“I remember the days when you could go into government meetings… and representatives from the US Trade Representative Office would say ‘We can’t do that because it would violate our international commitments,’” American economist Douglas Irwin told an audience at the Productivity Commission in February. “That would shut down the debate.” But that constraint is no longer there, he says. Geopolitics is back. “If we have to do things for security or defence, national security or what have you, we do it.”
For Irwin, the old days were the 1990s and 2000s, when “markets were ruling and the state had shrunk.” Three separate worlds were meshing: the US-led Western global integrationists, the former-Soviet-led statist Eastern Bloc, and the developing Global South. They all joined the new World Trade Organization in 1995, signing up to rules written mainly by the global integrationists. “The Eastern Bloc opens up. Import substitution policies are reduced. Everyone’s a member of the WTO,” Irwin recalled. “We all have the same playbook.”
A “unique period in global human history” followed: “After 1990 we undid a century’s worth of increased global inequality. In twenty years. That’s remarkable, this decline in global inequality.” There were “many challenges and many problems in terms of the environment and what have you, but huge progress was made in terms of human wellbeing.”
Irwin, one of the leading intellectual advocates of free trade and global economic integration, doesn’t welcome the possible end of this era. To the question posed in his Melbourne lecture, “Is Globalisation in Retreat?,” he gave a pessimistic but not entirely negative answer.
“I wouldn’t say globalisation is in retreat. I’d say globalisation has been attenuated by geopolitics and some other fracturing that has been going on, but it’s not clear that it’s going to be going down. But the rules-based system does not look in good shape and geopolitics is inherently fragmenting. Even if the tariffs don’t go up across countries, when there’s political considerations at stake, people are going to ask ‘Who are your friends?’” Power will matter more than rules.
The 1990s were a big decade for US scholars Henry Farrell and Abraham Newman too. It was a time when global networks were being built, or expanding, or attracting new participants. These networks allowed communication to occur, money to be exchanged, intangible intellectual property to be traded, and electronic equipment to be produced through cross-border supply chains.
Private companies did most of the building, grabbing the opportunities provided by more open global markets. They pursued “profit and efficiency rather than conquest,” imagining that increasingly dense commercial interdependencies would undermine old-world power politics.
But the networks they constructed “never quite escaped the shadow of America’s Cold War empire,” Farrell and Newman argue. “Contours of past economic and political power relations” were retraced and a historical moment was frozen, “the brief period when the United States was at the apex of its power and at the centre of everything.”
When international circumstances changed, especially after 9/11, and then when China was perceived to be acting more assertively, the United States wanted tools for exercising power across the world. It found them in surprising places. The newish networks were global, their users decentralised, but the physical and institutional architectures left “choke points” on American soil or in American hands.
Although the internet was supposed to connect everyone, the US National Security Agency estimated that by 2002 more than 99 per cent of global bandwidth passing between any two regions transited the United States. Although SWIFT, the Society for Worldwide Interbank Financial Telecommunication, was a European initiative based in Belgium, the US banks dominated its board and a crucial data centre was located in Northern Virginia. The greenback’s unofficial role as the world’s reserve currency meant US regulators oversaw the arrangements that enabled global transactions denominated in it. Manufacturing of products embodying advanced semiconductors was moving to Asia but US companies, subject to US law, continued to control vital design skills and intellectual property.
These disparate arrangements make up the “underground empire” that provides the title for Farrell and Newman’s book: Underground Empire: How America Weaponized the World Economy. “Just as all roads led to Rome, the world’s fibre-optic networks, financial systems and semiconductor supply chains converge on the United States, allowing it to project its might.” The United States “still uses military power to keep surface trade routes open” but “much of the real business of empire has moved underground.” The choke points of the “underground empire” confer “unparalleled levers of control” on leaders who choose to exercise them: “the plumbing is political.”
Underground Empire is a portrait of the tools that the primary architect of a more open global economy had, and chose to use, when it decided that an altered international order required a different approach. If globalisation is in partial retreat, Farrell and Newman provide a snapshot of the machinery the United States used to turn it around.
Initially, the United States worked the capabilities of its underground empire “opportunistically and sporadically” to “subdue villains.” Iran found it impossible to be paid American dollars for its oil and was forced to make concessions in its nuclear program as well. Digital traffic passing through US submarine cable landing stations or into US cloud storage facilities was surveilled.
Progressively, the tools and their use expanded. Old “export administration regulations” could already impose licence requirements on the “export, re-export and/or transfer (in country) of specified items” by foreign persons or organisations. Now they were deployed to manipulate the level of access to US-controlled intellectual property for Chinese manufacturers using advanced semiconductors. Huawei’s ambitions were to be “systematically dismantle[d].”
Eventually, the impact of these and other measures extended well beyond “villains” and strategic rivals. The underground empire could also “subjugate friends that had largely accepted interdependence as a source of market efficiencies.”
Underground Empire’s powerful and persuasive thesis is vulnerable to two gentle criticisms. They are both about language but they have consequences for the argument.
First, labelling a disparate array of infrastructure and institutions an “empire” tempts the authors towards imperial solutions. The emperor should muscle up to his responsibilities. “Since it is the United States that created the underground empire, it is the United States that must take the first steps.” The authors bring more nuance when they suggest that the United States “could deploy its empire to build a commonwealth, in which power and legitimacy reinforce each other…, [where the United States] and other actors secure collective benefits rather than contending over narrow interests.”
Second, it is difficult to accept that this empire has ever been really “underground.” Beyond the obvious debating point that satellites in the skies are as important as cables under the ground in today’s networks of communication and surveillance, few people familiar with the workings of most international organisations will have found the contributions of Americans to be wholly subterranean.
Farrell and Newman refer often to the apparently accidental, buried nature of this empire. “America… built its underground empire half by accident.” “The United States sleepwalked its way into a new struggle for empire, breaking bad without ever quite realising it.” “The United States was able to retain its empire so long because it was hidden in the shadows.” “The more visible its power became, and the more willing it was to use it, the more reason other governments and businesses had to create their own alternative maps.”
It does sound rather like imperialist John Robert Seely’s famous late-nineteenth-century self-deprecation, that Britain seemed, “as it were, to have conquered half the world in a fit of absence of mind.” What is an accidental imperialist to do, besides exercise it, when it discovers the extent of its power?
No nation participating in the long negotiations that led to the creation of the WTO imagined its rules were a gift to the world: they were a template for the kind of global trading system the United States felt would serve its interests at that moment. Its export controls did not spring from some mysterious, long-forgotten source: they have been around for a century, according to a 2009 Congressional Research Service report, and became “an extensive peacetime undertaking” after the second world war. They were “reduced in scope and streamlined” after the collapse of the Soviet Union, “but the basic structure of the law remains intact.”
The grandeur of the language in Underground Empire does not undermine the urgency of its message. Farrell and Newman admit the difficulty of mapping “plausible escape routes” from current global circumstances. In their scholarly work, they have dubbed the predicament “weaponized interdependence”: “a condition under which an actor can exploit its position in an embedded network to gain a bargaining advantage over others in the system.” In this book, they summarise it more succinctly as “governments’ use of global networks as a tool of geopolitics.”
During the cold war, the United States and the Soviet Union had few economic links. Today, “dense economic ties” connect the great powers and they will “never be able to disconnect fully from each other.” Farrell and Newman want a forum where those powers “can frankly discuss the risks of weaponizing the world economy and build the necessary guard rails to mitigate them.” They want the WTO and other economic institutions “radically reformed to reflect the world that is emerging.”
They worry about the path their country, the United States, is on. It needs “a different vision of security,” they say, one that will allow others “to secure themselves from America’s network imperialism.” •
Underground Empire: How America Weaponized the World Economy
By Henry Farrell and Abraham Newman | Allen Lane | $55 | 278 pages
