Economic War Comes of Age | Foreign Affairs

Key Takeaways

• Economic warfare now central to U.S.-China great power rivalry
• Rare earths, advanced chips, dollar clearing are leverage points
• Overusing sanctions spurs diversification, weakening U.S. leverage
• Allied coordination essential for sustained coercive capacity
• Building alternative supply chains counters rival control

Pulse Analysis

The rise of economic warfare marks a decisive shift from the post‑World‑II paradigm of mutual gain to a landscape where trade, finance and supply chains are weaponized. Scholars like Edward Fishman and former Bank of England governor Mark Carney warn that this transformation deepens strategic vulnerability for all nations. By turning critical inputs—such as rare‑earth minerals, high‑end semiconductors, and the U.S. dollar’s clearing system—into levers of pressure, great powers can inflict rapid, cascading disruptions, as the recent Iran‑Hormuz incident starkly illustrated.

In practice, the competition unfolds across three intertwined arenas. First, material scarcity: China’s dominance in rare‑earth production and Taiwan’s control of advanced chip fabs give them outsized bargaining power. Second, financial infrastructure: the dollar’s role in global settlements creates a potent, yet fragile, conduit for sanctions. Third, geopolitical chokepoints like the Strait of Hormuz demonstrate how even limited physical blockades can reverberate through energy markets, forcing swift policy recalibrations. These dynamics compel businesses and governments to reassess risk exposure and diversify sourcing, lest they become collateral damage in a broader strategic contest.

Fishman’s prescription emphasizes disciplined leverage, restraint, and coalition building. Rather than pursuing blanket sanctions that accelerate rival self‑sufficiency, the United States should prioritize stockpiling critical assets, investing in allied production capacity, and establishing resilient, multilateral supply networks. Such a coordinated approach preserves coercive credibility while avoiding the backlash of overreach. For policymakers, the challenge lies in balancing immediate pressure tactics with long‑term economic independence, ensuring that the tools of economic war reinforce, rather than undermine, the liberal order they aim to protect.