The New Economic Warfare --- Want to exert geopolitical influence without mobilizing troops? It helps to have the currency everyone needs.

"Chokepoints

By Edward Fishman

Portfolio, 560 pages, $40

'You f---ing Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians?" So exploded a British banker when warned that the U.S. would be applying sanctions to international banks doing business with Iran. As it turned out, that's exactly what the Americans did -- hitting the defiant banker's own institution, among others, with hundreds of millions of dollars in fines.

In "Chokepoints: American Power in the Age of Economic Warfare," Edward Fishman makes clear why this banker so badly underestimated America's financial power. Deftly written, "Chokepoints" is a compelling and dramatic narrative about the new shape of geopolitics -- one in which the U.S. mobilizes its economic and financial pre-eminence for geopolitical objectives, especially in its clashes with China, Iran and Russia. It's the story of a world economy that has moved from confident globalization to increasing fragmentation and in which economic warfare has become "a baseline feature of our world."

Mr. Fishman, who has held positions in the State, Defense and Treasury departments and now teaches at Columbia University's School of International and Public Affairs, has written an engrossing account of contemporary history. He provides a framework for understanding the battles to come as well as the growing challenges and risks facing companies that operate in the global economy.

Of course, there's nothing new about economic warfare. Athens in the fifth century B.C. deployed its mighty navy to impose a trade embargo on the city-state of Megara. The blockade succeeded but also backfired, helping precipitate a war with Sparta that would shatter Athens's golden age.

With the establishment of the League of Nations after World War I, Woodrow Wilson prophesied that the organization's ability to impose economic sanctions on aggressors would be "something more tremendous than war." As it turned out, sanctions did not impede Japan's conquest of Manchuria in 1931, Mussolini's attack on Ethiopia in 1935 nor the advent of World War II.

Mr. Fishman argues that "what makes today's economic wars novel is the highly interdependent world economy." He writes: "Great powers once rose and survived by controlling geographic chokepoints like the Bosphorus. American power in the globalized economy relies on chokepoints of a different kind." Foremost among them is the primacy of the dollar -- in global trade, investments and financial transactions -- and the role in the global economy played by the major U.S. banks.

So much of the world's cross-border commerce, whether initially priced in rupees, riyals or pesos, is settled in dollars passing primarily through the U.S. financial system.

"The U.S. dollar is involved in nearly 90 percent of foreign exchange transactions," Mr. Fishman notes.

He cites one other critical chokepoint: "The intellectual property and technical know-how that underpin a vast array of essential technologies, notably the advanced computer chips at the core of the digital economy."

With its command over these essential chokepoints, the U.S. wields its powerful "arsenal of economic weapons" -- sanctions, export controls and investment restrictions.

Mr. Fishman dates the origin of this new age to the aftermath of 9/11 and the George W. Bush administration's drive to throttle terrorist funding. But the real catalyst, the author argues, was Iran. To halt Tehran's march to a nuclear bomb, Congress passed a series of laws enabling the Treasury Department to apply sanctions: Any financial institution found to be doing business with Iran risked being cut off from accessing the U.S. dollar, prevented from participating in the U.S. financial system and subject to huge fines. In the battle against the mullahs, Treasury was thus transformed from its traditionally supporting role to a central one.

Later, under the Obama administration, the threat of sanctions and the specter of huge fines persuaded banks and companies around the world to sever or shrink their economic ties with Iran. Purchases of Iranian oil plummeted. Iran's economy cratered, finally forcing Tehran to the negotiating table. A nuclear deal would be reached in 2015, though the first Trump administration would withdraw the U.S. as a signatory in 2018.

Russia has proved a more formidable foe in economic warfare. After Russia reunited with Crimea in 2014, the U.S., in concert with its allies, cut off Russian access to credit markets and oil and gas technology; they also imposed travel bans on and froze the assets of Russians close to Mr. Putin. The Russian economy was sent into a tailspin. Eight years later, as Russian troops massed on the border with Ukraine, the Biden administration warned of the "most severe sanctions that have ever been imposed." The economic consequences of U.S. sanctions were not enough to dissuade Mr. Putin.

As Mr. Fishman explains, three factors contributed to Russia's resilience. First, once Russia met resistance to its actions, the Kremlin pivoted to a wartime economy that continued to generate economic growth, albeit of a distorted kind, prioritizing military production at the expense of the civilian sector. Rampant inflation forced Russia's central bank to set interest rates at more than 20%. Second, in the face of sanctions from the West, Russia turned to China to fill the breach. As Mr. Fishman writes, "Sino-Russian trade flourished," with China providing everything from technology and civilian goods to bullet-proof vests. Russia is now economically dependent on China.

The third factor was the nature of the U.S. sanctions. While they targeted both finance and technology, they did not disrupt Russia in its greatest vulnerability -- oil exports. Oil and gas revenues make up as much as 40% of Russia's total budget, and a cutoff of oil exports would have strangled the Russian economy. But here was a dilemma: Russia was exporting five times as much oil as Iran to the world market. The Biden administration feared that an embargo would have sent oil prices soaring, along with the price of gasoline at the pump. That would have been bad for the global economy and bad for U.S. politics.

The solution was a price cap that sought to set a maximum price of $60 a barrel on Russian oil, enforced by international sanctions and the fact that the global oil trade is immersed in a dollar-based web of shipping, insurance and marine services. But the 10 months it took for the U.S. and its allies to work out the price cap allowed Moscow enough time to cobble together a ghost fleet of hundreds of secondhand tankers and a network of shadowy traders who operate outside the dollar-based system. Russia was thus able to develop a parallel trading system and sell oil above the $60 cap, most notably to China and India.

Today the most consequential battle of economic warfare is the one unfolding between China and the U.S. On the American side it reflects, Mr. Fishman tells us, a decided shift in thinking. The U.S. no longer believes that expanding economic relations with China will create common interests and international stability. Instead, the dominant view in America now is that China has been "waging an economic assault against the United States for decades," stealing technology and intellectual property, launching cyberattacks, seeking "to seize the commanding heights of the digital economy" and rapidly building up a military to push the U.S. back across the Pacific.

And so when U.S. intelligence warned that the Chinese telecommunications company Huawei was rolling out advanced communications systems around the world with a hidden danger -- a "backdoor" that could enable Beijing to download confidential data at will -- the first Trump administration convinced companies in the U.S. and its ally countries to swear off Huawei. Sanctions followed, denying Huawei access to advanced American computer chips. Under the Biden administration, this approach evolved into a policy of denying such chips to all Chinese companies.

The Biden administration's stated objective was to ensure that the U.S. maintains "as large of a lead as possible" on critical technologies, restraining China's ability to harness artificial intelligence and thus hinder its rapid military buildup. The U.S. campaign is backed by a drive to shift supply chains and investment away from China. Despite its many other differences with the first Trump administration, the Biden administration not only maintained continuity with its predecessor in its stance on China but further tightened the chokepoints.

Beijing decries these efforts as a campaign to "contain China" and is pushing back. Some argue that the vitality of the U.S. tech sector will ensure that a five-year gap between U.S. and Chinese technologies can be maintained.

Others argue that China is pouring huge resources into shortening the gap and building up its own capabilities. According to some estimates, China awards more than 10 times as many engineering degrees a year as the U.S. Confidence about the durability of the U.S. lead was abruptly shaken last month by the Chinese company DeepSeek's release of its advanced artificial-intelligence model.

Adding to the risks is Beijing's ambition to absorb Taiwan, where 90% of the world's advanced computer chips are fabricated.

China is gearing up for new rounds of economic warfare in other ways -- for instance, denying American companies access to Chinese markets and banning the export to the U.S. of rare-earth materials, which are used in everything from semiconductors to batteries and weapons systems. To justify its ban, Beijing now deploys a term borrowed from the U.S., holding back rare-earth materials, it says, because of "dual use" -- by the military as well as civilians.

Mr. Fishman acknowledges that, as countries seek to reduce their evident vulnerabilities, chokepoints can gradually lose their potency. Russia and China are trying to stick to rubles and yuan in their countries' burgeoning bilateral trade. A global embrace of cryptocurrencies could further reduce the primacy of the dollar.

With "Chokepoints," Mr. Fishman has provided a thorough analysis of what, for now, continues to be the power of that primacy. Curiously, however, the author does not address the many lessons of economic warfare learned during the Cold War, when the U.S. and its allies sought to control exports to the Soviet bloc. He also fails to define "neoliberal dogma," even though on occasion he joins the current fashion of deriding it -- as if low deficits, low inflation, the avoidance of overregulation and the growth benefits of the global economy are all to be discounted. On Iran, he skims over the other powerful factor that brought the country to the negotiating table -- the U.S. shale revolution. As the economic chokepoints were closing on Tehran, the physical valves were opening on the U.S. oil fields. Oil production surged, to the mullahs' disbelief, more than compensating for the Iranian oil that was being shut out of the market -- making Iran's dire economic situation even worse.

"Chokepoints" appears at a moment when a new twist to economic warfare is at hand: Mr. Trump's penchant for tariffs, marking a reversion from the long trend toward trade liberalization that began with the revulsion against the trade wars of the 1930s. The second Trump administration is not hesitating to impose and brandish tariffs against both allies and adversaries, whether to offset trade deficits or to achieve other policy goals. At the same time, Moscow is already making clear in negotiations over events in Ukraine that the removal of all sanctions is a primary objective.

Altogether, the current juncture makes "Chokepoints" a timely guide to the fragmenting of the global economy and the rising tensions that go with it. We are already in the age of economic warfare; the question is whether we can avoid an era of escalation.

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Mr. Yergin, the vice chairman of S&P Global, is the author of "The Prize," "The Quest" and "The New Map."” [1]

1.   REVIEW --- Books: The New Economic Warfare --- Want to exert geopolitical influence without mobilizing troops? It helps to have the currency everyone needs. Yergin, Daniel.  Wall Street Journal, Eastern edition; New York, N.Y.. 22 Feb 2025: C7.