Counterstrategies to Economic Warfare

Abstract

As the world has grown increasingly interconnected across trade and information channels, states have weaponised these dependencies to coerce rivals and bring opponents to heel. Economic interdependence has become an increasingly popular geopolitical weapon in states’ arsenals as many capitals have attempted to exploit this tactic. Turner Ruggi seeks to provide a clear and original strategic framework that recognises the range of valid counterstrategies that players might adopt against economic coercion.

For US National Security Advisor Jake Sullivan, the most pressing issue within contemporary foreign policy is ‘competition in the age of interdependence’.¹ From the US’s ability to penalise states by kicking them off the global financial messenger SWIFT,² to the expansion of Chinese sanctions on unfriendly nations over political grievances,³ and Russia’s weaponisation of European gas pipelines,⁴ the economy has definitively emerged as a coercive strategic domain.⁵ As Sullivan observes, calculating the challenges and threats posed by economic interdependence is perhaps the most compelling task facing states today; and yet efforts so far by the US and the EU have mostly served to introduce a vast new lexicon of technical jargon, complicating the landscape even further.⁶

Modelling Counterstrategies to Weaponised Interdependence

Identifying how nations react to weaponised interdependence is essential to both the weaponiser (to determine when economic pressure will be effective) and the recipient (to foresee and mitigate economic vulnerabilities). This essay seeks to flesh out and understand the panoply of tactics employed to address and deter economic warfare. In formulating a politically useful set of counterstrategies in the face of weaponised interdependence, three opening questions must be asked.

Restricting an adversary’s access to advanced microelectronics can be a key part of economic warfare. Courtesy of IM Imagery / Adobe Stock

First, there is the question of economic-size bias. Does the counterstrategy require a minimal level of economic influence and resources to expend?

The behaviour of developed versus developing nations in response to economic coercion varies dramatically. Amrita Narlikar demonstrated the unequal consequences of weaponised interdependence on members of the Global South as opposed to the larger and more developed states.⁷ Inevitably, the set of possible counterstrategies will also differ and it is important to outline how economic power will influence a state’s response to economic coercion.

Second, there is the issue of chokepoint or panopticon. Is the counterstrategy applicable in response to a chokepoint effect, a panopticon effect, or both?

Drawing on the highly influential work of Henry Farrell and Abraham Newman, interdependence can be weaponised along two distinct channels: through a panopticon effect, whereby states glean critical knowledge by spying on information flows through the hubs they control;⁸ or by a chokepoint effect, involving the capacity of privileged states to limit or penalise the use of global network hubs by others. The NSA’s policy of spying on international payments in the aftermath of the 9/11 attacks is a typical example of the panopticon effect.⁹ The chokepoint effect is an especially compelling topic among strategic thinkers today, and includes cases such as Russian chokepoint control over gas flows to Europe,¹⁰ the West’s chokepoint control over oil shipping insurance to impose a price cap on Russian oil,¹¹ or the US’s chokepoint control on advanced semiconductor technology being supplied to China.¹² Both the panopticon and chokepoint strategies of economic coercion are essential to consider in debates exploring the dangers of interdependence.

Third, there is a question of denial or punishment. Is the counterstrategy designed to deter weaponisation by limiting the effectiveness of economic coercion, or does the counterstrategy deter by punishing the aggressor?

This question draws on the insights of deterrence theory and the distinction made between deterrence by denial and deterrence by punishment.¹³ The denial counterstrategy seeks to deter an act of economic pressure by making it unfeasible or unlikely to succeed. The punishment form threatens severe penalties (economic or otherwise) against any form of economic coercion. A useful cataloguing of counterstrategies to weaponised interdependence should assess which form of deterrence is witnessed.

Bearing these preliminary distinctions in mind, it is possible to categorise four routes which states might follow to oppose economic attacks: retaliation; reconstruction; transition; and destruction. The remainder of this essay examines each of these countermeasures and offers contemporary and historical examples to illustrate their application. The aim is to shape a working framework for policymakers to appraise how states react when their dependencies are weaponised against them.

Retaliation

One response to an economic assault is to counterattack aggressively by imposing costs on the weaponising regime: retaliation refers to the counterstrategy of the target state striking the weaponiser back. In effect, this offers a form of deterrence through punishment by imposing retaliatory costs on the adversary. Retaliation is most regularly a response to chokepoint weaponisation, often fighting fire with fire by delivering the weaponiser a blow to its own economic weak points. Nowhere is this clearer than in the case of Russia’s aggression. Following the invasion of Ukraine in February 2022, the West imposed severe sanctions on the Russian economy, including the expulsion from SWIFT and the freezing of $300 billion in Russian foreign exchange reserves.¹⁴ Moscow reacted sharply, imposing a counter-economic chokepoint against Europe by cutting exports of gas via the Nord Stream 1 pipeline.¹⁵ Economic retaliation is a powerful choice for any state with control over a key economic node (in Russia’s case, energy supplies) and the domestic capabilities to take advantage of this position.

States consistently incorporate the threat of retaliation into their economic security decision-making, as the theory of deterrence by punishment implies. One exemplary dyad of economic retaliation concerns China and the West in the production and trade of semiconductors. Soon after the CHIPS and Science Act passed in August 2022 to bolster US homegrown semiconductor production, the White House followed up with a programme of export controls on key semiconductor technology to China, and further ordered the withdrawal of all US engineers from operating there.¹⁶ As the US and its allies have increased restrictions on China’s semiconductor production, Beijing has wielded its economic clout to counterattack–restricting the access of US and Japanese semiconductor firms to the Chinese market,¹⁷ as well as choking off US supplies of gallium and germanium, which are critical for semiconductor production and primarily mined in China.¹⁸

Retaliation incorporates any possible counterstrike and does not necessarily remain within the economic domain. The victimised state might opt for an escalatory retaliation, such as a military assault. A possible historic case study of military retaliation to economic warfare relates to the Japanese attack on Pearl Harbor in 1941. An oft-argued explanation for Japan’s strike on the US was Tokyo’s extreme dependence on imported US oil supplies.¹⁹ After the Japanese invasion of French Indochina in late 1940, the US prohibited all oil exports to the Japanese Empire. Tokyo decided that Japan’s oil thirst would be quenched by conquering Malaya and the East Indies to exploit their oil fields; however, doing so would most likely trigger an armed US intervention. Hence the Japanese air force attacked the American Pacific Fleet stationed at Pearl Harbor to weaken the US presence before striking south in Malaya and the East Indies.²⁰ This example highlights the escalatory risks in weaponising dependencies and should be carefully heeded by geoeconomic policymakers everywhere.

Deterrence by punishment is a central strand in the logic of the retaliation counterstrategy. In its recent economic security doctrine announcement, the EU explicitly outlined how the organisation will respond with economic sanctions against any state which attempts to weaponise interdependence against it.²¹ EU officials made it clear that this policy was explicitly aimed at deterring would-be economic aggressors.²²

Control over a possible economic chokepoint is most common in wealthy states and, as a result, retaliation is usually a counterstrategy of the strong. However, it is possible for smaller states to band together and pool their economic might. Victor Cha explored this strategy in the context of countering Chinese economic coercion, labelling the response ‘collective resilience’.²³ Beijing’s application of sanctions on a wide array of states since 2008 points to the possibility of defensive collaboration between these victimised countries.²⁴ Cha’s statistical findings also reveal that many of the victims of Chinese weaponised interdependence possess the means to apply counter chokepoints on China when their resources are pooled.²⁵ Cha’s work points to the viability for states with reduced economic influence to close ranks and engage in retaliation-based counterstrategies against mightier players, such as China.

Reconstruction

A second possible response is reconstruction, referring to any attempt to restore access to the choked-off supply lines. Reconstruction produces a form of deterrence by denial since the aim is to limit the effectiveness of weaponising the economy and thus deter the weaponising state from engaging in coercive policies. Deterrence theory emphasises that deterrence by denial is more credible than deterrence by punishment since applying an economic punishment will inevitably have some blowback on one’s own consumers and business.²⁶ Furthermore, the reconstruction counterstrategy cannot apply to a panopticon effect as reconstruction implies that the victimised state has been excluded from the economic network and, therefore, only fits against a chokepoint effect.

In its simplest form, reconstruction involves circumventing a sanctions regime. Smuggling is a relatively unsophisticated countermeasure and remains the ‘default’ response to a chokepoint form of weaponised interdependence. Almost inevitably, profit-seekers will find the means with which to circumvent sanctions and smuggle in an excluded good for high returns, or reroute goods through third-party states,²⁷ shell companies,²⁸ or invent myriad other forms of creative sanction-busting. Over time, the victims of weaponised interdependence grow adept at evading the restrictions and the bite of economic coercion erodes, as illustrated by Iran’s oil-smuggling complex, which has gradually rebuilt its exports despite the Trump administration’s reinstatement of sanctions.²⁹ Empirical evidence suggests that the relationship between economic size and sanction-busting effectiveness is not linear, and that medium-sized economies are the best positioned to escape economic pressure through evasive measures.³⁰

Another subset of the reconstruction counterstrategy is to submit to the weaponiser’s will. In some cases, ‘submission’ of this sort is the ideal outcome for the aggressor, although many forms of weaponised interdependence have a different goal in mind.³¹ If the recipient state is utterly dependent on access to the weaponiser’s central node to participate in the global economic order and has no effective alternative route, it may have no option other than to concede to demands for restored access. Understanding what factors influence recipient states to choose the ‘submission’ counterstrategy has been a crucial area of research for policymakers and academics to help decide whether economic sanctions are a fruitful course of action.³²

One prominent example of submission can be observed in the case of Iran. After SWIFT disconnected 15 Iranian banks in 2012 in accordance with EU and US sanctions, Tehran sought to regain access to SWIFT (as well as removing numerous other trade restrictions imposed by the West) and re-engage Iranian oil exports.³³ The eventual Joint Comprehensive Plan of Action (JCPOA, or Iran Nuclear Deal) signed in 2015, used access to US-led financial hubs as a bargaining chip in exchange for Tehran’s commitment to restrain its nuclear weapon ambitions.³⁴ Iran’s counterstrategy was to concede on the issue of nuclear weapons as part of the negotiation to reconstruct economic access.³⁵

Reconstruction can also entail more aggressive counterstrategies than either smuggling or submission. As an extreme measure, the recipient of weaponised interdependence could seek to restore access to the excluded economic network by stealing the network hub itself. As with any response based on force, this approach assumes the responder has sufficient military capabilities; hence this aggressive reaction tends to be a privilege of larger states. A hypothetical example of stealing a network, which many analysts are currently considering, relates to Taiwan.³⁶ If the West were to deny China access to the most sophisticated semiconductor technology produced in Taipei, Beijing might be pushed to reconstruct its access to the global network of semiconductors by force and seize Taiwan.³⁷ Such a militant approach is fraught with contingent difficulties: it is unlikely that the semiconductor network hub in Taiwan’s TSMC will survive such an invasion for China to ever ‘reconstruct’ access.³⁸ Nevertheless, the hypothetical in which TSMC stays intact and withstands the Chinese attack is a useful case study to consider the extreme threat of reconstruction by force.

Reconstruction as a counterstrategy has a variable impact as a deterrent. Sanction-busting measures are a clear case of deterrence by denial; stealing a network hub has both a denial and a punishment aspect because the weaponiser will lose control of its key node, and submission does not deter at all.

Transition

Transition refers to a state evading economic dependence on the weaponiser by moving to an alternative supplier. Strategies that could be classified as transition have received widespread attention since Farrell and Newman’s paper on weaponised interdependence in 2019.³⁹ In the long run, transition emerges as the most potent response: a state maintains access to the key economic supply lines without the risk of these dependencies being used against it–akin to the policy of diversification of suppliers in any standard supply chain management.⁴⁰ As Farrell and Newman demonstrate, however, the dilemma with transition emerges when network effects are involved: a network effect refers to any service which increases in value as more users are on the service.⁴¹ The SWIFT financial payment system is a useful illustration: what makes SWIFT so valuable is that everyone else uses SWIFT. The Chinese CIPS or Russian SPFS as alternative platforms to SWIFT have both struggled to gain traction in the face of SWIFT’s significant network-effect advantage as the go-to platform for cross-border payments.⁴² Transitioning becomes far more difficult when a network has cemented itself as the only player in town.

Network effects are not the only weakness to transitioning away from a dependency. In the short to medium term, transitioning can be impractical due to the distribution of natural resources. Cartels such as OPEC for crude oil⁴³ or the virtual monopoly on cobalt in the Democratic Republic of the Congo⁴⁴ make any attempt to shift away from these supply lines dubitable should they ever be weaponised.⁴⁵ Transition to new suppliers is a valuable counterstrategy to weaponised interdependence, but it is not the economic coercion panacea it is often made out to be.

Transitioning to an alternative network can oppose both chokepoint and panopticon effects, and the threat of transition deters weaponisation both through denial (the target state obtains the key good elsewhere) and punishment (the weaponising state loses its influence by reduced dependence on its dominant node). Larger states tend to engage in alternative network creation while smaller states will turn to alternative network ‘bandwagoning’, whereby they hop between rival networks created by competing larger states. Creating an alternative economic hub is easier for major economic states which can draw substantial network effects to the alternative, although theoretically a coalition of smaller states could achieve the same result. The rise of Huawei as an alternative to the dominant US internet and telecommunication providers is a notable example of China’s success at establishing a new network to diminish dependence on America’s digital dominance and its panopticon and chokepoints powers.⁴⁶

Smaller players benefit from bandwagoning policies such as ‘friend-shoring’, whereby states build replacement supply chains within their allies to side-step chokepoints from hostile powers, or ‘near-shoring’ if geographically closer states are viewed as reliable suppliers.⁴⁷ The US endorsement of Vietnam as an alternative provider of Chinese manufacturing for the West demonstrates how developing states can take advantage of a transition counterstrategy and bandwagon with a larger state’s efforts to establish alternative supply lines.⁴⁸ Friend-shoring and other similar transition strategies that locate essential economic nodes in friendly states bear an obvious risk: if allegiances change, the dependency has not been overcome but has merely shifted to another weaponiser. A telling case study is that of INSTEX; when the Trump administration withdrew from the JCPOA, both Iran and the EU sought to continue upholding the agreed-upon deal of sanction relief in return for limiting Tehran’s nuclear capabilities. As a result, several European states established INSTEX as a bartering financial system that did not depend on the US or the dollar.⁴⁹ Such an approach circumvents the financial network hubs based in the US, but at the expense of Iran risking dependence on the EU-led financial network.⁵⁰ Another case study relates to how states would decide between using US software and telecommunication providers versus China’s Huawei systems. According to a Russian government insider, ‘[w]e’re either going to be bugged by the US or by China, so we need to choose the lesser evil’.⁵¹ Reliance on foreign-controlled economic nodes always carries the risk that dependence could be weaponised and–as the Russian and Iranian cases convey–the lesser evil may be the best choice states can make.

States can also bring about network transition by actively intervening to support a coerced state or reliable alternative provider. This is the recommended policy proposed by Matthew Reynolds and Matthew Goodman in their paper on combating China’s economic coercion.⁵² They suggest the creation of a US ‘coercion compensation fund’ whereby the victims of Beijing’s economic attacks will receive US financial support to absorb the shock and build new supply lines through more secure networks.⁵³ In the author’s discussions with Abraham Newman, he referred to this as the ‘positive economic weapon’ and an underappreciated tool to compete with challenges such as Huawei: instead of pressuring states to refuse Huawei’s cheap 5G capabilities, the West could increase the competitive edge of allied telecommunication providers like Nokia and Ericsson through subsidies.⁵⁴ The concept of economic warfare being ‘positive’ and reinforcing allies rather than depriving enemies was explicitly alluded to by John Maynard Keynes, who wrote on the question of sanctions in 1924, ‘[t]he more things are thought about the more shall we be inclined to depend upon positive assistance to the injured party as compared with reprisals against the aggressor’.⁵⁵

Reaching further back into historical case studies, one can observe the prevalence of a particular kind of transition as an instinctive counterstrategy: autarky. Nicholas Mulder’s insightful study of the sanction regime of the League of Nations in the interwar years demonstrates how Mussolini’s Italy and Nazi Germany sought to avoid dependence on US, Soviet, British and French commodity production by mandating and subsidising production at home.⁵⁶ ‘Onshoring’ (as the successor to autarky) continues to be a popular counterstrategy to weaponised interdependence, such as with President Joe Biden’s Inflation Reduction Act. The Act seeks to enhance US production of electric vehicles and their components–an area which holds a critical place in the future of innovation and where the US has been uncomfortably reliant on Chinese production.⁵⁷ Onshoring is more appealing to domestic audiences than financially supporting the industries of friendly foreign states and is less risky as it removes external dependence. However, onshoring has also proved to be prohibitively expensive in a globally competitive world and ruffles the feathers of allies concerned about protectionism.⁵⁸

Destruction

A frequently neglected response to weaponised interdependence is to damage the supply lines and networks themselves. The ‘destruction’ approach is closely related to retaliation, although still categorically distinct in that the network–rather than the weaponiser–is the target. In essence, the destruction strategy attitude is ‘if I can’t benefit from the economic network, no one can’. This method has significant weaknesses since by attacking the network itself, one fails to discriminate between the overtly hostile sanctioning states and the neutral or even aligned states who rely on that network. Nonetheless, the aim of this strategy is twofold: first, to incentivise other players to turn towards an alternative–more secure–supplier; and second, and not unlike retaliation, the recipient state imposes some cost on the weaponiser for maintaining the sanction regime. Hence, destruction primarily offers deterrence by punishment as this counterstrategy seeks to impose costs on the state that attempts to weaponise the economy and is applicable to both the panopticon and chokepoint iterations of weaponised interdependence.

Usually, destruction is a strategy employed by less resilient states, which lack the means to effectively retaliate against their weaponiser, reconstruct access to the original network or transition rapidly to a viable alternative. Three pertinent case studies demonstrate this fact. First, in the case of North Korean hackers who have been known to disrupt the functioning of global financial nodes from which they are excluded, including SWIFT.⁵⁹ This example blends both destruction (by seeking to undermine the Western global financial system) and reconstruction (by obtaining ransoms and stealing funds to acquire foreign capital).⁶⁰ A second example comes from Russian state-sponsored troll farms spreading disinformation on Western internet platforms, designed to ‘pollute’ these services.⁶¹ Interestingly, these hackers have been cleverly able to discriminate to some extent between friendly and hostile internet users by sparing all Cyrillic alphabet websites as a rough proxy for states which are more aligned with Russia.⁶²

The final case study is hypothetical and relates to Taiwan. If China seizes Taiwan, and Taiwanese semiconductor capabilities cannot be exfiltrated off the island, the US Army has outlined its ‘broken nest’ strategy whereby the US would destroy Taiwan-based semiconductor manufacturers before they could fall into Beijing’s hands.⁶³ This is effectively a destructive counterstrategy designed to prevent a potential Chinese chokehold on semiconductor production, even at the risk of severely harming global semiconductor supplies including for the US and its allies.⁶⁴

Attacking the reputation of the network can also count as a destructive counterstrategy. In 2021, Narlikar outlined how the narrative of China’s Belt and Road Initiative as being in fact a form of neo-colonialism has limited the effectiveness of this network and even led to some withdrawals from the programme.⁶⁵ Attacking the reputation of weaponisers can also be conducted through multilateral bodies: Bonnie Glaser has argued for a form of collective resilience against China whereby states collectivise to challenge Beijing’s geoeconomic stance within the World Trade Organization (WTO) and win diplomatic victories against China’s reputation.⁶⁶ For example, after China restricted the exports of rare earth minerals to Japan, a collaboration of the US, Japan and the EU successfully challenged China at the WTO.⁶⁷ Destruction may not represent the most favoured counterstrategy to economic coercion but it remains a unique tool for victimised states to deploy against an aggressor.

Conclusion

This essay serves to map out the enormous challenge outlined by Jake Sullivan–the rise of economics as a strategic domain and the dangers of economic interdependence–alongside principal responses and their potential results. Getting to grips with the range of counterstrategies on offer to nations in the face of weaponised interdependence is pivotal for both assessing whether to engage in economic coercion and for resisting a dominant economic aggressor. These scenarios are–worryingly–expected only to grow, both in number and complexity.

Drawing heavily on the scholarship surrounding military and nuclear deterrence, the findings presented here distinguish an original framework of four possible counterstrategies to weaponised interdependence: retaliation; reconstruction; transition; and destruction. With the era of interdependence upon us, forging a workable framework to grasp the complexities surrounding the weaponisation of dependencies represents a vital first step to survive and thrive in this unprecedented geopolitical climate. ν

This essay was the recipient of the 2023 Trench Gascoigne Essay Prize, Full Time Education Category.

Additional information

Notes on contributors

Turner Ruggi

Turner Ruggi is a finalist undergraduate student in Philosophy, Politics and Economics at Magdalen College, Oxford. He is editor at the Oxford Political Review and his research interests include geoeconomics and transatlantic security.

Notes

1 Jake Sullivan, ‘The Sources of American Power: A Foreign Policy for a Changed World’, Foreign Affairs, 24 October 2023.

2 Kaitlan Collins, Phil Mattingly, Kevin Liptak and Donald Judd, ‘White House and EU Nations Announce Expulsion of “Selected Russian Banks” from SWIFT’, CNN Politics, 26 February 2022.

3 Ivar Kolstad, ‘Too Big To Fault? Effects of The 2010 Nobel Peace Prize on Norwegian Exports To China and Foreign Policy’, International Political Science Review (Vol. 41, No. 2, 2020), pp. 207–23.

4 Alex Lawson, ‘“Gas Blackmail”: How Putin’s Weaponised Energy Supplies are Hurting Europe’, The Guardian, 15 July 2022.

5 Howard J Shatz and Nathan Chandler, Global Economic Trends and the Future of Warfare (Santa Monica, CA: RAND Corporation, 2020).

6 Diplomatic buzzwords include strategic autonomy, decoupling, de-risking, onshoring, near-shoring, ally-shoring and friend-shoring. For more information on these terms, see Agathe Demarais, ‘What Does “De-Risking” Actually Mean?’, Foreign Policy, 23 August 2023; and Mohamed El-Erian, ‘From Near-shoring to Friend-shoring: The Changing Face of Globalisation’, The Guardian, 9 March 2023.

7 Amrita Narlikar, ‘Must the Weak Suffer What They Must? The Global South in a World of Weaponized Interdependence’, in Henry Farrell, Abraham Newman and Daniel Drezner (eds), The Uses and Abuses of Weaponized Interdependence (Washington, DC: Brookings Institution, 2021).

8 Henry Farrell and Abraham Newman, ‘Weaponized Interdependence: How Global Economic Networks Shape State Coercion’, International Security (Vol. 44, 2019), pp. 42–79.

9 Der Spiegel, ‘NSA Spies on International Payments’, 15 September 2013.

10 BBC News, ‘Nord Stream 1: How Russia is Cutting Gas Supplies to Europe’, 29 September 2022

11 Alaric Nightingale, Alberto Nardelli and Christopher Condon, ‘Vital Oil Chokepoint Gets Caught Up in EU’s Sanctions on Russia’, Bloomberg, 13 September 2022; and HM Government, ‘UK and Coalition Partners Announce Price Caps on Russian Oil Products’, 3 February 2023, <https://www.gov.uk/government/news/uk-and-coalition-partners-announce-price-caps-on-russian-oil-products>, accessed 25 September 2023.

12 Kif Leswing, ‘US Curbs Export of More AI Chips, Including Nvidia H800, to China’, CNBC, 17 October.

13 For deterrence theory in general, see Thomas C Schelling, Arms and Influence (New Haven, NJ: Yale University Press, 1966); and Robert Jervis, ‘Rational Deterrence: Theory and Evidence’, World Politics (Vol. 41, No. 2, January 1989), pp. 183–207. For a useful explainer of the distinction between deterrence by denial and by punishment, see Michael J Mazarr, “Understanding Deterrence’, Expert Insights, RAND Corporation, 2018, <https://www.rand.org/content/dam/rand/pubs/perspectives/PE200/PE295/RAND_PE295.pdf>, accessed 15 August 2023.

14 Nicolas Veron and Joshua Kirschenbaum, ‘Now is Not the Time to Confiscate Russia’s Central Bank Reserves’, Bruegel, 16 May 16 2022, <https://www.bruegel.org/blog-post/now-not-time-confiscate-russias-central-bank-reserves>, accessed 27 September 2023.

15 Oleg Korenok, ‘Moscow’s Gas Freeze Shows EU-Russian Trade is Doomed’, Foreign Policy, 13 September 2022.

16 The White House, ‘Fact Sheet: CHIPS and Science Act Will Lower Costs, Create Jobs, Strengthen Supply Chains, and Counter China’, 9 August 2022, <https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/>, accessed 26 September 2023. See also Bureau of Industry and Security, ‘Commerce Implements New Export Controls on Advanced Computing and Semiconductor Manufacturing Items to the People’s Republic of China (PRC)’, Department of Commerce, 7 October 2022, <https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3158-2022-10-07-bis-press-release-advanced-computing-and-semiconductor-manufacturing-controls-final/file>, accessed 26 September 2023.

17 Dan Milmo and Graeme Wearden, ‘China Bans US Chipmaker Micron from Vital Infrastructure Projects’, The Guardian, 22 May 2023.

18 China produces 80% of the world’s gallium supply and 60% for germanium according to the Critical Raw Materials Alliance. See Annabelle Liang and Nick Marsh, ‘Gallium and Germanium: What China’s New Move in Microchip War Means for World’, BBC News, 2 August 2023.

19 At that time, more than 80% of Japan’s oil supplies were imported from the US. See Daniel Yergin, ‘Blood and Oil: Why Japan Attacked Pearl Harbor’, Washington Post, 1 December 1991.

20 Robert Higgs, ‘How US Economic Warfare Provoked Japan’s Attack on Pearl Harbor’, Independent Institute, 1 May 2006, <https://www.independent.org/news/article.asp?id=1930>, accessed 10 October 2023.

21 Véronique Girard, ‘EU Response to Economic Coercion by Third Countries’, European Parliament, May 2022, <https://www.europarl.europa.eu/RegData/etudes/BRIE/2022/730326/EPRS_BRI(2022)730326_EN.pdf>, accessed 10 October 2023.

22 Henry Farrell and Abraham Newman, ‘The New Economic Security State’, Foreign Affairs, 19 October 2023.

23 Victor Cha, ‘Collective Resilience: Deterring China’s Weaponization of Economic Interdependence’, International Security (Vol. 48, No. 1, 2023), pp. 91–124.

24 Ibid.

25 Ibid.

26 Paul Huth and Bruce Russett, ‘Deterrence Failure and Crisis Escalation’, International Studies Quarterly (Vol. 32, No. 1, 1988), p. 42.

27 John Caves III and Meghan Peri Crimmins, ‘Major Turkish Bank Prosecuted in Unprecedented Iran Sanctions Evasion Case’, Wisconsin Project on Nuclear Arms Control, 31 March 2020, <https://www.wisconsinproject.org/major-turkish-bank-prosecuted-in-unprecedented-iran-sanctions-evasion-case/>, accessed 10 October 2023.

28 Tessa Fox and Karam Shaar, ‘Syria Using Maze of Shell Companies to Avoid Sanctions on Assad Regime’s Elite’, The Guardian, 22 March 2022.

29 The Economist, ‘America Would Struggle to Break Iran’s Oil-smuggling Complex’, 25 October 2023.

30 The reason behind this ‘Goldilocks Effect’ is that smaller states face less lucrative opportunities for profit gaining by smuggling, thereby reducing the incentive to breach the sanction regime; the largest economies experience increased scrutiny as well as greater ability to domestically produce sanctioned goods rather than resort to smuggling. For a full breakdown and the empirical evidence behind this claim, see Keith Preble, ‘“Just Right”: The Goldilocks Theory of Sanctions Busting’s Causes’, Foreign Policy Analysis (Vol. 19, No. 4, 2023).

31 Other ideal outcomes include limiting a rival’s military capabilities, restraining their foreign policy ambitions, domestic political change, third-party deterrence or symbolic actions. See Bruce Jentleson, Sanctions: What Everyone Needs to Know (Oxford: Oxford University Press, 2022), pp. 13–14.

32 For an overview of the ‘Sanctions Debate’, see David Baldwin, ‘The Sanctions Debate and the Logic of Choice’, International Security (Vol. 24, No. 3, 1999), pp. 80–107.

33 Rachelle Younglai and Roberta Rampton, ‘US Pushes EU, SWIFT to Eject Iran Banks’, Reuters, 18 February 2012. See also Radio Free Europe / Radio Liberty, ‘Iran Eyes Return to SWIFT System’, 24 July 2015, <https://www.rferl.org/a/iran/27150749.html>, accessed 10 October 2023.

34 Michael Gordon and David Sanger, ‘Deal Reached on Iran Nuclear Program; Limits on Fuel Would Lessen With Time’, New York Times, 14 July 2015.

35 This concession did not last long: the Trump administration withdrew from the JCPOA in 2018 and reinstated the sanctions regime on Iran. President Trump even increased sanctions on Tehran during his remaining years in office. Nevertheless, the return of Iran to SWIFT in the JCPOA from 2015–18 is a valid case study of reconstruction by submission. See Pranshu Verma and Farnaz Fassihi, ‘US Imposes Sanctions on Iran’s Oil Sector’, New York Times, 26 October 2020.

36 Jared McKinney, ‘TSMC’s Fate Will Indeed be at Stake if China Attacks Taiwan’, Nikkei Asia, 2 June 2023.

37 David Sacks, ‘Will China’s Reliance on Taiwanese Chips Prevent a War?’, Council on Foreign Relations, 6 July 2023, <https://www.cfr.org/blog/will-chinas-reliance-taiwanese-chips-prevent-war>, accessed 25 October 2023.

38 David Sacks, ‘Threatening to Destroy TSMC Is Unnecessary and Counterproductive’, Council on Foreign Relations, 9 May 2023, <https://www.cfr.org/blog/threatening-destroy-tsmc-unnecessary-and-counterproductive>, accessed 25 October 2023.

39 Much of the EU and US geoeconomic jargon relates to transition, including decoupling, de-risking, onshoring, near-shoring, ally-shoring and friend-shoring. See Su-Lin Tan, ‘Yellen Says the US and its Allies Should Use “Friend-shoring” to Give Supply Chains a Boost’, CNBC, 19 July 2022.

40 For a case study in corporate supply chain disruption with analogies to state chokepoint effects, see Iñaki Arto, Valeria Andreoni and Jose Manuel Rueda Cantuche, ‘Global Impacts of the Automotive Supply Chain Disruption Following the Japanese Earthquake of 2011’, Economic Systems Research (Vol. 27, No. 3, 2015), pp. 306–23.

41 Henry Farrell and Abraham Newman, ‘Weaponized Interdependence: How Global Economic Networks Shape State Coercion’, International Security (Vol. 44, 2019), pp. 42–79.

42 Peng Qinqin et al., ‘Analysis: China’s CIPS Cannot Rescue Russian Banks from SWIFT Ban’, Nikkei Asia, 3 March 2022, <https://asia.nikkei.com/Spotlight/Caixin/Analysis-China-s-CIPS-cannot-rescue-Russian-banks-from-SWIFT-ban>, accessed 25 October 2023; and Maziar Motamedi, ‘What’s Behind Iran and Russia’s Efforts to Link Banking Systems?’, Al Jazeera, 8 February 2023.

43 OPEC represents about 40% of the world’s oil supply. Anshu Siripurapu and Andrew Chatzky, ‘OPEC in a Changing World’, Council on Foreign Relations, 9 March 2022, <https://www.cfr.org/backgrounder/opec-changing-world>, accessed 25 October 2023.

44 Roughly 70% of the world’s cobalt is produced in the Democratic Republic of the Congo. Victoria Beaule, ‘Artisanal Cobalt Mining Swallowing City in Democratic Republic of the Congo, Satellite Imagery Shows’, ABC News, 8 February 2023.

45 OPEC of course did weaponise control over crude oil against the US and others for their support of Israel in the 1973 Arab–Israeli War.

46 Abraham Newman and Henry Farrell, Underground Empire: How America Weaponized the World Economy (London: Allen Lane, 2023), pp. 79–110; and Keith Johnson and Elias Groll, ‘The Improbable Rise of Huawei’, Foreign Policy, 3 April 2019.

47 The term ‘friend-shoring’ has most notably been used by Janet Yellen. See Janet Yellen, ‘Remarks by Secretary of the Treasury Janet L Yellen on Way Forward for the Global Economy’, US Department of the Treasury, 13 April 2022, <https://home.treasury.gov/news/press-releases/jy0714>, accessed 25 October 2023.

48 Andrea Shalal, ‘US Treasury’s Yellen Sees Vietnam as Key Partner in “Friendshoring” Supply Chains’, Reuters, 21 July 2023.

49 John Irish and Riham Alkousaa, ‘Skirting US Sanctions, Europeans Open New Trade Channel to Iran’, Reuters, 31 January 2019.

50 Ultimately, Iran never became dependent on INSTEX and it was eventually shut down. Nevertheless, the risks highlighted by this example remain relevant. See HM Government, ‘The 10 INSTEX Shareholder States Have Decided to Liquidate INSTEX Due to Continued Obstruction from Iran: E3 Statement’, press release, 9 March 2023, <https://www.gov.uk/government/news/the-10-instex-shareholder-states-have-decided-to-liquidate-instex-due-to-continued-obstruction-from-iran>, accessed 25 October 2023.

51 Newman and Farrell, Underground Empire, p. 105.

52 Matthew Reynolds and Matthew Goodman, ‘Deny, Deflect, Deter: Countering China’s Economic Coercion’, Center for Strategic and International Studies, 21 March 2023.

53 Reynolds and Goodman, ‘Deny, Deflect, Deter’. The term ‘positive economic weapon’ was coined by Nicholas Mulder. See Nicholas Mulder, The Economic Weapon: The Rise of Sanctions as Tool of Modern War (New Haven, CT: Yale University Press: 2022).

54 Author’s conversation with Abraham Newman, September 2023.

55 Letter from JM Keynes to A Elliot Felkin, 29 October 1924, p. 2. Cited in Mulder, The Economic Weapon, p. 159.

56 Mulder, The Economic Weapon.

57 Michelle Lyons, ‘Climate Justice: Friendshoring, China’s Supremacy and America’s IR Act’, Lowy Institute, 4 September 2023, <https://www.lowyinstitute.org/the-interpreter/climate-justice-friendshoring-china-s-supremacy-america-s-ir-act>, accessed 25 October 2023.

58 Emily Benson and Ethan Kapstein, ‘The Limits of “Friend-Shoring”’, CSIS, 1 February 2023; and Ngozi Okonjo-Iweala, ‘Why the World Still Needs Trade’, Foreign Affairs, 8 June 2023.

59 Andy Greenberg, ‘Feds Indict North Korean Hackers for Years of Heists and Scams’, Wired, 17 February 2021, <https://www.wired.com/story/north-korea-hackers-indictment-cryptocurrency-sony-swift/>, accessed 25 October 2023.

60 Jason Bartlett, ‘Why North Korea is the Greatest State-Sponsored Threat to the Financial Services Sector’, CNAS, 27 June 2022, <https://www.cnas.org/publications/commentary/why-north-korea-is-the-greatest-state-sponsored-threat-to-the-financial-services-sector>, accessed 25 October 2023.

61 Ben Popken and Kelly Cobiella, ‘Russian Troll Describes Work in the Infamous Misinformation Factory’, NBC News, 16 November 2017.

62 Newman and Farrell, Underground Empire, p. 156.

63 Jared McKinney and Peter Harris, ‘Broken Nest: Deterring China from Invading Taiwan’, Parameters (Vol. 51, No. 4, 2021), pp. 23–36.

64 Alan Crawford et al., ‘The World is Dangerously Dependent on Taiwan for Semiconductors’, Bloomberg, 25 January 2021.

65 Most recently, Italy has moved to withdraw from the Belt and Road Initiative. David Sacks, ‘Why is Italy Withdrawing from China’s Belt and Road Initiative?’, Council on Foreign Relations, 3 August 2023, <https://www.cfr.org/blog/why-italy-withdrawing-chinas-belt-and-road-initiative>, accessed 25 October 2023; and Narlikar, ‘Must the Weak Suffer What They Must?’.

66 Bonnie Glaser, ‘Time for Collective Pushback Against China’s Economic Coercion’, CSIS, 13 January 2021.

67 Ibid.