. . . TRANSCRIPT: Paul Krugman in Conversation with Henry Farrell and Abraham Newman (recorded 9/10/26) Paul Krugman: So, it’s a world full of choke points. Weaponized interdependence is a term I think coined by Henry Farrell and Abe Newman. Certainly I learned it from them. And there’s a big conference—not including them for some reason—taking place at the European Central Bank a few days after we record this. And so I thought I would talk again with my two favorite international relations people (although now I’m thinking of some friends who will be upset by my saying that.) But anyway, hi guys. Both: It’s great to be here. Paul Krugman: There was a seminal 2019 paper by the two of you, and then a book called Underground Empire. Anybody want to tell me what you meant by that? And let’s talk about the history, and then this weirdly more weaponized moment than anyone expected that we’re living in. Henry Farrell: Maybe I’ll take a first stab at it. So really, where this came from was that we had finished a long book looking at fights between the United States and European Union over privacy. And as part of that, one of the things we had looked at was the SWIFT system, which is a system which you use when you’re making bank transfers. It’s a messaging system that makes sure that the money gets to the right place, and that everything gets reconciled properly at the end of the day. And so Abe pointed out after we had finished this, he said, “Well, nobody’s written anything about SWIFT, and there’s something interesting and important with geopolitics going on.” And I was working with a statistical physicist who does a lot of work on networks and network dynamics, and so he thought that we could come up with something on this. And so we began to write. And we began to figure out that there was something really going on, which I think had been going on in plain sight for a number of years, but which nobody had really been able to put their finger on in such a way that they could actually sort of crystallize what the phenomenon was. And this was what we called “weaponized interdependence.” And the idea behind it was very straightforward. You know, we’ve been living for decades in a highly interdependent global economy, and the ways in which both political economy people in international relations and, I think, most economists had thought about it was in terms of the enormous efficiency advantages that flow from this. Because, if you think about interdependence in terms of trade theory, even in terms of the simple benefits of specialization that Adam Smith talked about a couple of centuries ago, the more interdependence you’re able to use, the better you’re able to achieve various outcomes collectively. But we began to think about the ways in which this relied upon all of these really boring-seeming networks, such as SWIFT, and the ways in which these networks had increasingly and quietly become a target of international coercion, especially at that stage coming from the United States. So we argued that if you had two conditions—one, a network which had some degree of centralization, so that there were some kinds of choke points in the network; and secondly, you had some great power which had a means of putting pressure on the actors that were in charge of those choke points—that you would begin to get the conditions where a weaponized interdependence could begin to happen. That is, that that great power could begin to weaponize that choke point against others. And then our argument was that this could also set a longer dynamic in train, because our fundamental sense was that this was not an equilibrium. This was not something that was sticky and was static unless the weaponizing power was extremely careful, and that the more that a power like the United States sought to weaponize choke points against its adversaries—and here the U.S. used a dollar clearing system as a means of cutting Iran and other countries out of the global banking system; it began increasingly to use other forms of technology and also semiconductor supply chains after our work began—the more that we saw a power doing that, the more that other powers were likely either to look to defend themselves or to retaliate against us. And this, we think, is a world that has come into being. Krugman: So if you were looking at SWIFT, that’s an interesting case, among other things, because the bureaucracy is formally based in Belgium. But that doesn’t really matter, right? Abraham Newman: No. I mean, with many of these things, there are Americans that sit on the corporate board, and often that’s the way that the U.S. or anybody that’s weaponizing—they look for, like, a legal channel in order to influence the operations of a company. And so first, it was just like the personnel. But at the time that they were doing this, SWIFT also—they had a data center in the United States where they mirrored all of their data, in Virginia. And so that was also just easy pickings for the Bush administration at the time, as they were trying to kind of deal with the response to 9/11. Krugman: What you were focused on very much was the U.S. trying to weaponize its control of financial and, I guess, information networks, largely against Iran, but also to some extent against China. And so this starts out as a U.S. initiative, right? So in some sense, you know, who started the fire? We did. Newman: I think it’s important, as Henry was talking about, that the source of this power is often about that: the key platforms, infrastructures of the global economy are centralized. They’re not flat. You know, we were told this vision was like “the world is flat,” but actually, you know, look at even my iPhone: it’s not flat. Those products and platforms were often American companies. And so in many domains, what the U.S. kind of realized—and in our book, Underground Empire, we kind of chart how after 9/11, different U.S. bureaucracies start to see these places in the international system where they can either exclude actors, like with SWIFT—say you can’t have access—or they use it to monitor, to surveil. We call it the Panopticon. And that’s what you see in the Snowden revelations. And so it’s both the development of markets, that markets are centralizing around U.S. companies and products, and then also that the U.S. government has this legal jurisdiction over them. Farrell: And the final thing to add to that is just that there’s also an institutional change that happens as well. And this is really connected with September 11th, 2001, because before that, you know, SWIFT manages to push back relatively successfully against U.S. efforts to try and get into its data. Mueller and other people—of course, Mueller is famous for his efforts to try and figure out what Donald Trump did, but at the time, he was in the FBI. And so he tries to get SWIFT to provide information, sort of via subpoena, and SWIFT’s response, crudely speaking, was, “We don’t do subpoenas.” And they are able to call on their friends in the U.S. Treasury, and Treasury sees part of its job at the time as being protecting the global financial system against the depredations of the United States national security state. And then suddenly, after September 11th, that is completely reversed. Treasury radically revises its understanding of its self-interest as being—instead of trying to protect the global financial system—it begins to start looking at the global financial system, thinking, “What are the ways in which we can enhance U.S. power to defend against these actors, these terrorists?” And over time, as happens in every bureaucracy, this begins to creep. It begins to expand until the U.S. is willing to go after lots and lots of different actors, including, most recently under Trump, officials in the International Criminal Court. Krugman: Okay, I want to come back to all of that. But when I read Underground Empire, the focus was, first of all, largely on U.S. actions, and largely on these kind of high-tech, you know, 21st-century choke points. As it’s turning out, there’s a lot of other kinds of choke points in the world, right? Strait of Hormuz, most obviously, but Chinese rare earths. So the potential for weaponizing interdependence seems to be a lot bigger than I think even I realized when I first read your book. Newman: I mean, one of the things that Henry and I have been talking about and warning people is that, you know, it creates an escalatory dynamic where people say, “Okay, if you’re going to weaponize these choke points, then we’re going to look for ways to do it ourselves.” And with the Chinese rare earths example, China had weaponized their rare earths back in 2010, but they had done it in what I would say is like a much more traditional trade war kind of way. It was about market access, and it was saying, you know, “If you do this, we’ll block it.” But what happens is that they learn from the way that the U.S. uses these tools to kind of create their own system of weaponization. And so what the U.S. had done is they had used export control systems in order to clamp down on Chinese access to semiconductors. And the legal system was that the U.S. has an Entity List. It’s basically a no-go. “You need licenses if you’re going to sell to these operators.” And it gives the U.S. extraterritorial power because they say, “Look, Taiwan or, you know, TSMC, if you’re going to make these chips with U.S. intellectual property, then you need permission to sell it to China.” And so the U.S. extends its ability to weaponize interdependence through basically intellectual property networks. And so physical goods, chips—this isn’t just about information or finance. It’s about physical goods. They get restricted. What China does is they then implement
