Economic Choke Points in Global Power Dynamics
Economic choke points represent critical nodes within the global economy where a single country or entity can exert disproportionate control, creating leverage in international relations. Unlike traditional warfare tactics, these strategic points allow nations to exercise power without deploying military forces.
In today's interconnected world, economic warfare has increasingly replaced kinetic conflict as the preferred method of international competition. This shift represents a fundamental transformation in how nations project power and pursue their interests on the global stage.
Edward Fishman, an expert on economic sanctions, explains that "economic warfare in which sanctions, tariffs, and export controls have become the primary way that great powers compete with each other" is now the dominant approach to international conflict.
The Evolution from Military to Economic Warfare
The transition toward economic warfare gained momentum in the early 21st century, particularly following the challenges faced during U.S. military interventions in Afghanistan and Iraq. These conflicts, widely viewed as strategic disappointments, prompted policymakers to seek alternative methods of advancing national interests.
This evolution coincided with emerging threats like Iran's nuclear program around 2005-2007, creating a scenario where traditional military options seemed impractical. The result was a new approach leveraging economic interdependence as a weapon.
The shift wasn't merely tactical—it represented a strategic reassessment of how power could be exercised in a globalized world where direct military confrontation between major powers carried unacceptable risks.
How Has Economic Warfare Transformed Global Relations?
Economic warfare has become increasingly prevalent across administrations and political ideologies. Since 2000, each U.S. president has imposed sanctions at approximately twice the rate of their predecessor, indicating a structural shift rather than partisan policy differences.
As Fishman notes: "Each U.S. president of the 21st century from George W. Bush to Barack Obama to Trump's first term to Joe Biden and now to Trump again… imposed sanctions at twice the rate for each individual president."
The Rise of Financial Sanctions and Trade Restrictions
The International Monetary Fund reports that global trade restrictions and capital controls have tripled since 2019, demonstrating that this trend extends far beyond American foreign policy. Nations worldwide are increasingly wielding economic tools to achieve geopolitical objectives.
"Since 2019, the IMF has reported that across the world, trade restrictions and capital controls have gone up by three times in just the last 6 years," Fishman points out, emphasizing that "this is not just an American story, it's a global story."
This transformation raises important questions about whether economic conflicts might eventually escalate into traditional warfare if mismanaged. While kinetic conflict remains unlikely in the immediate term, the potential for escalation exists if economic tensions continue to intensify. The ongoing US‑China trade war insights provide a clear example of how economic tensions can rapidly deteriorate bilateral relations. As Fishman warns, "it is easy to see how trade and economic wars could devolve into actual kinetic wars if they're not handled properly."
What Are the Key Choke Points in Today's Economic System?
Several critical choke points dominate the current landscape of economic warfare, with the dollar-based financial system standing as perhaps the most powerful.
"The US uses its control of key nodes of the international economy, most importantly the dollar-based system to impose really devastating economic harm," explains Fishman in his book Chokepoints: American Power and Economic Warfare.
The Dollar-Based Financial System
The U.S. dollar serves three crucial functions in the global economy:
- Store of value: Governments and businesses prefer U.S. assets (Treasury bonds, equities) for holding excess capital
- Medium of exchange: Approximately 90% of all foreign exchange transactions involve the dollar on at least one side
- Unit of account: International trade is predominantly invoiced in dollars
This dominance allows the United States to intercede in transactions between third parties that have no direct U.S. involvement. For example, when India and Saudi Arabia trade, their banks typically convert to dollars as an intermediate step, creating a point of leverage for U.S. policy.
The SWIFT System and International Payments
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides critical infrastructure for global banking communications. Exclusion from this system severely restricts a nation's ability to conduct international business.
Notable examples of SWIFT exclusion include:
- Iran (2012): Effectively cut off from the global financial system, limiting its ability to sell oil and conduct trade
- Russia (2022): Following the invasion of Ukraine, major Russian banks were removed from SWIFT, though with varying degrees of implementation
Technology and Semiconductor Supply Chains
The United States maintains significant control over semiconductor technology, contributing approximately 40% of the global semiconductor value chain. This dominance creates another powerful economic choke point, particularly as digital technologies become increasingly essential to modern economies.
The semiconductor choke point is especially potent because advanced chips are fundamental to virtually all modern military systems, artificial intelligence development, and critical infrastructure.
Critical Minerals and Resources
China's near-monopoly on rare earth minerals represents another significant choke point. Despite relatively small trade volumes (approximately $200 million in U.S. imports annually), China's control of up to 99% of certain rare earth elements gives it substantial leverage.
When China restricted rare earth exports to the United States in April, it demonstrated how effective control of even a relatively small market segment can be when the resource is critical to industrial production. These critical minerals energy transition materials are essential for everything from smartphones to missile guidance systems and electric vehicle batteries.
How Have Nations Weaponized Economic Choke Points?
The strategic application of economic choke points has evolved significantly in recent decades, with several case studies demonstrating their effectiveness.
The Iran Nuclear Deal and Oil Sanctions
The U.S. approach to Iran's nuclear program provides a clear example of effective economic warfare. Rather than targeting Iran directly, the United States threatened secondary sanctions against any country purchasing Iranian oil, including major economies like China and India.
By forcing these nations to choose between continued access to the dollar-based financial system or unrestricted oil purchases from Iran, the U.S. created powerful leverage that ultimately contributed to the 2015 nuclear agreement.
Key tactics included:
- Forcing payments for Iranian oil into escrow accounts that could only be used for bilateral trade in non-sanctioned goods
- Restricting Iran's access to approximately $100 billion of its own oil revenues
- Leveraging control of the dollar-based system to influence third-party countries' behavior
Fishman describes this strategy: "By telling banks in places like China and India and Turkey… that they had to pay Iran into escrow accounts that could only be used for bilateral trade in non-sanctioned goods," the U.S. effectively locked up Iran's oil revenue, creating immense economic pressure.
Russia Sanctions and Central Bank Reserves
Following Russia's 2022 invasion of Ukraine, the G7 nations froze approximately $300 billion of Russian central bank reserves. This action demonstrated a new frontier in economic warfare—targeting sovereign wealth directly.
Interestingly, Russia had attempted to "sanctions-proof" its economy after 2014 by diversifying away from dollar holdings toward the euro. This strategy backfired when European nations joined the sanctions regime, freezing assets held in European accounts. The Russian uranium import ban by the U.S. Senate represents another example of how economic warfare tactics continue to evolve.
How Are Nations Responding to Economic Warfare Threats?
Countries vulnerable to economic warfare are developing countermeasures to reduce their exposure to these choke points.
Alternative Payment Systems
Several initiatives aim to create payment infrastructure independent of Western-controlled systems:
- China's Cross-Border Interbank Payment System (CIPS): Developed after 2014 sanctions against Russia
- Russia's System for Transfer of Financial Messages (SPFS): A SWIFT alternative
- Project Embridge: A multi-central bank digital currency (CBDC) platform involving China, Hong Kong, Thailand, UAE, and Saudi Arabia
These systems aim to enable direct currency conversions without using the dollar as an intermediary, potentially reducing U.S. leverage in the global financial system. Project Embridge, in particular, represents "an attempt to get around that choke point… through central bank digital currencies," according to Fishman.
Gold Accumulation and Reserve Diversification
Central banks worldwide are increasing gold reserves as a hedge against geopolitical financial risks. This trend accelerated after the freezing of Russian central bank assets demonstrated that even major economies could face such measures.
The rush to gold represents a return to a traditional safe haven that can't be easily sanctioned or frozen by foreign powers—a physical asset beyond the reach of digital financial controls. Recent gold price analysis shows this trend is continuing to drive prices to record highs.
Domestic Production Capacity
Nations are investing in domestic manufacturing capabilities for critical technologies and resources to reduce vulnerability to supply chain disruptions. This includes semiconductor production, renewable energy components, and critical minerals processing.
China's "dual circulation" strategy exemplifies this approach, focusing on building self-reliance in strategic sectors while maintaining global trade connections. Similarly, the U.S. CHIPS Act aims to rebuild domestic semiconductor manufacturing capacity to reduce dependence on foreign suppliers.
What Is the Future of Economic Warfare?
The landscape of economic warfare continues to evolve, with several emerging trends likely to shape its future development.
Digital Currencies and Payment Innovation
Cross-border payment systems are at an inflection point, with traditional correspondent banking systems (taking days to clear transactions) likely to be disrupted by digital alternatives that settle in seconds.
"We are at an inflection point where in the next decade cross-border payments are going to be disrupted," Fishman predicts. This disruption could fundamentally alter the power dynamics of economic choke points.
The U.S. decision to reject a central bank digital currency in favor of privately-issued stablecoins represents a significant strategic gamble. While this approach avoids privacy concerns associated with government-issued digital currencies, it may cede influence to nations developing CBDC infrastructure.
Emerging Technological Choke Points
New choke points are emerging in sectors like:
- Cloud computing services: Dominated by U.S. companies
- Artificial intelligence: Creating new dependencies and vulnerabilities
- Clean energy supply chains: Including batteries, electric vehicles, and related technologies
These developing sectors will likely create additional leverage points for economic warfare in the coming decades. The nation that controls the foundational technologies and infrastructure of these industries will possess significant geopolitical advantage.
Shifting U.S. Foreign Policy Approaches
The current U.S. administration appears to be pursuing a more transactional approach to foreign policy, viewing international relationships through the lens of narrow self-interest rather than system maintenance.
Fishman observes that "Trump is trying to make the US just like any other normal country… using our power for narrow self-interest" rather than maintaining the international system that has benefited American interests for decades.
This represents a potential departure from 80 years of U.S. foreign policy that viewed global leadership and system-building as beneficial to American interests. The effectiveness of this approach remains to be seen.
How Effective Are Different Economic Warfare Tools?
Not all economic warfare tools are equally effective, with their impact depending on specific circumstances and implementation.
Sanctions vs. Tariffs
While tariffs have received significant attention in recent years, they represent a relatively weak tool of economic warfare compared to financial sanctions:
- Tariffs: The U.S. accounts for only 13% of global imports, limiting leverage
- Financial sanctions: The dollar's role in 90% of foreign exchange transactions creates much stronger leverage
This disparity explains why tariff-based strategies often yield limited results compared to financial sanctions targeting access to the dollar-based system. Recent tariffs impact analysis shows they often cause significant market disruption while achieving limited policy goals. As Fishman notes, "tariffs represent a relatively weak tool… financial sanctions… create much stronger leverage."
Secondary Sanctions
Secondary sanctions—those targeting third parties doing business with sanctioned entities—have proven particularly effective. By forcing countries to choose between access to the U.S. financial system and continued relations with sanctioned states, these measures create powerful incentives for compliance.
The effectiveness of this approach was demonstrated in both the Iran nuclear negotiations and potential strategies for limiting Russian oil revenues. Secondary sanctions essentially magnify U.S. leverage by making every transaction with the target country a potential liability for third parties.
How Can Nations Navigate Economic Warfare Risks?
For countries facing potential economic warfare, several strategies may help mitigate risks:
- Diversify currency reserves beyond traditional reserve currencies
- Develop alternative payment infrastructure to reduce dependence on Western-controlled systems
- Secure supply chains for critical resources and technologies
- Build strategic partnerships with countries having complementary economic strengths
- Invest in domestic production capacity for essential goods and services
However, complete insulation from economic warfare risks remains challenging in today's interconnected global economy. Even Russia's deliberate attempts to "sanctions-proof" its economy proved insufficient when faced with coordinated Western sanctions.
The most resilient approach appears to be a balanced strategy that combines selective decoupling in critical sectors with continued participation in the global economy where advantageous.
Conclusion: The New Battlefield of International Relations
Economic warfare has fundamentally transformed how nations compete and conflict in the 21st century. While traditional military power remains important, control of key economic choke points in the age of economic warfare increasingly determines a nation's ability to advance its interests on the world stage.
As this trend continues, understanding the nature and dynamics of economic warfare will be essential for policymakers, businesses, and citizens navigating an increasingly complex global landscape. The nations that most effectively leverage their economic choke points—while protecting against vulnerabilities in their own systems—will likely hold significant advantages in the coming decades.
The evolution of economic warfare represents not just a shift in tactics, but a fundamental transformation in how power operates in the international system. As nations continue to develop and refine their approaches to economic competition, the global order may be reshaped in ways that would have been difficult to imagine in previous eras dominated by military power.
Disclaimer: This article contains predictions and analysis of geopolitical and economic trends that are inherently uncertain. The views expressed regarding future developments in economic warfare should be considered speculative and not taken as financial or political advice.
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