The political reaction in China was sharp and immediate. On April 20 and 21 of the same year, the Chinese government held a conference on cybersecurity that all seven members of the standing committee of the Politburo attended. The likely result is a sharp acceleration in efforts to build up China’s own semiconductor manufacturing capacity, to ensure that it was not vulnerable to such threats in the future. Although Trump himself soon acted to heavily water down the penalty (imposing another large fine in lieu of the initially announced ban), the consequence has been to push China to limit its reliance on strategic foreign components that can easily be interdicted.
Europe’s and China’s reactions both show how America’s secret empire—its power over the global infrastructures that support flows of finance, information and components—could only be maintained so long as it was not overused. Unilateral actions that threaten the interests of other powerful states will lead them to react. Some will respond, as China did, through self-help; building their own surplus capacities to strengthen themselves against foreign manipulation. Russia is building up reserves in gold and yuan as barricades against further international financial coercion. Others, like the EU, may not be hunkering down but building out.
The SPV will almost certainly not create strong economic bonds between Iran and Europe. At best, it will keep relations with Iran in a holding pattern. Europe’s trade with Iran is limited, and will likely remain so.
The real risk for the United States is both more subtle and profound. The SPV is a put option on American hegemony. It will allow Europe to begin experimenting with alternative arrangements to U.S.-based infrastructures that could be the seed of a greater transformation. In a recent report, “Towards a Stronger International Role of the Euro,” the European Commission described U.S. unilateralism as a “wake-up call regarding Europe’s economic and monetary sovereignty.”
This helps explain Vice President Mike Pence’s extraordinary harangue against the SPV in Warsaw in February. Pence demanded that America’s European allies withdraw from the JCPOA, claiming that the SPV was “an ill-advised step that will only strengthen Iran, weaken the EU and create still more distance between Europe and the United States.” Treasury Undersecretary Sigal Mandelker further warned Europe that “those that engage in activities that run afoul of U.S. sanctions risk severe consequences, including losing access to the U.S. financial system and the ability to do business with the United States.”
As former State Department official Jarrett Blanc warns, “The Iran SPV, though, will teach its managers lessons that can be applied to other cases in the future,” such as Russia, if the U.S.-Russia relationship continues to worsen. Blanc describes a “nightmare scenario of the U.S. pushing its financial power so far that our allies and partners feel compelled to build financial alternatives to New York and the dollar,” with profound consequences for “the tremendous influence the U.S. enjoys as the global backbone for even simple banking operations.” Former Treasury Secretary Lew expressed doubt in February at the Atlantic Council that the SPV could work as hoped for Iran, but warned that
the plumbing is being built and tested to work around the United States. Over time as those tools are perfected, if the United States stays on a path where it is seen as going it alone…there will increasingly be alternatives that will chip away at the centrality of the United States.
IT IS easy to dismiss liberals’ naivete at the end of the Cold War. An era of easy interdependence, of global flows of finance and information overwhelming national borders, and of disaggregated global manufacturing turned rapidly into something very different. Firms built a vast private infrastructure for their own purposes, not realizing how easily it could be turned into an architecture of domination. Global networks were twisted into a strangler’s cord; supply chains were reforged into manacles. Dominium unwittingly manufactured the tools of a new American imperium.
Yet the administrators of this new system are now falling victim to their own overweening hubris. It might well have been possible for America to maintain its control of global architecture through intelligent forbearance. Before the Snowden revelations, key officials among America’s European allies were just as eager to drink from the spigot of Internet surveillance as their counterparts in the NSA. Europe supported delinking Iran from the SWIFT system in 2012. Now, the Trump administration seems to be gambling that it can turn the infrastructure into a means of disciplining allies and pressing SWIFT, which is a European organization, into service against Iran, despite the express wishes of European governments. Some commentators have even proposed that the United States personally sanction the senior European diplomats who set up INSTEX in order to cow Europe into submission. The Trump administration is now contemplating terminating the waiver on Title III of the Helms-Burton Act. This would allow U.S. citizens to sue foreign entities with holdings in Cuba in U.S. courts, which could lead to a general flight of foreign financial institutions from the U.S. dominated system. Such strong-arm tactics presume that other states have no other option than to accept U.S. infrastructural hegemony. In fact, these tactics are provoking states to insulate themselves from coercion, or even to start creating their own alternative architectures.
Indeed, the United States itself will withdraw from some aspects of global interdependence as it realizes how communal plumbing endangers its own security. The recent alarm over the Chinese communications firm Huawei is prompted by the fear, as fbi Director Chris Wray describes it, that we ought to be deeply concerned about the risk of allowing any company or entity that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks. That provides the capacity to exert pressure or control over our telecommunications infrastructure. It provides the capacity to maliciously modify or steal information. And it provides the capacity to conduct undetected espionage.
This has led the United States, Japan, New Zealand and Australia to limit or block Huawei—seen as the market leader on price and quality—from helping to build new 5G communications systems. Despite a barnstorming tour of European capitals by Secretary of State Mike Pompeo in February, other key allies, including the United Kingdom, have resisted U.S. pressure to exclude Huawei from government contracting. The United States now threatens that it will refuse military cooperation with countries that do not have a secure technological infrastructure, driving a wedge between Anglo-American intelligence partners and provoking counter-pressures from Chinese officials who demand that their firms have market access. Allies are not capitulating as the administration would like. Ulrik Trolle Smed, chief cybersecurity advisor to the European Commission, recently stated that “[a] complete ban” is not “the European way.”
These pressures and counter-pressures are only going to get worse. The United States, its allies and its major adversaries are beginning to confront a very difficult truth. The backbone networks of the modern globalized economy have become major national security issues. Addressing their vulnerabilities would require a profound remaking of the global economy and retreat of sensitive aspects of manufacturing back behind national borders, or within tightly knit alliance structures. For example, the United States depends on complex technological supply chains that rely on cheap components from efficient Chinese manufacturers. It is very hard to be sure that components are not compromised. China suffers from similar vulnerabilities vis-à-vis the United States (the NSA’s Tailored Access Operations team is notoriously skilled at gimmicking computer equipment), as do other states.
These same problems afflict global financial and information networks such as the Internet, and disputes are likely to erupt as states seek variously to weaponize them, to withdraw from them, to build alternatives, and to persuade or bully allies and third parties to go along with their preferred approaches. Just as America discovered the power of these infrastructure systems in a series of steps and missteps, other states are beginning to experiment with responses. Without more attention to the politics of the plumbing, and how and when to use it, the consequences are more likely to involve mutually reinforcing paranoia and over-reaction than cool ratiocination. The only thing worse than a mad emperor is several of them, each at odds with all the others.
The fights over the SPV and Chinese technology firms are only the beginning of a much broader set of infrastructure disputes as America’s accidental empire devolves into bitter wrangling between multiple rival imperiums, likely leading to further splintering and contention between regional infrastructural systems. Plumbing problems did not lead to the decline and fall of the Roman empire. They might, however, help precipitate the decline and fall of America’s.
Henry Farrell is a Professor of Political Science and International Affairs at George Washington University.
Abraham Newman is a Professor at Georgetown University’s Edmund A. Walsh School of Foreign Service and the Department of Government.