[PPT] - Weaponized Interdependence Abraham Newman Henry Farrell PowerPoint Presentation

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Weaponized Interdependence

Abraham Newman Georgetown university School of Foreign Service and Government Department Henry Farrell George Washington University

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Central argument

ØEconomic networks form key hubs that centralize exchange ØThis generates new types of coercive power for states ØDeploying this power could produce new political risk for firms and geostrategic consequences for allies

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Globalization creates world spanning networks

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Why did academics ignore WI – They misread the map

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The liberal take – decentralized and fragmented

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Weaponized Interdependence

HENRY FARRELL, GEORGE WASHINGTON UNIVERSITY (AND ABRAHAM NEWMAN, GEORGETOWN UNIVERSITY)

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In fact, these networks are asymmetric

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Not all nodes are equal; Some nodes become hubs

ØPrivate actors often centralize to manage complexity

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In Network Terminology …Preferential Attachment

Ø Network effects, focal points, rich-get- richer…

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Privileged states use hubs as levers

f coercive power

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Panopticon Effect

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Chokepoint Effect

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Weaponizing global finance

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Hub Creation

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Rise in SWIFT Dominance

Wall Street Journal, 2017

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Weaponization of the Hub: Panopticon Effect

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Panopticon Effect

Juan Zarate, former treasury department official: Access to SWIFT data would give the US government a method of uncovering never-before-seen financial links, information that could unlock important clues to the next plot or allow an entire support network to be exposed and disrupted (2013: 50).

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Panopticon Effect

Juan Zarate, former treasury department official: Access to SWIFT data would give the US government a method of uncovering never-before-seen financial links, information that could unlock important clues to the next plot or allow an entire support network to be exposed and disrupted (2013: 50).

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Chokepoint Effect

Lazaro Campos, former CEO of SWIFT: Disconnecting banks is an extraordinary and unprecedented step for

SWIFT. It is a direct result of international and multilateral action to

intensify financial sanctions against Iran (2012)

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Resistance

ØRussia interest in blockchain ØChina’s Cross-Border Interbank Payment System (CIPS) ØEU’s Special Purpose Vehicle

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SPV and its implications

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Europeans are unhappy and considering retaliation

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Threats to US power in finance – Not the dollar but the plumbing

Jack Lew (former Treasury Secretary):

the plumbing is being built and tested to work around the United

States. Over time as those tools are perfected, if the United

States stays on a path where it is seen as going it alone … there will increasingly be alternatives that will chip away at the centrality of the United States.

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Retaliation/escalation spirals

ØOther states employing WI. ØDenial of market access. ØRetaliation against US firms. ØKinetic escalation.

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Mapping cross-sectoral spillovers – tech, finance and trade

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Conclusions

ØEconomic networks generate opportunities for state control ØVulnerable states seek protection with potentially large market and political consequences ØPolicy-makers need a strategic understanding of benefits & drawbacks of weaponized interdependence ØNeed for rules of the road to minimize escalation spirals/decoupling/market disruption.