Adam Smith once thought that more trade would mean less war. So did Kant. Liberals (in the classical sense of the word) believed that increasing economic interdependence would provide incentives to avoid war and encourage cooperation rather than conflict.
Explicit in Obama’s Trans-Pacific Partnership – now reincarnated as the highly controversial CPTPP – was the view that, in the words of a Time magazine reporter, “more global [and] rule-based interdependence leads to more peace, more prosperity.”
For a long time, that seemed to be the case. Neoliberalism’s “easy times” of the 1990s saw an uptick in global trade, and a proliferation of international institutions. By one count, the number of intergovernmental organizations had risen from fewer than 100 in 1949 to 350 in 2000. Interdependence was leading to global cooperation. Never mind, of course, that the IMF and World Bank’s neoliberal programs so excessively deregulated private markets in Latin America and Asia that the period became known as the “lost decade.” From the perspective of globalization’s ‘winners’ – China included – the liberal prophecy appeared to be coming true.
But the US-China trade war is only the latest in a series of events that has turned the prophecy on its head. Not only is trade not antithetical to war, it seems, but interdependence can actually be weaponized. This raises profound questions not just for the economic order, but for the security (dis)order of the 21st century.
Asymmetric Networks and Interdependence
Part of the liberal prophecy is that increased interdependence creates decentralized networks, which create opportunities for cooperation. In 2017, political scientist and think-tank CEO Anne Marie Slaughter argued that policymakers should move away from thinking of the international arena as a chessboard – the traditional realist perspective on strategic interaction – and develop a “network mindset.” According to Slaughter, networks should be leveraged for transnational cooperation in human rights, energy, disease and crime.
The only problem is, our world’s globe-spanning networks are not actually de-centralized or non-hierarchical. Rather, in a recent paper, network theorists Henry Farrell and Abraham Newman show that interconnectedness has a tendency to give rise to deeply hierarchical network structures, which can be open to abuse.
Why? Like Facebook, networks become more valuable the more people use it, so when one network is established, it becomes increasingly difficult to dislodge. And also, like Facebook, central ‘nodes’ in the network become more sophisticated and responsive to the needs of other actors in the network, as they are able to gather more information from the substantial amount of interaction taking place across the network as it becomes more important.
This is particularly important in financial networks – a prime example being SWIFT. SWIFT (the Society for Worldwide Interbank Financial Telecommunication) was the first firm to set up a network for interbank communication, used for worldwide transfers. The Belgian-based network opened its doors in 1973 and sent its first message in 1977. As more and more banks joined the network, it became the dominant provider: it now operates in over 200 countries connecting more than 11,000 financial institutions. If you’ve ever made an international transfer, you’ve been asked for your bank’s SWIFT code. It is the primary method by which banks ‘talk’ and conduct business internationally.
But SWIFT’s centrality has also been abused by great powers. It has been unwillingly shoved into the spotlight over the past few years, for its work with the US treasury to cut out America’s enemies from the network. In 2012, SWIFT suspended access to Iranian banks, a move that was seen as instrumental for bringing Iran to the negotiating table in 2015. In 2017, it barred some North Korean banks from the system. Under pressure from US Treasury Secretary Steven Mnuchin (the same Mnuchin who said the trade war was ‘absolutely’ worth it), in 2018 SWIFT once again banned Iranian banks.
With SWIFT, it is clear that globalization and interconnectedness has not given rise to decentralized networks. The unrealized promise of blockchain is that such a decentralized system can exist, but the reality is that most of the world’s money still moves through central nodes that can easily be manipulated by government pressure. As mentioned, networks – like other sociological structures – are difficult to dislodge.
The consequences for globalization are critical. Economic interdependence has always depended on a certain degree of shared vulnerability. Now, certain governments are taking advantage of their control over central nodes within broader networks to exploit this.
This is the developing frontier of weaponized interdependence.
The View from China: From Obscurity to Weaponization
None of this is lost on China. China’s success under Deng Xiaoping’s policy of tao guang yang hui or “hide brightness, nourish obscurity” has always been predicated on selective engagement in networks of interdependence, from the “Great Firewall” to trade protectionism to capital controls.
Despite this, US-China interdependence is so extensive that it borders on “codependency.” The US is China’s largest export market, while China is the US’s third largest. American companies have vast, complex supply chains that largely involve Chinese hubs. The Chinese market has become tremendously important to some American firms. But the US-China trade war has shone new light on the vulnerability of this relationship.
Xi Jinping has made moves to protect China’s national security, with two key priorities: first, to reduce the risks of interdependence by indigenizing supply chains per the “Made in China 2025” goal, and second, to sharpen its own ability to use interdependence as a tool of coercion. The latter has been far more opportunistic in application. Most famously, it was able to punish the NBA after a manager of one of the teams briefly tweeted in solidarity with pro-democracy Hong Kong protestors.
But the nativist move inwards has its limits, as exemplified by SWIFT and its extensive financial network. In 2019, former finance minister Lou Jiwei warned that: “The next step in the frictions between China and the United States is a financial war (金融战).” This is a sentiment shared by many other Chinese academics and government officials, all of whom are girding themselves for a financial war, with the coercion of central nodes and weaponized interdependence at its center.
The sense among such policymakers is that China is trapped, not just by SWIFT but also by the fact that most of world’s currency reserves are held in USD. Since the post-war Bretton-Woods monetary experiment, the asymmetric currency network evolution that followed has made the dollar virtually irreplaceable. Most of China’s Belt and Road Initiative contracts are undertaken in USD. And most of China’s transactions take place on SWIFT.
The moves to mitigate this have been largely unsuccessful, but the Chinese government keeps trying. In 2020, the Chinese government proposed the first nationally backed crypto-currency in the form of a regional ‘stablecoin’ – Hong Kong is the favored jurisdiction for such a ‘node’ given its current interconnectedness with the financial system, and not coincidentally, China’s territorial claims over the island are getting bolder. Meanwhile, China, Russia and India is working on a financial messaging system to bypass SWIFT.
Gone is the cartographic anxiety of the colonial era, the map-making that made or destroyed national self-determination.In the words of Zhou Yu of Shanghai’s Academy of Social Sciences, current national security efforts must prioritize “financial independence and sovereignty.”
The era of weaponized interdependence demands new boundaries for understanding ‘security.’ For states to survive, they need to similarly reconceptualize the boundaries of interdependence and sovereignty.
The New World Order?
This doesn’t seem to bode well for the global order – or dis-order, rather.
In 1988, Deng Xiaoping said: “In recent years, people have been saying that the next century will be the century of Asia and the Pacific, as if that were sure to be the case. I disagree with this view.”
His words, recently quoted by Singapore Prime Minister Lee Hsieng Loong, were remarkably prescient. It seems that there will be no Pax Sinica to replace Pax Americana, but rather a proliferation of multiple, competing orders, each separately attempting to build networks of hierarchy and dominance.
This is not to say, as many have, that “globalization is dead.” That neoliberal, American-style globalization has been on the retreat for a number of years has been well established. Governments are trying to bring supply chains home, although it will be economically perilous, and possibly impossible.
But the remaining networks that span the globe won’t go away for a long, long time. And they will play an important role in the battleground of weaponized interdependence.
The tendency to conflict can be mitigated by building new, shared experiences of cooperation between the world’s two biggest economies. It doesn’t seem like Biden will be willing to do that (although perhaps Bolton’s new book seems to suggest that Trump might).
In the absence of such shared experiences, nations looking to the future of economic interdependence would do well to remember this refrain from the Three Kingdoms, quoted by Xi Jinping in 2015:
“The clear-eyed guard against misfortune,
and the wise plan for disasters the future may bring.
明者防祸于未萌，智者图患于将来”
