Lawfare Daily: "Chokepoints: American Power in the Age of Economic Warfare," with Edward Fishman

[Intro]

Edward Fishman: The concept of chokepoints is so important because it's what makes today's economic warfare different from economic warfare for the thousands of years of history that preceded the 21st century.

Scott R. Anderson: It's the Lawfare Podcast. I'm senior editor Scott R. Anderson with Eddie Fishman, senior research scholar at the Center on Global Energy Policy at Columbia School of International and Public Affairs. Today, we're talking about his new book, “Chokepoints: American Power in the Age of Economic Warfare.”

Edward Fishman: Today, you can have the director of the Office of Foreign Assets Control in the Treasury Department sign a document and impose economic pressure on a foreign country that's even stronger than, you know, when you used to park a naval ship outside of their port.

[Main podcast]

Scott R. Anderson: We're here to talk about this new book that's just come out, which is an incredible narrative sweep of a chapter of geopolitics that is incredibly important. I think people are beginning to recognize it as more important, but it hasn't gotten the sorts of treatments we may associate with diplomatic histories and other sort of political treatises about the events of the last 20 or 30 years.

And you are really contributing a chapter to these discussions about the economic warfare toolkit and element about it in your new book “Chokepoints.” It's, it's a phenomenally interesting read—in depth in detail, but blending in with these stories about the individuals involved and the processes that lead to some of these determinations.

But I think it's worth getting out there something that you don't get at in the main narrative of your book—although if you read about the author, you read the acknowledgments at the end, it comes out—which is that you were yourself a player in a lot of these conversations.

So before we start talking about the book, let's start with a little bit about yourself. Talk to us about your background, how you got involved, not just in writing the book, but a lot of the policy discussions that it discusses that it raises. And frankly, how you ended up being, you know, a leading expert on sanctions from, you know, college onward, having lived through a lot of these events in the book.

Edward Fishman: Well, thank you. I'm excited to be in, on the podcast today.

So the story for me, at least starts when I was in college. This is in the mid aughts, you know, the mid 2000s. So, right after sort of the U.S. invasion of Iraq, several years into the war in Afghanistan. And I was studying history and international affairs.

And in my coursework, we learned that we were living in a unipolar moment that the United States was the most powerful country on Earth and potentially the most powerful state we've seen in history since ancient Rome. And the thing that just confused me about this, this sense that we were learning in school was we were clearly not getting what we wanted in our foreign policy. The wars in Iraq and Afghanistan were not going well. And it just, it, it, you know, was a puzzle for me. It was how could we be so powerful and yet so incapable?

And so it was right at this time when Iran's nuclear program became kind of the top most foreign policy problem for the United States. This is shortly after George W. Bush was reelected, so, you know, in 2005. And basically, all of Washington was seized with this issue. What are we going to do about Iran's nuclear program? We had invaded Iraq to try to get rid of a nuclear program that proved not to exist.

Iran was building a real nuclear program, and yet there was no political will to fight another war against Iran and very little, I think, sense that we could succeed if we were to fight a war given what was going on in Iraq and Afghanistan. And so it was kind of in that context where I started becoming interested in other tools of statecraft and other ways that the United States could use its power to advance its foreign policy interests.

And it was right around this time, actually, that Stuart Levey, who is a very central character in “Chokepoints” kind of got on my radar. He was profiled in the New York Times Magazine—I want to say this was maybe 2008—and it was a really interesting article, and it was about how he was basically going around the world trying to persuade banks to stop doing business with Iran. It was still pretty early, but it was important enough that he was profiled.

And this kind of was a light bulb moment for me where I thought to myself, wow, maybe there is a way to use American economic power to get a peaceful resolution to Iran's nuclear program. Mind you, I'm in, an undergrad at the time.

So, you know, this is, doing this with you know, there's probably a little bit of a twinkle in my eye and not knowing the realities of things. But it was interesting enough that after college, I, you know, had applied for an internship to go work at the Treasury Department and was lucky enough that by sort of a random circumstance, got on the radar of a person named David Cohen, who became Stuart Levey's successor, who invited me basically to go be his special assistant.

So my first job in government was, I started a week after graduating from college and got to work directly for the person who runs sanctions policy at the Treasury Department, the Undersecretary for Terrorism and Financial Intelligence. And that wound up sort of just being my entree into this world eventually wound up going to work at the State Department where I was lucky enough to serve on the Iran sanctions team at a very pivotal moment when Rouhani was elected in 2013 and up until the time that we got the first Iran nuclear deal in November of 2013 that froze the nuclear program.

And then the next year when Russia invaded Ukraine and annexed Crimea, we didn't have a Russia sanctions program. And so, you know, as a young person at the time who was willing to work very long hours, I sort of threw my hand up in the air and said, hey, I'll do this. And was lucky enough to then be able to help create that initial Russia sanctions program and negotiate them with the European Union.

And then so the final sort of chapter of this is, you know, through the end of the Obama administration, I was observing on the policy planning staff, so for, working for the secretary of state, where I covered economic statecraft and sanctions issues more broadly.

And then after leaving government, it just occurred to me that we really needed to increase understanding of these issues amongst the foreign policy community. And so that's when I started working on designing my class that I teach at Columbia the School of International Public Affairs, Economic and Financial Statecraft, which I've been teaching now for the last several years.

Scott R. Anderson: So, I really think the focus of your book, which you get from the title, this concept of chokepoints, really is something that comes out from that practitioner's perspective.

I think a lot of people, including academics, including more casual observers, students of this sort of thing, think of economic sanctions and they envision, you know, the broad economy, the economic weight of the American economy inevitably having this force on foreign actors to compel them to comply when they issue these edicts.

But the reality of it is that it is really much more about targeting specific points of pressure and specific comparative advantages the United States or whatever the sanctioning entity is, but in your case, in the case of the book, the United States has, and that's the chokepoint.

So talk to us about why chokepoints are so essential, both for your book and for the enterprise you're describing in the book, which is the cultivation of capacity in the United States to engage effectively in economic warfare.

Edward Fishman: The concept of chokepoints is so important because it's what makes today's economic warfare different from economic warfare for the thousands of years of history that preceded the 21st century. Because economic warfare is not a new concept, right? And in my book, I talk about the Athenians, ancient Athenians using economic warfare against their neighboring state Megara in 432 BC. So clearly this is not something that just started.

The thing that's different is that all the way up until, you know, really the time of Stuart Levey—so the mid aughts when I first became interested in this—to impose significant economic pressure on a foreign rival, you needed one of two things.

You needed broad international unity, so in modern times that meant effectively backing from the United Nations, or, and likely and, you needed the use of naval force. You needed warships that were willing to patrol the seas, basically to intercept trade. That's how the UN embargo in the '90s worked against Iraq. There was a multinational naval force that patrolled the Persian Gulf 24/7 for 13 years. And by the way, that was from 1990 to 2003, so it's not ancient history.

The reason chokepoints are so essential, and what a chokepoint is—I should probably define it—it's a part of the global economy where one state has a dominant position, and there are very few substitutes. So it's not something where, you know, if the state decides to cut you off, you can just go use something else.

The, the reason chokepoints as a concept is so significant is that it allowed the United States government to take the chokepoints that are under the United States control—and by, by the way, there are some that are not under U.S. control, namely the U.S. dollar, but also advanced semiconductor technology, parts of the oil supply chains—and use basically the legal power of the American state to deny access to that chokepoint to a foreign actor.

And so all of a sudden today you can have the director of the Office of Foreign Assets Control in the Treasury Department sign a document and impose economic pressure on a foreign country that's even stronger than you know when you used to park a naval ship outside of their port.

Scott R. Anderson: So the book has a very fascinating historical scope. I think like, like any good sanctions history, you do start with the Megarian Decree that you referenced already. I think that's always the good starting point.

But you actually do, do away with is unfair, you actually cover basically the, all of American history up until and world history up until 2010 in the first 100 pages. And then the last 300 pages just covers the period from 2010 to 2025. Part of this might be that you, like I, are an older millennial, and so those are our prime years. This is, you know, nostalgia having its early effect on us about saying these are the most important years in history.

But you have a compelling case that for the, the thesis you're examining and advancing for the topic here —which isn't just sanctions, but particularly use and role of sanctions and related tools—that these years are pivotal in a way that I don't think most people recognize them as such. So talk to me about that historical scope. What makes the last 15 years so distinctive as to warrant such overwhelming weight in your analysis?

Edward Fishman: Sure. So the chokepoints that I just described were created by factors that really go back to the early 1970s. So for instance, the globalization of finance, which really comes out of the Nixon shop when President Nixon takes the dollar off of the gold peg and you wind up just seeing basically the dollarization of the global economy.

The creation of the petrodollar, which is a story I recount in the book—that really occurs in 1974 and as part of a deal with the Saudi Arabia government. But it doesn't really become fully possible until the 1990s because you need the end of the Cold War to actually globalize supply chains and finance, because even though you are, you know, really internationalizing supply chains and finance in the seventies and eighties, you're not actually reaching, you know, the entire Soviet bloc, you're not reaching China.

And so it's really in the '90s when the whole world sort of comes under the regime of these chokepoints of, you know, the dollar-based system. And so it would have, wouldn't have been possible, for instance, to do aggressive dollar-based sanctions against the Soviet Union. I mean, you could have, but it wouldn't have been nearly as impactful as it is today, for instance, against Russia.

And so what the result of sort of this one thread—which is the hyper globalization of the nineties—plus another, a critical other thread, which comes through sort of in the, the, the latter three quarters of the book that you mentioned, which is this growing legal regime in the United States that penalizes violations of sanctions, that effectively conscripts banks as frontline infantry in American economic warfare.

Those two combined factors—the hyper globalization that creates the chokepoints, and then the expansion of the American regulatory and enforcement state to allow us to weaponize the chokepoints—are these sort of confluence of factors that enable powerful economic warfare today.

And I think the reason that it's so important is that the threshold for the use of sanctions has gone way down because you don't need UN backing and you don't need to deploy the U.S. Navy to make them work, and the impact has gone up, right?

So in some ways, it's kind of similar to the advent of air power on military force, right? This is a similar dynamic that occurred in the early 20th century where the advent of air power, all of a sudden you could fly over an enemy's territory and bomb their cities or bomb their industrial capacity without risking any lives. And drones, of course, have just been another step in that direction.

I think it's the, the creation of these chokepoints in the '90s—and, and the, America learning to weaponize them in the early 2000s—I think is akin to the advent of air power in the beginning of the 20th century.

Scott R. Anderson: So there's one chapter I was surprised not to see get as much weight in your narrative, in part because in other books I've read on this topic and my own kind of grasp of the history of this topic, it often weighs a little more heavily, is the post 9/11 to kind of 2010 period, where we really saw the role and the use of targeted sanctions go into kind of hyperdrive, particularly in targeting terrorists—arguably happens a little bit before 9/11 rolls up there, but really gets, you know, accelerated dramatically in that time period.

You talk about that, certainly, and it plays a role in your book and you give some time to it, but it's interesting not to see it broken off.  Instead, you, you kind of break your chapters up about, you know, Iran, Russia, China, Russia again, are kind of the four big case studies you spend the bulk of your time on.

And it occurred to me, and tell me if I'm right or wrong about this, that part of the, probably part of the reason it didn't feature so prominently is because you're, again, you're not talking about sanctions generally. You're talking about sanctions as a tool of interstate and in a way major power—at least near-peer with Iran—rival competition. So it's, it is a subset of the bigger, bigger sanctions history.

Are there lessons, when people think about sanctions, if they are thinking back to the terrorist model, on the model that we see now see replicated for human rights, for narco-terrorists, for lots of other sort of global transnational challenges the United States is trying to address. It's a really common tool.

What differentiates those application of sanctions from a state-to-state application in a meaningful way that might make the experiences and lessons from that first context, maybe more problematic or not, translate so directly in the second context? Why does that not deserve as much attention and why is it better to focus on the real strait to strait, state to state case studies as the real places to learn how this type of diplomacy operates?

Edward Fishman: I was very conscious that the name of my book is “Chokepoints: American Power in the Age of Economic Warfare.” Economic warfare is what the book is about, primarily. It's not just about sanctions. It's about sort of the whole toolkit of, the whole arsenal that the United States uses to apply economic pressure on foreign governments.

And the way I look at the immediate years post 9/11—and you know, the Patriot Act and the really whole-of-government effort to constrain al-Qaeda's financing— is that it's important prehistory for the narrative I'm trying to tell. And the reason that it's prehistory, is, is relevant is because that is when you see some of the, the arsenal itself be built, right?

The Section 311, for instance, was created in the Patriot Act probably because there was a thought that it could be used against terrorist groups or countries that were supporting terrorists. It winds up being used against a North Korean bank in 2005, which is sort of the aha moment for many of the people working at the Treasury Department that you can use targeted sanctions very effectively to isolate other countries economically and financially.

The reason I chose to focus on Iran, Russia, and China is not just because they are the three largest and most important countries that the United States has waged economic warfare against; it's also because in my view, those three episodes—or really four because I break off the second Russia sanctions from 2022 to present as its own episode because I think it is distinct for reasons we can discuss—is because it were really in those four episodes where the American economic arsenal evolved and innovated.

And we built new weapons.  Most of the weapons that we're used to today really do date to the Iran sanctions. They weren't things that were conceived of in the, you know, campaign against al-Qaeda, for instance. Then in the 2014 Russia sanctions, there's a whole new group of tools that's created and a new paradigm that then winds up being reused against Venezuela and other countries.

And then of course, during the Trump, the first Trump administration, the export controls against Huawei and the foreign direct product rule is its own sort of innovation, kind of a way to do extraterritorial export controls kind of the secondary sanctions of export controls.

And then a lot of these threads really kind of come together in the 2022 sanctions against Russia. And you see even more innovation with the advent of the price cap, for instance. And then, you know, not only immobilizing Russia's Central Bank reserves, but then using them basically to finance loans for Ukraine.

So if you look at the other sanctions programs that the U.S. has—even important ones like Venezuela—the ideas that are used in those contexts really originated from one of the other these kind of three tentpole sanctions programs.

Scott R. Anderson: So walking through what you described as these tentpole sanctions programs and the evolution development of them. I'm kind of curious what the big takeaways you, you, you, sorry, let me try that again. I'm kind of curious about what you take away as the big components of effective sanctions policy in this environment, a state-to-state significant power sort of environment, you know, maybe not major power again with Iran, but something approximating that.

You make a case in The Atlantic in a piece today that I take is adapted and kind of pulls out and expands upon a line of argument you have in the book about the possibility that more clarity and credibility up front could have allowed things to be more, better deterrent Russia's invasion of Ukraine.

And it kind of gets at a challenge that when I interviewed some folks about the thing—Julia Friedlander, if I recall correctly, the person who, who, who coined this anecdote, she was describing at the time, the challenges of, you know, ramping up economic countermeasures to match the tempo of the battlefield and how challenging that was.

What are, what are the components if that's the sort of environment we expect we may deal with in the future? And you flagged that in this book. I mean, in the case of Ukraine, we had five months of warning. In the case of an invasion of Taiwan, we might have two weeks or less potentially.

You know, what, what are the lessons taken away that we need to put in architecture to actually be able to use these tools effectively moving forward?

Edward Fishman: Yeah. I think that a key point that came out of my research for this book is that we have seen the exponential growth of the use of American economic warfare over the last two decades, and the state apparatus to back it has not grown in pace, basically. You don't have a purpose built institution in the United States for the planning and deployment of these tools.

I had the good fortune during my time at the State Department to do a detail assignment to the Pentagon, where I worked for General Martin Dempsey, who was the chairman of the Joint Chiefs of Staff. And I was on the team called the Chairman's Action Group that does strategic planning at the, at the Joint Staff.

And it was just remarkable to me, the level of rigor that the U.S. military and Defense Department puts into planning for every contingency you can imagine including Taiwan, right? This is, there, there are not only have plans for what to do in different scenarios, but they practice them. That is what a military exercise is.

We don't do any of that for economic warfare. And so, you know, the, the norm is when a crisis happens is just for everyone to kind of scramble to the situation room, you know, spitball about different sanctions options with very little analysis that goes into it.

To the extent there is analysis, when I'm saying analysis, economic analysis, it's almost always excessively cautious because, you know, you're dealing under intense time pressure and the cost of getting things wrong seem pretty high, especially if you know, you're deploying a sanction against Russia or China or Iran for that matter that could spike oil prices and lead to inflation in the United States or something that is going to be very bad.

And, and I, I think that it's just well past time for us to take economic warfare more seriously as a nation. And I think that sort of the basic thing to do is to fund OFAC and BIS at Commerce more generously, but, but I don't think that's enough. Like I think even if you were to just fund them more I don't think it would deal with the fundamental problem.

I think in the ideal scenario, you would have a government department that does economic statecraft. And other governments, by the way, have moved in this direction. You have a cabinet level minister for economic security in Japan. The EU has an economic security strategy. This is not something we have yet in the United States, although could happen in the near future.

So I think that we need that institutional capacity, but we also need to go even upstream of that. And that's a big motivating factor for me as someone who teaches graduate students at Columbia is to try to train the next generation of people in public policy to understand how these tools work, at a strategic level and at a tactical level.

And then another reason why I wrote this book, frankly, why I wrote Chokepoints was my own experience working in the U.S. government. I would find that you would go to a meeting in the situation room and even at the expert level, at most, maybe two or three people in the room would feel, felt confident enough in their knowledge of things like sanctions and export controls to weigh in substantively.

And then when you moved up a level to, you know, the meetings of the deputies or the principal— that's like the deputy secretary of state or the deputy national security advisor—or the level above the principals, the secretary of defense, secretary of treasury, at those levels, there's no one in the room who felt they were confident enough to speak about these topics. Maybe one person, if you're lucky.

And so you're having these conversations that are completely removed from—you can't even have a strategic conversation because people aren't even on the same level of understanding what the possibilities are. And so I think there's a real need to build up our understanding of how these tools work. And I'm hoping that “Chokepoints” does that.

Scott R. Anderson: To the point you raise about the lessons learned from this most recent chapter, I think it's particularly interesting because in a lot of ways we're still living through at least a lot of the lessons of that chapter.

You know, one aspect that we are still living through very much today are the political consequences. You know, we saw a political backlash that at least, is not entirely, but can be significantly attributed to the economic effects of the war in Ukraine—as well as from COVID, as well as from global supply issues and a number of overlapping factors—at least in part contributed to by the war in Ukraine, economic measures against that, contributing to inflation, contributing to other economic effects on the home front, and triggering kind of an anti-incumbency attitude that appears to have afflicted pretty much every other democracy in the world, including the United States.

Is that a sign of weakness about the ability of democratic governments to engage in economic warfare? And if so, is there a way we can counter it? Because Russia and China have the advantage that we, they are, able to insulate themselves politically from the consequences, even if felt by their publics.

We all hoped Russia would eventually, you know, feel the pressure enough to put Putin out of office or have a revolution, and a few times it looked like maybe we're getting closer to that for the last few years, years. But in hindsight, that was all seems a little naive now that they're ever going to get there. Although who knows, maybe still, we'll still get there at a certain point.

You know, how do you balance that, that, that risk, the backlash effect? That is unique. That's a unique aspect of not just state to state competition, but true major power, economic warfare. Iran, you know, limited measures against China—they never implicated that. But this latest chapter with Russia, as close we've gotten to all out warfare, and we really felt it back at home in a way that's very disruptive. So how do you, how do you counter that? How do you account for that?

Edward Fishman: I'm so glad Scott, that you asked this question. I think it's one of the most important questions that hangs over this whole area right now. And too few people are talking about it.

I think that there's, almost an irony that cuts across the broad narrative of my book, which is a major reason that the United States launched what I call the age of economic warfare in the time of Stuart Levey was because military force had lost its political support not only in Washington but also across the United States.

To the point where you know I think even had George W Bush during his second term made the case to the American people that we should be invading Iran to get rid of their nuclear program and install a democratic government, you would have had substantial opposition on both sides of the aisle to that kind of idea. So in some ways the rise of economic warfare was because the alternative military force had become politically unpalatable.

The irony is that as we started using economic warfare against major powers, most importantly, China and Russia, the political risks of using these tools are on par with, if not more than, limited military warfare, because at least with military warfare, you know, sometimes it's a, it's a limited subset of the population who serves in the military.

You know, if you're fighting a limited war, you may not risk that many casualties, whereas with a full scale economic war against Russia, there's broad based effects at home, and it's hard to quantify. I think it's, you know, it's impossible, it's difficult to draw like a straight line between, you know, sanctions on Russia and oil prices and inflation.

But like, there is a relationship and that is why the Biden administration, even with a president, Joe Biden, who's the most hawkish American president on Russia we've had in the post Cold War era, wasn't willing to do aggressive oil sanctions on Russia for domestic political reasons. And myself, you know, I'm someone who comes at this from the side of economic statecraft.

I've been very critical of the Biden administration for not being more aggressive on targeting Russian oil sales. But at the same time, like Kamala Harris lost the election probably in large part because of really high inflation. And so they were right, probably that this was a big issue. I think it's hard to say whether or not, you know, things would've been different in the election had we not imposed sanctions on Russia. I'm a little skeptical of that, but.

So yeah, I, I think that this is a really important an important reality that we need to take into account. So the question is what do we do about it? And I think there are really two things that we need to do.

The first is we need to realize that economic warfare is not just about offense, but also defense. We need to prepare ourselves proactively for foreign retaliation. The fact that, you know, Russia could cut off nuclear fuel shipments to the United States, and we still have our reactors that are relying on their nuclear fuel for a fifth of you know, nuclear fuel.

The Europeans, you know, could have prepared better for the gas cutoff that they suffered in 2022 from Russia, right? They, they had spent years sort of dragging their feet and not really transitioning away from Russian gas.

I think we've started doing a little bit of this in the United States with public investments like the CHIPS Act, the Inflation Reduction Act. I think that like a big underlying rationale for strategic investments and industrial policy is kind of defense against foreign economic warfare and also making ourselves more resilient from the blowback of our own tools against the Chinas and Russias of the world. So I think that that is a really important thing for us to do.

I think the second thing beyond investing in our own defenses and our own resilience is that we have to be more honest with the American people. When I say we, American politicians and in particular, the president needs to be more honest with the American people about the sacrifices that economic warfare requires. I think this was something that President Biden addressed when he said that, you know, we're taking steps to ensure that Russia sanctions don't raise prices at the pump. That's almost a direct quote that he said in early 2022.

But I think that kind of rhetoric actually is not right because it just signals weakness to Russia. It signals, okay, well, you're not willing to go after the most important sector of my economy. How serious really are you?  I, what I would prefer to hear is this may result in some level of increases of prices at the pump, but it's worth it for XYZ reason that matters for you, the American people.

You don't hear that kind of rhetoric, but I think that's what's necessary, and I think President Trump will find that kind of rhetoric to be necessary if he truly does. embark on a multi front trade war with China, Canada, and Mexico, our three largest trading partners. If he goes down that path, he's going to need to be honest with the American people and say, look, this is going to lead to some economic pain at home, but it's worth it for, to stop fentanyl from coming across our borders, whatever, whatever his argument is. We don't hear those types of arguments, but we need them more if, if the use of economic warfare is going to be sustainable politically and successful.

Scott R. Anderson: A related phenomenon that I think is a really interesting and important aspect of sanctions policy in particular, although other economics statecraft tools as well, and that you talk about in the book in a couple of different places, I think has a bearing on this question we were just discussing is this question of derisking and excess derisking. The momentum you put into place when you start sanctioning and stigmatizing entities and how the private sector sometimes reacts beyond the strict legal limits and cutting actors off.

Something that was often seen as desirable in the counterterrorism context where who cares if terrorism is even more isolated or terrorists is even more isolated than we thought they were going to be by our regulations and laws.  You mentioned the strategic role it played in the initial Iran sanctions program about saying this understanding that private sector actors are going to weigh going to respond beyond even the hard limits we can put is going to magnify the economic impacts. But more recently, we've really seen the U.S. government and allied governments and also the international institutions like the UN wrestle with the downside of that excess de-risking.

That the most famous example is Afghanistan, where you've seen this real effort to say, yes, the Taliban is still sanctioned, it's gonna stay sanctioned, but we're permitting and creating exceptions for all sorts of activity we want you to do because we want to resolve the economic crisis there. And those efforts faced all these challenges that no matter how much they lifted sanctions, actors wouldn't eventually come back. It’s somewhat remedied, but still kind of a persistent problem, similar problems in Syria now.

And then the Russia context, that right sizing that you're describing that the Biden administration went into rightfully or wrongfully encounter problems as well, where when they start issuing licenses, permitting sorts of conduct to limit the economic backlash against ourselves, against allies, you saw entities like Maersk, famously, you know, cutting off shipments to Russia well in excess of what was actually required or even desirable from a U.S. policy perspective early on, requiring more specific engagement to kind of right size that.

How big a problem is that when you are dealing with a high risk sort of engagement, like true economic interstate warfare, and how do you calibrate to account for the double edged sword of sanctions? The fact that if you start something in motion, the private sector may go even further within you want to in a way that will amplify negative effects.

Edward Fishman: The short answer is if you're going to start an economic war, you have to mean it and you have to be ready to finish it. What I mean by that is you don't know exactly what the private sector is going to react to.

And that's one of the reasons why precision guided munition is not, in my view, the best analogy for targeted sanctions, because the U.S. government doesn't actually even implement sanctions where the rubber meets the road. It's compliance officers at banks and technology companies and oil companies.

And each of them have different levels of power within their own institutions and different risk appetites. And so sometimes you have under compliance. Other times you have significant over compliance. It's what you're talking about right now—de risking.

And so what I, what I think is we should have—even though it's easy to impose sanctions, even though all it takes is, you know, the president signing an executive order and the head of the Office of Foreign Assets Control adding someone to the SDN list—we should have a high threshold for doing that, and we should have a strategic purpose for doing it, because, you know, we should expect over compliance to happen.

My own view, and this is maybe seems a bit heterodox or strange, is if we are going to be serious about having economic competition or economic warfare with the Chinas and Russias and Irans of the world, we should be very, very, very circumspect about sanctioning other countries too.

I think there's probably at least a dozen sanctions regimes that we could get rid of that would do much more good than harm if we just literally excise them from the books. This actually would be a good use of DOGE's time; you know, go find the sanctions programs that haven't been working—we don't really know why they still exist. And to the extent they do exist, they probably prevent people from sending remittances to their home or something that we probably are okay with.

Getting rid of those sanctions programs, I think would be very helpful because I think we don't want a narrative to spread that the U.S. is just using sanctions willy-nilly, sanctioning anybody, don't care about the consequences. We should do this with purpose and we should be clear eyed that sometimes the consequences aren't going to be all positive. The same way that when you fight a war, you know, there's going to be collateral damage, you know that you can't always control the, how events flow.

And so I think that would be my answer, which is, I don't think there's a way necessarily for us to make the tool more precise. We're not going to send U.S. government officials to be the compliance officers at every bank so that they're reviewing every transaction and deciding which are good for the U.S and which are bad.

So I think we need to just be more circumspect in our use of sanctions. And when we do decide to use them, the flip side of this coin of being circumspect is when we do decide to use them, go big, go and try to achieve what we want to achieve and don't look back.

Scott R. Anderson: So this question that you raise about how the narrative we spread is perceived by others in the international community and the impact that has on compliance, both among companies and also among states, really gets into another aspect that's been a big focus of sanctions conversations for the last few years and played a major role in the last round of Russia sanctions. That is the centrality of multilateralism.

You know, obviously a major effort was made to put Europeans not only at the center, but a lot of ways at the forefront of Russian sanctions—sometimes a little bit more for optics than for reality— but nonetheless, to make clear, this was not only a multilateral, but a substantially European driven effort to push back on Russia's invasion of Ukraine.

We know the Treasury Department’s strategic review of sanctions policies as you two years ago now under the Biden administration highlighted this point that multilateralism is really an important element of the sanctions tool.

How big, how much is that true for this particular application of sanctions and other economic statecraft tools for the, you know, state to state competition element? Is multilateralism an essential component, at least for the United States or for all countries, or is there reasons why it might be overstated centrality?

Edward Fishman: So I think the answer is that multilateralism is extremely important, but for not the reasons that people think it is. I think the mainstream view of this is that you need multilateralism to make sanctions effective in terms of their economic impact on a foreign government.

So the argument would be, oh, well, if the U.S. says unilateral sanctions on Russia, then a European company will just backfill the work of a U.S. company, and the result will be that Russia is the same. The European company is better off and the American company is worse off. And so we're the only loser in that scenario. My own view is that perspective is a bit of a relic from this older era of economic warfare that came before the chokepoints from the 1990s, for instance.

That was by the way what happened in the nineties and it's what inspired the creation of secondary sanctions in the Iran-Libya sanctions act of 1996, when Conoco, the Houston-based oil company, left an oil project in Iran, and then, because of sanctions, and then Total, the French oil company backfilled them within a few weeks. And that was like kind of in some ways the founding moment of secondary sanctions, because you realize that this was a problem.

Because of the chokepoints we discussed earlier, and the use of things like secondary sanctions, the U.S. has the unilateral power to impose devastating economic harm, even without any international support. And the proof point of that is the Trump maximum pressure sanctions on Iran where Trump tears up the JCPOA in 2018, reimposes the Obama-era sanctions without any international support. And in fact, with a direct international effort to undermine the sanctions, right—you have the British, French and Germans create a platform to facilitate European trade with Iran and evade American sanctions— which is really remarkable and I hope people remember that now.

And it didn't matter. Iran's economy went into freefall again. And so I do think that America has tremendous power to impose unilateral economic pain on foreign countries, similar to our unilateral power in the military domain.

The reason multilateralism, sorry, let me restart. The reason multilateralism is important is because economic pain is not an end in and of itself, it's a means to an end, and I think you need multilateral coalitions to achieve big diplomatic victories.

So if you go back to the Obama administration, the Obama sanctions on Iran had a multilateral component. But the most important parts of them were unilateral. The oil sanctions that wound up locking up over a hundred billion dollars of Iran's oil revenues and overseas escrow accounts was a unilateral sanction imposed by Washington. And it worked.

But I think as somebody who used to have to go around talking to banks in Asia and telling them that if they didn't comply with this sanction, we might sanction them. It was much easier to have those conversations by saying that we're doing this in compliance with UN Security Council Resolution 1929 and international law was on our side. And I think it made compliance much easier and also built support, frankly, for the nuclear negotiations, which were backed by the P5 plus one, the full weight of the international community.

The second reason that multilateralism is important—and this is a lesson I haven't really seen talked about many places, although I keep trying to put it out there, so hopefully it'll stick after this conversation—is that it's the, the only way that we can preserve our control over these chokepoints. If the U.S. is just doing unilateral sanctions run amok, you will see everyone hedge against the dollar, against key American technology companies and start building alternatives.

I think one of the most interesting contrasts that I sort of pulled out of my research is in 2018, Trump really not, without thinking about it, just under pressure from Congress because Trump had done nothing on Russia sanctions

—they passed a law telling him to impose sanctions on Russian oligarchs, he hadn't done anything—sort of in, you know, randomly just impose the sanctions on Oleg Deripaska, who owns a aluminum company called Rusal. And Rusal basically is on the brink of collapse within a few days of this and aluminum prices skyrocket and Trump basically winds up ignominiously backing out of these sanctions without getting anything from it.

The thing that people talk about less is that in the wake of that, the Russian central bank took all of its dollar holdings and moved them into euros primarily, but also RMB and gold. You saw basically de-risking away from the dollar toward the euro because the euro was seen as a good enough substitute for the dollar without all of the political risk of getting unilaterally sanctioned by the U.S.

Now contrast that, Scott, with 2022, where, as I describe in the book, people like Janet Yellen are petrified that sanctions on the Central Bank of Russia are going to destroy the dollar's role as the world's reserve currency. The difference is Biden successfully gets all the other key issuers of reserve currencies, so the euro, pound, and yen to go along with these sanctions. And so it's not just the U.S. sanctioning the Central Bank of Russia, but the U.S. and its allies.

And as a result, what have we seen since 2022? The use of the dollar in international finance has skyrocketed. It's gone up since the Central Bank of Russia sanctions, and it has taken away share, for instance, in international payments from the euro.

And I think it's because countries that had been sort of using the euro for their trade or using the euro for their reserve allocations and doing it potentially to hedge against the geopolitical risk of getting sanctioned by the U.S., start realizing, well, the euro and the dollar have the same geopolitical risk, and there's way better investment opportunities with the dollar, and the dollar is way easier to use. So I think if we're going to preserve American economic power, we better do multilateral sanctions.

Scott R. Anderson: So that leads up to the other big issue that is always hanging over sanctions policy, which is this phenomenon of people leaving the dollar, the de-dollarization fear that Janet Yellen was concerned about, that it's still an ever present concern.

You know, in the book, I think you point out what I think reflects the conventional wisdom, which is that there's not much evidence we are near a turning point yet in terms of the dollar losing its dominant role. Little other competitors are chipping around the edges popping out but none of them really have a grasp or becoming a really really big market share.

So what does that tell us about how that risk should be priced into how we approach a lot of these policies? It's one of these things where the costs are so substantial and potentially irrecoverable when it happens that I think it really does psychologically weigh extremely heavily on policymakers and observers alike.

Because the idea is that once you drive all these other actors to an alternative remedy, you know, once you, you make the chokepoint too tight and the water just begins to flow around it, it's hard to guide them back through that initial channel.

But what are the indicators? How do we know when we're getting too close to that? How do we calibrate to avoid becoming that last straw that breaks the camel's back?

Edward Fishman: So no chokepoint is immutable. They come and go, they rise and fall currencies rise and fall. So I think at some point we will see a real alternative to the dollar.

I think that people have sometimes not imagined the real plausible way that this could happen and what the threat would be. Because I think some, sometimes people say, oh, well, the RMB is so far from having the same benefits of the dollar, right? There are capital controls in China. You can't get your money out of the country. So what are you going to do with a whole pile of RMB?

But they don't realize is that there's another way that the dollar could be undermined. And I think it's a more plausible way, which is that there's not a replacement, but something totally different, like an alternative or a parallel that develops. And I think that's what's happening right now.

I mean, you've seen China launch a central bank digital currency a couple years ago. And I think the explicit goal of this digital currency is to get around the chokepoints in cross border financial networks, such as correspondent bank accounts in the United States.

You've seen China develop a platform called mBridge that they initially developed in association with the Bank of International Settlements—I'll mention BIS actually pulled out of this project a few months ago—the goal being to build a coalition of countries that include Saudi Arabia and several others to clear transactions using their own central bank digital currencies and not using the dollar at all.

So I think that the, the real risk we have is that these infrastructures develop sort of in parallel with the dollar. And then in some sort of crisis moment, say a Chinese quarantine or invasion of Taiwan, countries around the world are left with a choice, which is what do we do? How do we continue trading with China if they're going to be cut off from the dollar system?

And this is a serious, you know, dilemma that will face countries because 120 countries in the world count China as their number one trading partner. So it's not like they're just going to say, well, we can't trade with China in dollars, so we're not going to trade with them anymore.

And I think at that kind of a moment, if you have a digital RMB or an mBridge that are at scale and ready to be used in a reliable way, it will significantly undermine the value of American sanctions, and I think that that's why we need to pay attention to these types of projects.

I think on a much more micro level, you saw Russia do something like this, where in 2014, they passed a law onshoring all of their domestic payments processing and created NSPK and the MIR payment card network.

And as a result, even right after the invasion of Ukraine, the big invasion of Ukraine in February 2022 and Visa and Mastercard pulled out of Russia, Russians who held Visas and Mastercards continued to be able to use them because the payment infrastructure was all based inside Russia. And so I think that's, that's the real risk, and that's something that could happen at scale.

I think the way to mitigate it, the way to get around it is first of all, be multilateral sort of, as I said before, don't, don't, it's not that you shouldn't use sanctions. It's just when you do use them, have a good reason and work with the issuers of the other reserve currency. So the, you know, you're not inadvertently pushing everyone toward the euro or the yen or the pound.

And second of all, I think take seriously these emerging threats like the digital RMB and mBridge, and what do you do about them? I think with the digital RMB, I do think central bank digital currencies are going to be a thing and so We could either just sit on the sidelines and do nothing about it or we could issue our own central bank digital currency, which I think would probably be a smart move and a way for us to cut the digital RMB off at the knees.

For some of these other infrastructure plays like China's cross border interbank payment system currently U.S. banks are allowed to participate. Does that make any sense? I'm not so sure. I mean, this is their alternative to SWIFT. These networks rely on network effects. You need more. They're only valuable if more banks are part of them. I think it'll be much easier to discourage banks from joining them now when they're in their earlier stages than it will be 5 to 10 years from now when they're only half as big as SWIFT and they're really important.

So I think we need to take these things seriously and potentially impose regulations that make it harder for global financial institutions in places like New York and London for from participating in them

Scott R. Anderson: So something you touch on in your book is something I’ve been watching that folks at Lawfare have been watching—we've been tracking a lot on the podcast particularly with our, our Regulator series—we've been talking with a lot of senior officials and the government about new toolkits that are coming out is the rapid diversification of the economic statecraft toolkit.

Financial sanctions, blocking sanctions, which still is the bread and butter, still the most dominant toolkit, you know, usually International Emergency Economic Powers Act based, very familiar tool used in a lot of malleable ways. A lot of different contexts are still there. They're still in a lot of ways, you know, the hammer and nails.

But now we have, as you describe in the book, the development of foreign direct product rule, a very deep, far reaching export control regime or derivative of export controls regime that says, you know, intellectual property that belongs to the United States deep in a supply chain, deep overseas across multiple borders at a certain point can be restricted and constrained.

Lots of other applications of export controls as efforts to try and weaken the Russian military that have been rolled out, cutting off whole industries, industrial actors, major economic actors there. We now have outbound investment restrictions intended to limit the extent to which U.S. money flows to certain purposes and certain industries. And China is really the only target currently, but maybe to be expanded in the future.

How do these lessons translate? How do these other tools fit into this toolkit? You know, the foreign direct product rule you talk about at length, that's definitely a prominent, significant one. But how much is it, is there a risk of overlearning the lessons of sanctions and applying to these other tools?

In particular, I have the strong sense that a lot of policymakers and a lot of observers think when you deploy these new regimes and you put a, you know, sanctioned entity, a targeted entity on a list that will take care of itself and enforcement comes automatically at the end of that. And that is the reality we live in a lot of ways for financial sanctions, but that’s because of the product of 20 or 30 years of evolution in the financial industry that just isn't there in other industries and probably isn't going to get there.

So how do we approach these other tools, how do we make them maximally efficient and integrate them with this broader strategic picture?

Edward Fishman: Yeah, this is a really important point. I'm glad you're bringing it up.

I do think that export controls. are part of the same arsenal that includes sanctions, and in some ways it doesn't really make sense for us to have two totally separate government agencies, bureaucracies doing them because, you know, we use them in combination, right? I mean, both China and Russia are under both sanctions and export controls. It's hard to find any country that's under one and not the other, right?

I mean, it's, you usually have some combination of the two. And even when on the legal side, a lot of times the enforcement actions have some blended virtue, you know, aspect of, you know, violating the export control regime and the sanctions regime. For instance, the famous Huawei case with Meng Wanzhou, I think was both sanctions and export controls.

So I think that the thing that gets missed though, and I think Washington has gotten a bit giddy about export controls in particular since the FDPR in 2020 against Huawei—and then this of course was expanded to all of China in 2022 during the Biden administration—the thing that gets missed, I think, is that you don't have the infantry yet.

As we talked about before, the infantry in American economic wars are people at companies. They're human beings who are making risk decisions at a bank, at a tech company, at an oil company. And those risk calculuses differ by industry. In the banking sector, there used to be a sort of very low or sorry, let me restate that. In the banking sector, executives used to be willing to take a lot more risk about dealing in sanctioned jurisdictions.

That's why you saw, for instance, BNP Paribas blatantly violating American sanctions. They didn't think it would matter. They didn't, they thought that the benefits would outweigh the rewards. They didn't think they would get penalized. Lo and behold, they're fined $9 billion in 2014. It wiped out their entire net income from, from the year. I think it takes that track record of enforcement to conscript the banking sector into becoming effective infantrymen in American economic wars.

That has not yet happened for Silicon Valley or for big oil. And in fact, I dealt a lot with the oil sector with the Iran and Russia sanctions in the 2010s. And one kind of lesson I had dealing with some of these oil companies is that the way that we think about risk calculus for a bank CEO is basically flipped for an oil executive.

You know, if when the U.S. imposes export controls on Russian Arctic offshore and shale oil projects, which is what we did in the summer of 2014. If at that first sign of danger, Rex Tillerson, who's the CEO of Exxon at the time, decides he's going to pull out of his major joint venture with Rosneft, all of a sudden, all of these other high risk jurisdictions where you need to drill for oil, look at Exxon and say, wow, these guys are not reliable. They're going to run at the first sign of danger.

You cannot succeed as an oil executive if you're not willing to make risky bets in countries that don't have strong rule of law, that don't have you know, necessarily the most reliable governments. And so in some ways, you know, it made sense that Exxon kind of played a game of chicken with the U.S. government in 2014. And it took explicitly making their project in Russia illegal to get them to exit the country.

With the Silicon Valley companies right now who are you know, the ones who are supposed to be implementing the export controls, they're in a very difficult spot because China is a giant market for them. They don't have anything like the experience with being fined big amounts that affect their actual financial performance. So they don't have the investments that have been made at banks to even do export control compliance if they want to.

And then on the U.S. government side, it is a bit challenging to, on the one hand, say that the American semiconductor industry is so strategically important that it deserves $52 billion worth of taxpayer money. And then on the other hand say, hey, actually we're gonna find you $10 billion because you sold chips to Huawei in violation of export controls.

So I think it's really tough. Do I think we'll get there? Possibly—for all we know, there's somebody squirreling away at the Justice Department right now and has been for several years working on a massive fine that's just going to change everything in this industry. But I think until that happens, until, you know, Jensen Huang or these top CEOs realize that like, if they don't comply. To the letter of the law, and maybe even beyond the letter of the law, they're risking their financial performance, they're not going to be effective infantry.

Scott R. Anderson: So we're just about at time, but I want to close with what you close with in your book, which I think is a really useful heuristic for thinking of the trade offs of this particular moment. You describe it as the impossible trinity, as kind of one of these classic models that I feel like I, you see in a lot of undergrad poli sci classes, you know, kind of like the two by twos grid. This is the triangle of what you can only have two sides, right?

And for you, that triangle is economic interdependence, economic security and geopolitical competition. Two of those can coexist. Three of them together cannot. Right now we're in an era where we have economic interdependence and geopolitical competition, but economic security feels lacking. And maybe one day we'll drop economic interdependence and then we'll have security and geopolitical competition, but then without economic interdependence sanctions, a lot of these other tools stop working.

And you end on a very pessimistic note, a little bit of an apocalyptic note, where you say, you point out that seems like the easiest trajectory from here, from this moment of this age of economic warfare we're living in, is for that economic interdependence to begin to fade out because we, you know, live in an era of pendulum swingings of thermostatic responses, and we were in an era of extreme economic independence a few years ago. And we've just been on the writing that pendulum back the other way since, and it's gonna be a while probably before it hits its ultimate the end of its swing and begins coming back in a different direction.

But that's a pretty bad outcome, because not only does it mean your book stops being relevant because all these tools we use are no longer good, as you make the point, the benefit of these tools, the reason they've always been seen as desirable, is because they let us escape the other tool that's dominated human history, which is violent warfare.

So if you were in the position, and you are through your book, and you may yet be again, and more directly, in a position to advise senior policymakers, the president, whoever it might be, or foreign leaders, weighing this question saying, how do we approach this coming era for the next 15 years—how do we approach it? Do we just accept that economic independence is going to fall away? Or there are steps we should be taking to try and against all odds, keep all three legs of the stool in place to some extent moving forward?

Edward Fishman: So I think there's some irony about the fact that I decided to end the book on the impossible trinity, because the whole idea of the book, and honestly, the way that I think about the world is really less through frameworks and more through individual decisions, how people act. Because my own view of history is that people make history. And that's why I decided to write “Chokepoints” as a narrative history told through the eyes of the individuals who are actually shaping the age of economic warfare.

And I didn't start writing this book thinking I'd end on the impossible trinity. The last thing I wrote, the very last thing was this conclusion. And I remember walking around thinking, you know, how do I end this book?

And the thing that struck me was even for someone like me, who believes in historical contingency and free will and the role of the individual, I had to admit that there was a clear trend, an exponential trend, that sanctions, export controls, tariffs are just being used more and more and more with every single president.

In fact, they're doubling, right? So Obama imposed sanctions at double the rate of George W. Bush. Trump imposed sanctions at double the rate of Obama. And then Biden imposed sanctions at double the rate of Trump. I don't know what's going to happen in the second Trump administration, but if you just carry it forward, I'm sure it will double again.

And so you have to start asking yourself then, is there some structural factor at play here? It can't just be that these presidents all love sanctions. I think there's something structural. That's where I came up with this idea of the impossible trinity. And I think if you look at it, you know, during the Cold War geopolitical competition reigned supreme, and so as a result, you can have economic security and geopolitical competition because there's no economic interdependence.

In the ‘90s, we don't have geopolitical, geopolitical competition, right? We viewed China and Russia as friends or would be friends as opposed to rivals, and so you can embrace economic interdependence without losing any sense of economic security.

What we have now is economic interdependence persists, but geopolitical competition has come roaring back. And so we've lost our sense of economic security. When I say we, I mean the world. It's not just the United States. China doesn't feel economically secure. Russia doesn't feel economically secure. The EU, Japan, all of these governments are explicitly investing in economic security.

And so, that's sort of how I came up with the concept. In terms of what to do about it, and what I would be advising—I don't think that there's really a way out of this trinity. Could you get rid of geopolitical competition? I'm skeptical. I think that the trajectory of Russian and Chinese power is such that you're going to have intense geopolitical competition for at least the next decade or more.

So the question is, how do you regain economic security? As I see it, there are really two paths sort of out of our current predicament. The first is you go to a world that is dominated by two blocs where you have an authoritarian bloc that's led by China and Russia and then a democratic bloc that's led by the US, the European Union, Japan, and other democratic liberal societies.

And what you have in that world is you have deeper economic interdependence that develops within sort of this democratic bloc, so you don't necessarily lose the benefits of economic interdependence, and in some ways you could see this world being more secure in some of the ways that the Cold War gave us a sense of security.

The thing I'm more worried about, though, is that that kind of model—which is sort of encapsulated by Janet Yellen's concept of friendshoring or even Bob Lighthizer's concept that he put forward in a recent New York Times op-ed of having a group of democracies that have low tariffs and then higher tariffs on everybody else—the problem is that's not the direction that Donald Trump is taking us in right now.

He's taking us in the direction that I'm a little bit more concerned about and that I end my book on, which is, you just have a complete breakdown, a chaotic breakdown of economic interdependence in which you're using these sanctions, tariffs, export controls against anyone and everyone. You don't have any permanent economic agreements that are worth the paper they're written on.

And so the only secure long term investment, if you're an American company is in the United States. Because you can't feel confident that you're not going to just have a big tariff put on your product made overseas, or that you're not going to be cut off from a specific market.

And where that leads us is a world where every nation is sort of for themselves. And without any recourse to pressuring other countries through economics, I do think you get to an era where military force is again, the primary tool of great power competition.

And beyond that, what history has shown us is that when states can't secure markets through open trade, that is when the temptation for conquest and imperialism rises. And I think you see echoes of this when Trump says that he wants to seize Greenland for its mineral resources. It's this perspective that you can only feel confident obtaining specific resources or having access to a market if you physically control it.

So I think that's the darker future. I certainly hope that we wind up in this first road that I mentioned.

Scott R. Anderson: Well, we will have to leave the conversation there for now, but Edward Fishman, author of “Chokepoints: American Power in the Age of Economic Warfare,” thank you for coming to join us here today on the Lawfare Podcast.

Edward Fishman: Thanks so much for having me on. It was a really fun conversation.

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