The greatest collateral damage from last year’s Russian invasion of Ukraine has been to various Western European members of NATO, which suddenly find their national interests subordinated to those of their strongest ally.
The United States has long wanted Europeans to kick over two of the pillars on which their economies rest: imports of cheap energy from Russia and exports of advanced manufactures to China, Russia’s ally. With the Russian invasion last year, these demands became more importunate. Europe has largely complied with them. The European Union voted for an embargo of Russian oil in the early days of the war. Germany, where dependence on China is arguably strongest, published its first comprehensive strategy for “de-risking” its China trade this past summer.
The cost has been high. In Germany’s case, the International Monetary Fund and the Organization for Economic Cooperation and Development predict that it will perform worse this year than any other advanced economy. Certainly there are many reasons for Germany’s slowdown: Interest rates are high, supply chains have been disrupted by disease and war, and the country’s car industry faces new competition from electric vehicles. But it does not help that, as the sociologist Wolfgang Streeck wrote recently in American Affairs magazine, Germany is being asked to participate in “an economic war that is to some extent also a war against Germany itself.”
While most Europeans deem Russia a threat on their doorstep, they do not feel the same way about China. A study this past summer by the European Council on Foreign Relations found large majorities, 62 percent continentwide, would wish for Europe to remain neutral should the United States and China ever enter into conflict over Taiwan. Yet last April, when President Emmanuel Macron of France urged his fellow Europeans to preserve their “strategic autonomy” in Sino-American matters and avoid getting swept up in “a logic of bloc against bloc,” he was rebuffed, not just by American politicians but also by certain of his European allies.
It used to be that when Europeans needed a bit of wiggle room from the American empire on a matter of desperate importance, they could simply claim it. In 2002 and 2003, the chancellor of Germany, Gerhard Schröder, and President Jacques Chirac of France defied the government of George W. Bush, refusing to participate in the invasion of Iraq. What has changed to give American preferences the power of binding imperial fiat?
It is partly that Europe’s countries are militarily dependent on the United States. Since most of them have budgeted well under 2 percent of their gross domestic products on defense for many years, they are probably more dependent than they were two decades ago. But the system by which the United States seeks to lay down laws for the whole world has more to do with economics than with brute force. Over the past two decades, the United States has made use of a novel, often mysterious set of tools for rewarding those who help it and punishing those who cross it.
That set of tools is now a bit less mysterious, thanks to two political scientists, Henry Farrell of Johns Hopkins and Abraham Newman of Georgetown. Their book published last month, “Underground Empire: How America Weaponized the Global Economy,” reveals how the United States benefits from a set of institutions built up late last century as neutral means of streamlining global markets.
These institutions include the dollar and the bank-messaging system known as Swift (the Society for Worldwide Interbank Financial Telecommunication), which is based in Belgium and run by an international board but vulnerable to American pressure. It helps that the rise of the internet has made the United States home to much of the wired world’s circuitry and infrastructure, including, in our time, some of the major cloud computing centers of Amazon Web Services, Microsoft and Google.
The United States now has the ability to survey and influence the world’s communications and supply chains, should it choose to. After the Sept. 11 attacks, it chose to. It bent the institutions to which it had access into a defensive (as it then saw things) weapon in the war on terror. “To protect America,” Mr. Farrell and Mr. Newman write, “Washington has slowly but surely turned thriving economic networks into tools of domination.”
It has taken the ingenuity of four presidential administrations to build the global economy into a U.S. strategic asset, to be used against (primarily) Iran, China and Russia. It was George W. Bush who passed the USA Patriot Act, Title III of which aimed to prevent terrorists from money laundering within the U.S. financial system, but wound up giving American regulators leverage over foreign financial entities of all kinds.
By the middle of the Obama administration, U.S. officials had successfully pushed Swift to bar Iranian banks and threatened Swiss bankers with prosecution if they did not dismantle the country’s centuries-old traditions of banking secrecy. That brought Switzerland’s old and lucrative banking model to an end. Increasingly, friends as well as foes had something to fear from the system.
The Trump administration wielded American network power with gusto, consummating a plan to disrupt the Chinese phone giant Huawei. As Mr. Farrell and Mr. Newman detail in their book, Huawei’s London-based bank, HSBC, was pressured to share data with the United States. That data generated evidence leading to Canada’s arrest of Huawei’s chief financial officer in Vancouver in 2018. In a separate case the next year, the State Department sought to bribe an Indian sea captain who was suspected of delivering a shipment of Iranian oil, urging that he surrender his ship to a port where it could be impounded.
Under President Biden, the United States has broken yet another fiduciary tradition that used to bind it back in the days before Sept. 11. It arranged to freeze not only Afghanistan’s modest $7 billion central bank reserves in the wake of its retreat from that country, but also, with the help of its allies, Russia’s reserves (dozens of times as large) in the wake of the 2022 invasion. The United States now also proposes to spend some of these reserves on what it deems worthier ends: compensating Sept. 11 victims in the first case, rebuilding Ukraine in the second.
American policymakers have weaponized the world economy in a way that is hard for democracies to register, let alone influence. There are a lot of legitimate populist complaints to be made about this sort of elite control: You hear all the time in Italy and Poland, for instance, about how the European Union entrapped member states in its post-Covid recovery fund programs and then attached unreasonable conditions for delivering the money.
The most striking thing about the Farrell-Newman critique — and perhaps a source of its strength — is that it is not populist. The authors’ understanding of the Russia-Ukraine conflict — as an unprovoked Russian attack by a leader who “seems to believe the Cold War never finished” — differs little from that of the State Department. Even their account of the American regulatory empire is a description more than a gripe. The authors hint they would not be half so worried about these regulatory means if only they served worthier ends — say, fighting climate change instead of protecting American hegemony.
Whatever it may be used for, the weaponization of the global economy is proving to be an unreliable tool of American might. The problem is that in the economy as it has existed since the Cold War, everyone pretty much trades with everyone. Countries that have the most reason to fear the United States have responded by trying to construct alternative arrangements. Over the past year and a half, Russia has shown a resilience in the face of an all-out economic war that China and Iran are likely to use as a model. By contrast, those countries that are friendliest to the United States — Switzerland a decade ago, Germany today — have suffered for not yet having bomb-proofed their economies against the American economic weapon.
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