Worldwide Web; as this web, which was uniting us and weaving us together. But at the center of most webs, there is a spider and spiders tend not necessarily to have very warm and fuzzy feelings for the whatever unfortunate flying creatures find themselves entangled in the strands of silk that surrounds them. And here the spider that is at the center of the global web that has pulled the global global economy together is geopolitics. Here we see how it is that geopolitical power can be used by major governments such as the United States of America, so long as they have access to central choke points, and the appropriate tools to control these choke points, they are able to exercise much, much greater power over the network as a whole. That power can be used as a means of surveillance. For example, if you have control of one of the central choke points, a lot of communications are going through, you can tap into that information and gain crucial strategic advantage. Thereby, you can also see how this can be used as a means to effectively deny actors access to the network as a whole. And this is something that happened, for example, in the global financial system, when the United States used dollar clearing and the influence over the SWIFT system of financial messaging in order effectively to cut Iran out of large swathes of the global economy during the Obama administration. And at this point, I'm going to turn it over to Abe.

Abraham Newman 14:11

Great. Thanks, Henry. So when we were writing this book, I'm a big fan of comic book stories. And in all comic book stories, when there's a superpower with superpowers, there's often an origin moment. And a lot of times if you're you know, I was a fan of Batman. And there's origin stories are often marked in tragedy. And so we walked through this moment in US history, the attacks of September 11, in 2001, when the US government is really facing a new threat, something that they had never really dealt with before; an attack on the homeland, and they're scrambling to figure out how can they address this and our story is not one where there's like this grand plot where the US has been building these networks for decades in order to spring on the world, but rather one way are in this fog of war, the agencies from the Treasury to the NSA, they're trying to think about how they can repurpose these economic networks to get to their own ends. And there, they discovered these network maps, and these points of centralization, where they can either monitor their adversaries or they can start to exclude them from these critical points in the economic network. The next part of the book is really the dynamic process, what happens when the US starts to use these tools, and we look at, you know, the different targets that they use them against, whether it's the allies, like the European Union, adversaries, like China, or the intermediaries, who are the private companies that are often carrying out these processes. And what what we, you know, we show is that in these areas, things that were often seen as the ceiling of what might be possible, quickly become the floor. So you know, when we started doing research for our the book that Leslie mentioned, Of Privacy and Power, we stumbled across SWIFT, and nobody had heard of that. There was very arcane, technical body, and then it got used in the Iran sanctions. And that seemed like a very radical move at the time. But when you think about the Russia sanctions, you know, we've blown past that, you know, it's not, we're not about SWIFT anymore, we're talking about freezing central bank assets. And what we, the story we tell is kind of how the US government is often doing this in a incremental ad hoc way, which comes with unanticipated consequences. Sometimes they they have effects that the US government wants, but they often unleash these unanticipated consequences that at times can backfire. And what we're really worried about is that there could be an escalation between the major parties, that would not just be perhaps about, you know, China creating their own economic networks, but it could also be a kinetic interaction, where, if states feel threatened enough by these types of economic exclusion, that they could move towards, you know, military responses. Here, we think it's a great book is Nick Mulder's. new book about the Economic Weapon, where he looks at how these tools were used in the run up to World War Two. And how, in that moment, you know, the the German and Japanese governments felt really under pressure from the economic stranglehold of the allies, and that that escalated their use of kinetic power. And so our worry is that this could happen in a place like China, as well as in just an economic interaction. We already see that, you know, I think with Iran, when boats are being exploded in the Straits of Hormuz. So that's just to kind of, I think the middle part of the book is really a warning, is to say what could go wrong as we use these tools without a kind of an agenda behind them. And the last part of the book, Henry and I are thinking about, you know, how do we create a world that minimizes the risks of using these new weapons, while also, you know, coming to the reality that we can't put these back in the bottle that they're here to stay. And we had a recent piece in foreign affairs where we kind of walk through this idea of building an economic security state. One that could manage the use of these new tools and minimize the unanticipated consequences associated with them. And I think it really starts with the premise that we, in during the Cold War, we had a period of rivalry, but no interdependence, and we built up the national security state. Then, in the period of globalization's heyday, you know, we didn't have rivalry, we just had interdependence. And in that period, we we kind of outsourced most of our tools of economic management to the private sector. So today, we have a place where we have interdependence and rivalry. And our concern is that the national security state could take over if we don't really transform the way the modern state works. And so here, you know, just to run through some of the kinds of things that we suggest. The first is just we need to build expertise. Henry, and I, you know, we're to blame. We sit at these universities that train the next generation of, of public employees. And we still often in our classes at our universities, separate economic and security issues. And so we think the first move is just for schools like ours to really take economic security as an integrated field, not one that separate; but it also requires that we think about whole new areas of expertise like networks or logistics, supply chain management, as important to international relations. The second point is just that the government often lacks the institutions it needs in order to manage these situations. If you think about the area of sanctions, you know, it's only like 1% of the treasury department works in this domain. And if it's going to be the core of how we engage our adversaries going forward, we probably need to have institutions that then are built for that purpose. If we look, we give the example of Japan, where they were an early target of Chinese coercion. And they really thought about how to institutionalize these issues of economic security; at the top levels of government, there's a cabinet official that's appointed for this purpose. And it's not to build some huge new bureaucracy, but to create points of connection between the various machineries of government that are working on the different aspects of this so that you can coordinate your response. The third point is just that, in many of these areas, we don't have the norms that we need, the basic rules of the road, to prevent escalation, and to keep the kind of the sweet spot of globalization protected. So if you think about traditional norms of war, we have ideas of what is proportionality, what is responsible use; in this domain of economic coercion, we don't have a roadmap. And I think we, you know, we liken this to the moment when nuclear weapons were first on the scene. You know, they didn't come with a rulebook either. They're, you know, mutually assured destruction. It had to be developed in conversations, like we're having today, to think about how can we have these weapons be used, but not overused, and avoid the most kind of the worst case harms. The final point we want to just make is that, whether it's, you know, fighting climate change, dealing with Russian aggression in Ukraine, or thinking about the threat that Huawei, for example, might pose in information systems, the US and Europe are going to be most successful when they don't just use sticks, but they integrate these kinds of sticks with also incentives, with positive reinforcements that induce our friends and our allies, and also those that are on the fence, to work with us. And if we just keep using sticks, we're likely to find other actors that will try to circumvent or to avoid cooperation and collaborating with US policy goals. So just to conclude, you know, the main point of the book is just to re-emphasize that the global economy that we built, it has generated vulnerabilities as well as efficiencies, and that states are taking advantage of those vulnerabilities. The second is to say that, you know, we have to move past the ad hoc use of these tools that are used much more in a tactical way without any kind of scram strategy of what we're using them for. And then the final point is that in order to make sure that we do not unravel globalization and all of its benefits, we really need to come up with a new language of how to use these tools and the proper institutions and expertise to drive them forward. So with that, I will turn this back over to Lesley for a conversation.

Henry Farrell 23:26

You're muted, I think, Leslie.

Leslie Johns 23:27

Yes. Sorry about that. I pushed the wrong button, so zoom went away for a moment, my apologies. Thanks so much. Abe and thanks so much, Henry, for the great presentation. As a reminder for our audience, please use the q&a button at the bottom of your screen to go ahead and type up any questions you might have. We already have quite a few great questions coming in for you guys. But you know, the power of being the host that I get to have is I get to go first. And I get to be very selfish about that. So just so our audience knows I've known Abe for a very long time, and so I get to have a little fun. And Henry, I don't know before I always tease aAbe that, that I didn't know whether Henry actually existed. I always I always thought it was Abe's imaginary friend. So I'm delighted to know that Abe actually does have a friend named Henry, because I always questioned his existence. So thank you, Henry, for proving that that Abe has a friend. So first of all, congratulations to both of you guys. It is yet another immense success that you guys have written. For our audience, you know, Abe and Henry are too hot shots in DC. We are very delighted to have them with us every couple of years. You know, they get a big write up in Foreign Affairs. They're very hot young things in DC so we're delighted to have them I'm with us today, because they're very influential thinkers in sort of the foreign policy space. You know, not only are they successful academics, they are also sort of successful in speaking to the foreign policy community. So my first question is, you know, when I sat down to read the book, it's beautifully written as all of your books are. But I was a little puzzled by the premise of the book. In the sense of, you know, it very much made me think like, Hmm, like, the water in DC is very different than the water in LA. You know, because you use these phrases like state with superpowers, Empire of surveillance, you know, it's very poetic. But, you know, when I'm driving to work in Los Angeles, you know, the view I see is very different, you know, in the sense of, like, I see, maybe it's just California, but like, I see sort of like, a crumbling country, you know. I see homeless people everywhere. I see, you know, a border that can't be managed, you know. I see, or maybe I just read different newspapers, watch different news channels, you know, I see, you know, the IRS can't process the backlog of people paying their taxes, you know, and I see, like a government that's basically struggling to provide basic resources to veterans, you know. And so, I guess the question I had is, does America really have these superpowers? Or do we just have good PR, you know? Is this an illusion of superpowers? Are we talking about international power versus domestic power? You know, what would you say to someone like me, who's a little skeptical about this claim as to whether or not America's really a superpower? And I don't know who I'd pose that to? But But what do you say to a Leslie?

Abraham Newman 23:31

Well, I mean, I think that that those two things can both be true in our understanding of what we're arguing. You know, the thing that's interesting, is that the power that the US has, is it rides on the back of private actors. So this isn't, you know, this isn't the traditional form of state power, where, you know, it's the US is, is the government is doing things directly. It's an indirect power. And that's also why we kind of used the frame of empire, you know, that empire is often built on the backs of merchants, you know, it's the state doesn't have to be the primary locus of coercion. It's outsourced that power to things like Amazon, or to TSMC or to JP Morgan. And so the stories we try to tell are the stories of how these actors that really thought they were building a world, like a piratical world, a world beyond the state, you know, that they then now find themselves as the henchmen for the US government. And so the US government does have certain powers, this powers to threaten those businesses in ways that they need to comply. And I think we can have a bigger conversation of like, when can the state do that and when does it not work so well. But you can have the state not be are very functional in addressing homelessness, but have these companies that are so powerful, and the US is using them to manipulate them to get what it wants done.

Leslie Johns 28:38

Okay, okay.

Henry Farrell 28:39

Okay. I can go a little bit further than that. And first of all, I should say, you may think that you have actually met Abe's imaginary friend, you don't you don't know whether he has just hooked up a large language model with video generator to please him.

Abraham Newman 28:55

Henry, don't let out the secret!

Leslie Johns 28:56

I love this because both of you are very interested in technology and how that relates to government. Right. And politics.

Henry Farrell 29:02

Absolutely. So if you see my image begin to spread six fingers or something you'll notice. So what I would say is that you can go a little bit further than that, which is part of our story is a story very explicitly about state incapacity. So, we suggest that from the outside, this looks like a massive and implassible Leviathan. This, this apparatus of the OFAC, of sanctions, of export controls and whatever, but inside is like this some sort of huge mechanical robot bestriding the land was a bunch of overworked harried people, a tiny number of overworked people running around trying to pull the levers in order to get the machine to go in one direction rather than another and the machine is lurching, it is occasionally squashing the odd village here and there by accident. And this is just part of what happens. So I think that one part of our story is indeed a part about pretty extraordinary power, because the United States has managed to luck into a system, as Abe says, which is built by private actors, which really is part and parcel of the global economy. But the other part of that story is a story about a government, which is really in a certain sense, in over its head. And that's what when Abe discussed the way in which the system had been built in a very haphazard way, floors becoming ceilings, and ceilings becoming floors. And you have that, that image of this, this this building, which looks like it is about to fall down and collapse. That is another part of the story. And one of the, I think, the most revelatory comments, is sometimes when you're talking to people, or you're reading people, you just get these really juicy comments which help to sum things up. And so one of the comments we got was from a lawyer from Rusal which was one of the MNCs that was sanctioned by the United States. And then it turned out that this was a colossal blunder, which endangers the entire European, West European manufacturing industry. So the United States had to pull back very quickly. And so this lawyer caustically describes the US approach to sanctions as being the "what does this button do" approach to making policy. And that is an important part of our story as well.

Leslie Johns 31:21

Okay. Well, that's that's like, reassuring, you know, global disasters just around the corner, right. Another reaction I had, and maybe I was a little bit confused, based on what you just said, from reading the book is sort of your your viewpoint on technology, and, and sort of who benefits from being a leader of technology? You know, I sort of walked away from from the book with the impression that that you were saying that, that there was like, a big benefit to being a leader in technology with the stuff about chips. And the idea that like there's a big first mover advantage, and that, and the idea of sort of like people who, you know, go first get to sort of like establish the rules and get to be nodes, and get to be sort of the center of networks. But but it also seems like, you know, if we think about sort of the rise of China, and sort of the ability of actors to maneuver in terms of taking intellectual property, and benefiting from these types of things, as though China has done really well from not being the first mover. And and I was wondering if you could elaborate a little bit more about the role that technology development sort of plays within your story in terms of who gets to be, you know, a hub in a network and who's not at work? I couldn't, you know, figure out how the technology fits into the story.

Henry Farrell 33:07

Well, I think that the reason you didn't is because there's not a simpler, simple, linear one size fits all relationship in our story. So I would say that the way; the story we tell is of an empire, which was acquired not quite in a fit of absent mindedness, but certainly not through direct design. So when the United States allows semiconductor manufacturing to spread around the world and retains a hold on intellectual property, this is not a secret master plan by the United States. This is just luck. This is just the way in which things played out. And that the US had actually been thinking about this in terms of great power and maneuvering, it almost certainly would not have been enthusiastic at TSMC becoming such a central chokehold in the global economy, located about 100 miles from the shores of its great systemic rival at the moment. So I think our story is, you know, is one in which the ways in which technology developed during a particular epoch in which people were really drunk on globalization, and drunk on the idea that globalization was going to provide a somewhat peaceful world of coexistence going forward, created a world in which these networks centered on the United States in ways that the United States was able to take advantage of. But if the expectations have been different, we might have seen very, very different paths. We might have seen continued technological development without the same kinds of choke points with redundancies built in, we might have seen, we might, you know, it's, as always when you're trying to create counterfactuals and they could go in a multitude of different directions. But I think that our final argument is it's not an argument about being a technological leader– that I think is just a semi accidental, well maybe putting it too strongly, there may be some affinity with technological leadership and having networks center around your thing. It's more about control of the ways in which the networks develop around those technologies. Is that really is where the nub of our argument is, I think, but this is something we I don't think we've ever articulated explicitly to ourselves. So Abe may have a different take on this.

Abraham Newman 35:23

Yeah, I mean, I think like in some of those places, it's equally it's about management and business organization as it is about technology. So I don't think the SWIFT system isn't really technologically that sophisticated. I mean, it has an encryption system associated with it. But the thing that is interesting about it is that it grew over time as an information hub, it became efficient and a focal point. And because of that, banks increasingly relied on it to the point where it's very difficult to replace it. And you know, that kind of system, that that kind of network effect system doesn't always have to be about what kind of like technological leadership, but it can just be a result of organizational development in the sector. And I think what we're, we're seeing is what happened when the United States was basically at the forefront of many economic markets in a period where there wasn't rivalry. And so firms were not viewed in this vulnerability, threat perspective. And I think you see that like, if you if you roll back, kind of European Union policy, vis a vis these companies in the 2000s, you know, it was a very kind of like, well, we'll just open our markets and liberalize telecommunications, because it should be about efficiency. And that's like a very, if you think, historically, a very weird perspective. You know, for decades, telecommunications infrastructures, were part of government ministries, because they were viewed as critical infrastructures. So I think there is a part of it, which is not just about the technology, but it's about the norms and ideology that the system; how does it view private network development, and that that is, you know, an important part of the story, which is context dependent.

Leslie Johns 37:09

Okay, great. Thank you so much. I have a few more questions of my own. But I want to make sure that we have plenty of time for audience questions. So I'm going to go ahead and turn to the questions that have been submitted by the audience. So it looks like we have a couple of people who've written in on similar themes. So let me go ahead and collect those together. So a few people have written in asking specifically about the wars in Ukraine and Gaza, and asking about how those have affected your argument. specifically asking about how the dynamics of weaponized interdependence, how you see those or perhaps don't see those apparent in those conflicts. For example, the choke pote, choke, excuse me choke point and pan opticon effects or powers of different countries. Could you talk a little bit about whether, how those effects might be playing out in those two wars?

Henry Farrell 38:13

So one interesting question here is, you know, if you think about Hamas, and actors associated to Hamas, they clearly have been laboring under US sanctions for years, there is a very extensive body of US sanctions that applied to terrorism. And obviously, they find ways around it, obviously, equally, this probably makes life more difficult for them. Where there is the more interesting variation happening recently was the decision of the United States to designate under US sanctions law, a group, a small number of extremist Israeli settlers who had been accused of violence of one sort or another. And these settlers found themselves incapable of access to Israeli banks you know, Israeli bank, some sort of which are dependent upon the US dollar, effectively shut down their bank accounts. You saw an explosion from the Israeli finance minister, who is quite closely linked to the settler movement, more or less how the hell can this be happening, yelling at his regulator to try and get this change, and the regulator just shrugging the shoulders and saying, well, there's nothing I can do. I'm sort of these banks. This is the implicit rather than the explicit point. They care more about what US regulators say, then they care about what I have to say as the nominal regulator in charge of them. So I think that this is one interesting area, where you see that the United States actually has potentially more power in order to influence the ways in which its allies, which are deeply integrated, of course into its financial systems, behave if it chooses to exercise that power, up to your opponent does and does not depends a lot on domestic politics. There are reasons why the United States has not used this power against Israeli settlers, despite its unhappiness with the settler movement until relatively recently. But equally, you could see how this power could be used. Say, for example, in a future Trump administration, it is quite plausible that you could see similar things being done to US allies, for example, in Europe if they displeased the United States in some ways. And indeed, we saw that happening during the Trump administration, when officials for the International Criminal Court were designated under US sanctions. And we saw threats to even impose US sanctions against government officials who were involved in the European effort to try and save the deal with Iran over a nuclear development of nuclear weapons who wanted to do that by creating a kind of a workaround, which would allow European businesses to still do business with Iran without being subject to a US sanctions.

Abraham Newman 41:02

And maybe I would just pick up on the Russia sanctions, where there are so many things that are related to this topic that have happened, but just to highlight a few. One, I think, is the the demonstration effect of freezing Russian Central Bank assets. You know, that is a remarkable activity that the US and Europe engaged in. And it is clearly leading to a response in China to be concerned about how this could be used in future occasions. And I think that you're, the current debate between the Western allies about could they use those assets to fund the Ukrainian government, and they're concerned about doing that. I think it's wrapped up in that, that ultimately, and I think this is the point that we try to make in the conclusion, is these types of power, in order to make them sustainable, they have to be viewed as legitimate. And if they're not viewed as legitimate, they're just seen as power grabs, which are going to create reactionary responses. And you've seen that in this case, you know, with with Ukrainian funds, but also, I think, just like the global South's positioning vis a vis, the Russia sanctions, you know, I think Henry and I would say that the rest of Russia sanctions are a very powerful example of these weapons, that is also legitimate in our you know, in our view. But you can't expect the rest of the world to view it that way, unless we make that case. And if you ask Indonesia, or you know, Brazil, there's much more ambiguity around that. And so we need to come up with incentives and justifications that then persuade not just our publics to accept these types of coercion, but also third countries, so that we can continue using these in a in a beneficial way.

Leslie Johns 42:44

Okay. I think a natural follow on to that question came from one of our audience members asking about the US presidential election. I think we can now feel fairly confident at this point that it's going to be Biden V. Trump, and asking, what are the different scenarios that could come to fruition based on who wins the election? Don't necessarily have to talk about, you know, Ukraine and Gaza necessarily, but but do you guys think that that if Biden wins, we're gonna see basically a continuation of what we see now and that Trump will be a reversion to pre Biden? Or do you think that other scenarios might, might emerge?

Henry Farrell 43:34

So good, do you want to go ahead Abe?

Abraham Newman 43:36

No, go ahead. And I'll follow.

Henry Farrell 43:37

So one thing that I think comes across very clearly we've written about this, there was a piece for The Wall Street Journal, is that you can think about this as being there a certain way, certainly ways in which a Trump administration will be vastly worse, from our personal perspectives, then a Biden administration. Both worse in terms of the ways that it would use us power, and worse in terms perhaps of the overreach that it might apply, which might have all of the consequences that Abe talked about. But there also is a sense in which you can see the two handing on baton the baton to each other, as if they were in a relay race, and measures that are developed under Obama, then get used under Trump and then get developed, again, under the Biden administration. And so one of the stories of the one of the stranger stories, from our experience in writing this book, was that we discovered right at the end of it, that we were in a weird way, part of the story that we were telling. So Chris Miller came out with this book called, called Chip War, which I

Leslie Johns 44:46

Yea, we had him last year, actually, as one of our speakers. Yeah,

Henry Farrell 44:49

Yeah, so I read I read this book, with a degree of nervousness on the day it came out because we were about to hit Send pretty quickly on our own manuscripts. Yeah, Chris has spent a lot more– who I did not know at that point– Chris has spent a lot more time than we have thinking about the semiconductor industry. So I was reading through it, he was quickly looking, is there anything that we are badly wrong about. And the good news for us was that there wasn't anything he was more or less, we were telling very, very similar stories albeit Chris going into much more detail as is appropriate. But then towards the end of the book, I come across this bit where he starts talking about Henry Farrell and Abraham Newman. And this idea of weaponized interdependence. I wonder what in the name of God is happening here. And I read on and so he discusses how you first of all explain some sort of very clearly what our ideas are, and how we warn against them sort of the abuse of weaponized interdependence. And then he described how an unnamed senior Trump official somehow comes across our article and decides that weaponized interdependence is awesome. And can we please have some more of that, and that this is part of the origin story for the measures that the Biden– that the Trump administration– and then the Biden administration has taken against access, Chinese access to semiconductors was in part and sort of nominally inspired by our work. I suspect that even without our work, they would have probably come to a pretty similar policy solution. But it's a strange feeling. There's a famous Twitter meme about where a science fiction writer says and sort of talks about how he invented this concept called the torment Nexus observed in order to warn the world against it. And then a Silicon Valley company announces, we are pleased to announce that we have invented the torment Nexus from this famous science fiction classic, Do Not Invent the Torment Nexus, and we kind of feel a little bit like that, like, you know, we were warning against weaponized interdependence, and somebody says, Oh, my God, this is a great thing. But that is a part of the weirdness of writing a book like this is, you find that I'm sort of your that this battle, which is passed on from hand to hand, you may unwittingly, have provided a little bit of help from the sidelines or the to the audience to the race as it was happening.

Leslie Johns 47:14

Well, if it makes you feel better, I think it was already happening, and you just gave it a name.

Henry Farrell 47:19

Yeah. I think that's right. I think that's right

Leslie Johns 47:21

I think that's always the danger of living in Washington, DC. So I don't I don't think you guys are responsible. I think you just gave it a cool name. Yeah.

Abraham Newman 47:30

I think by naming it, it allows for a conversation about accountability. You know, if you don't name it, it goes under the radar and diverse ways. I would just add that I think one of the biggest distinctions between what the Biden administration and the past Trump administration is, you know, the Biden administration, has tried to be signaling to China, that there are constraints on US policy. So they have this, you know, small yard high fence, kind of articulation of what's happening. And that's important, if you're thinking about how to prevent escalation is that the, you know, the other party needs to get some understanding that there are boundaries to what is being done. And I think from our you know, what you saw in the previous Trump administration, that type of signaling wasn't really happening. And also that, you know, the Biden administration has been working to legitamate US efforts, like there was a, you know, US Japan, Holland agreement about semiconductor export controls. The US could have done it by itself, you know, but it could have pushed everybody around to do it. But instead it is trying to work in, you know, plurilateral places to get it done. I think the next Trump administration will be less interested in either signaling or legitimacy to ground its policy.

Leslie Johns 48:47

Well, I mean, I guess it depends on how you think about public signaling versus private signaling, right> Like, we don't know what's going on behind closed doors, right? So

Abraham Newman 48:57

Yes, but I don't think that the, I mean, I don't think the previous Trump administration was creating a predictable policy path that the Chinese government could anticipate that it

Leslie Johns 49:10

It was very much a man dog type of foreign policy plan, right?

Abraham Newman 49:14

Yeah, and I kind of think it'll just be more mad.

Leslie Johns 49:17

We'll see. We'll see. Who knows who's going to be in the State Department. Right, exactly. Or in the White House? Right. So, um, so we have a question from one of our undergraduates, students wrote in. This is a very sophisticated question for an undergrad, so I wanted to flag this, asking about the role of the dollar as sort of the global reserve currency. And I was very impressed by this question. So I just wanted to flag it and say go UCLA undergrads. So, so what do you think both about the role of the dollar in shaping the US's ability to have weaponized interdependence? And what do you think about the use of weaponized interdependence in the ability of the dollar to continue being the global reserve policy? This is a very sophisticated question, so I'm very proud of the student who wrote this. I don't want to embarrass the students, so I won't say the name.

Abraham Newman 50:22

So we definitely, you know, a big chunk of one of our chapters is the way that dollar clearing system facilitates the use of sanctions by the United States. And it's, I won't go into all the details. But if you are interested, there's a whole part of the chapter which talks

A whole chapter for the student. Yeah. Maybe just give a little, a little taste of that of the argument there.

Well, basically, like if a Japanese company and an Italian company they want to trade they usually trade in dollars. And that happens on bank ledgers of things called correspondent banks, and they are changing that money in the correspondent Bank Network. And what happens is the US government uses that, that the reliance on those networks to say if you don't do what we want, then we'll cut you out of those correspondent banks. And that then threatens not just the target, Iran or Russia, but it also targets those other economic actors that rely on the correspondent banks. I think the question of whether the US dollar will be stable over time, you know, I think Henry and I are much more sanguine about that because the competitors are so weak, you know, bet either the euro or the renminbi don't really have a, you know, an internationalized ability to compete with the US dollar.

Henry Farrell 51:47

All I will add to that is a plug that this book clearly clearly you have wonderful undergraduates, but this is the kind of book you need to assign an undergraduate courses in order to give undergraduates the opportunity to come up with great questions like that.

Leslie Johns 52:00

I see. Okay, I love it great for sales. So we only have a few minutes left. So and we kind of have a potpourri of questions on various topics. So maybe what I'll do is throw out a couple of questions and let you decide which ones you want to tackle, if that sounds good to you. So we have one question asking about how has weaponized interdependence since the Cold War altered the development trajectories of the global north and south? So one question about development. We have one question, asking about how advances in technology such as artificial intelligence might have affected weaponized interdependence. And I think the third one, I'll throw into the potpourri bag is someone wondering if you had anything to add to sort of the discussion about the role of the relationship between sanctions and human rights violations? And that'll be sort of the last thing I throw out there. So I don't know. Abe, do you want to answer any of those potpourri topics?

Abraham Newman 53:10

I will just say, for the sanctions and human rights, we're seeing increasingly, I think, an intersection of different equities. There are these different concerns, especially vis a vis China. So there's like a competitiveness concern that we're losing out because they're stealing our IP, there is a military concern, that's about the dual use technologies. And there's a human rights concern that's about, you know, forced labor, Uyghur concerns, genocide, and that those different interest groups are kind of, you know, coordinating to activate multiple channels. And so increasingly, you're seeing those overlap with each other. And so I don't think that they're completely separate debates, but increasingly becoming their interactions amongst them.

Leslie Johns 53:56

Its a really great point. Yeah. and the EU apparently just announced a new law today involving forced labor specifically and trade as a mechanism for that. Yeah. Henry, do you want to chime in on any of those three topics?

Henry Farrell 54:10

So we don't so we don't actually talk nearly enough in the book about the consequences of these, these these measures and these developments for the global south. This is partly because our expertise is really, we are we began as EU-US experts and have been expanding out from that. We do say at the end of the book, that there is an important, there's an important book to be written, which is, in a sense, the opposite of our own, and not concentrating on the relationship among the great powers, but instead what kinds of consequences they have for these other countries, which have to deal with this. One consequence, that's pretty clear is that a lot of countries in the developing world have to deal with so called de risking, quote, unquote, which is where banks more or less decide that the trouble of doing business and jurisdiction X, even if jurisdiction X is not itself completely sanction, is just, it's worse, it's worse, it basically has been worthwhile for them to do any business. And so countries can find themselves being semi disconnected from the global financial system, even if they are, you know, even if there are legitimate reasons for money to go back and forth. And humanitarian flows of aid, for example, may sort of find themselves in great difficulty because of that, because banks simply will not absorb deal with them. So that's one example. There are many, many other examples that you could, you could talk about. With regard to AI and the the weaponized interdependence, it's really hard to say, I think one way in which you could think about this is, is that all of these developments mean that the government is going to have to become much more engaged in the workings of the economy and of markets than it has during our lifetimes. We're going to see a world in which the United States, for example, wants to know much, much more about how supply chains worked than it did 10 years ago, when this was all left to markets, the hierarchy and logic that markets knew best. And if government needs to do this stuff, it's going to need to have ways to analyze it. And so I do wonder whether we're going to see a much more use, for example of unsupervised machine learning, and similar kinds of techniques to comb through the data that the United States can accumulate, and to try and make it into something that is semi comprehensible and semi usable. But that's quite speculative. I don't know that there's any real data that can tell you on sort of how this stuff is going to be used. But there is a clear need. And there are plausible possible ways in which AI of some sorts could help to meet that need. So I guess we're just going to have to see.

Leslie Johns 56:47

Well, thank you so much. You both are insanely productive scholars. So I assume that you have just sent off the next book to your publisher. And that I'll be interviewing you in a year on the next book. Don't tell me what it is; I'll wait, I'll wait like everyone else to know, because I'm sure it's already been written. To our audience. Thank you for joining us today. We'll be having lots more in person events coming up in the next couple of weeks. So please be sure to check your emails. If you're not already on our email distribution lists, please go to the Burkle Center website, sign up so that you're sure to hear about all of our in person events that are coming up soon. And thank you again to Abe and Henry for this wonderful talk today. Goodbye, everybody.

Abraham Newman 57:36

Thanks Leslie.

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Sponsor(s): Department of Political Science

6 Mar 24
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