How to Fight an Economic War

Why It Matters

The shift to economic warfare threatens U.S. strategic advantage and could erode the dollar’s global dominance unless America recalibrates its leverage and safeguards critical supply chains.

Key Takeaways

• US and China control ~90% of rare earths and AI chips respectively
• True chokepoints require monopoly, no short‑term substitutes, and weaponizable leverage
• Over‑weaponizing chokepoints drives allies to de‑risk and erodes US influence
• Diversifying supply chains and modernizing payment systems are essential US defenses
• Coordinated sanctions with allies prevent a dollar risk premium and preserve leverage

Pulse Analysis

Economic warfare has moved from a theoretical concept to a daily reality for policymakers in Washington and Beijing. By concentrating control over critical inputs—such as the dollar’s role in 90% of foreign‑exchange trades, Nvidia’s 85% share of AI‑chip sales, and China’s 90% share of rare‑earth production—each power can impose severe costs on the other with minimal self‑damage. This asymmetry turns traditional market leadership into a strategic weapon, forcing nations to view supply‑chain dominance as a national‑security asset rather than a competitive advantage.

The United States faces a paradox: aggressive use of its chokepoints can generate short‑term pressure but also accelerates global de‑risking efforts that dilute long‑term leverage. European and Asian governments are already investing in sovereign cloud platforms, alternative payment rails like China’s CIPS, and domestic rare‑earth projects to insulate themselves from U.S. sanctions. As allies diversify, the dollar’s premium risk rises, threatening its reserve‑currency status and the broader economic order that underpins American influence.

A pragmatic response requires a two‑track approach. First, Washington must identify true chokepoints—markets where it holds near‑monopoly power, substitutes are unavailable, and weaponisation is feasible—and reserve them for high‑stakes coercion rather than routine trade policy. Second, it should invest in resilient infrastructure: modernizing payment systems, expanding allied coordination on sanctions, and supporting domestic production of strategic minerals. By balancing leverage with restraint, the United States can maintain its economic edge while preventing the erosion of the very tools it relies on.