April 6, 2025 • 35 mins
Newt talks with Edward Fishman about his new book, “Chokepoints: American Power in the Age of Economic Warfare.” They discuss the history of U.S. foreign policy over the past two decades, highlighting America's shift from globalization to economic warfare. Fishman explains how the United States has used its dominance in global finance and technology to develop economic weapons, which have been employed by successive presidents to address national security threats. Their conversation covers the effectiveness of sanctions, the impact of tariffs, and the potential for China to create an alternative reserve currency. Fishman also shares insights from historical figures, including former Secretary of the Treasury William Simon, and discusses the current geopolitical landscape, including strategies to pressure Russia and the implications of economic policies on global stability.
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Speaker 1 (00:04):
On this episode of its world.
Speaker 2 (00:06):
In his new book Choke Points American power in the
Age of Economic Warfare, Edward Fishman takes us deep into
the back rooms of power to reveal the untold history
of the last two decades of US foreign policy, in
which America renounced the gospel of globalization and waged a
new kind of economic war. As Vladimir Putin, Jijiping and
(00:30):
Iatola Kameni wrecked havoc on the world stage, mavericks within
the US government built a fierce of new arsenal of
economic weapons, exploiting America's dominance in global finance and technology.
Speaker 1 (00:42):
Successive US presidents have relied on.
Speaker 2 (00:44):
These unconventional weapons to address the most pressing national security threats.
For good and for ill, economic warfare has become the
primary way the United States confronts international crises and counter's rivals.
Sometimes it has achieved spectacular success, other times bidder failure.
Speaker 1 (01:02):
The result we live with today is.
Speaker 2 (01:04):
A new world order and economic arms race am on
great powers and a fracturing global economy. I can't imagine
a more appropriate time to have this discussion. So here
to discuss this new book, and I'm really pleased to
Welcome my guest, Edward Fishman. He is a leading authority
on economic state craft and sanctions. He teaches a Columbia
University School of International and Public Affairs. Previously served at
(01:26):
the US State Department as a member of the Secretary
of State's Policy Planning Staff, at the Pentagon as an
advisor to the Chairman that joined Chiefs of Staff, and
at the US Treasury Department as a special assistant to
Undersecretary for Terrorism and Financial Intelligence. Edward, Welcome and thank
(01:54):
you for joining me on News World.
Speaker 3 (01:56):
Mister speaker, thank you so much for having me on today.
Speaker 2 (01:59):
I'm very curious about your own background. How did you
end up getting into this kind of economic project.
Speaker 3 (02:06):
Yeah, so it really dates back to my time as
a college student at Yale in the years after nine
to eleven. I was studying history and learning about how
we were living in a unipolar moment. America was the
world's sole superpower. But then when I was just following
the news and seeing America struggle to get what we
wanted in places like Iraq and Afghanistan in those two wars,
(02:28):
it just didn't add up to me, and it made
me think that perhaps we weren't using our power as
effectively as we could to advance American interests abroad. And
it was right at that time that Iran's nuclear weapons program,
right in the sort of mid two thousands, became the
top national security priority for the United States, because folks
may remember that when Mahmud Akmanitterjad was elected president in
(02:51):
two thousand and five of Iran, he would routinely threaten
to wipe Israel off the face of the earth, and
he restarted nuclear enrichment programs, and there was a real
threat that Iran could transfer nuclear material to a terrorist
proxy like Camas or Hesbala or even al Qaeda, and
that we could have a nuclear nine to eleven basically
a terrorist attack on US oil that was an order
(03:12):
of magnitude worse than the nine to eleven attacks. But
of course at the time there was no appetite politically
to fight another war in the Middle East. We already
fighting in Iraq and Afghanistan. And so it was right
around that time that a guy at the Treasury Department
named Stuart Levy started pioneering new forms of financial sanctions
to try to actually put pressure on Iran and then
(03:33):
maybe negotiate away their nuclear program. As I was watching
this as a student, I was just fascinated and I
actually wrote to Stuart asking if he could bring me
on as an intern, and it turned out that he
was actually in the process of leaving. This was in
twenty eleven, but his successor was kind enough to offer
me a job as a special assistant, and so within
a few days of graduating college, I moved down to Washington,
(03:54):
DC and joined the Treasury Department as the Special Assistant
to the Undersecretary of the Treasury for Terrorism and Financial
intel Leigence, and then had the good fortune of getting
to work on things like the Iran sanctions that led
to the first Nuclear Deal, and then the Russia sanctions
in twenty fourteen after Putin invaded Ukraine for the first time.
Speaker 2 (04:10):
From your perspective, has sanctions worked that they achieve the
goals we wanted?
Speaker 3 (04:15):
People often ask me, you know, do sanctions work right?
The thing that I find a little curious is and
I also had the good fortune of doing a stint
at the Pentagon working for the Chairman of the Joint
Chiefs of Staff, General Marty Dempsey. And one thing I
never heard at the Pentagon asked was does a bomb work. Well, yeah,
bombs work quite well to blow things up, but they
(04:35):
don't always get you what you want politically. And I
think sanctions are very similar, particularly American sanctions, Because the
US controls the key choke points in the global economy,
like the US dollar, advanced semiconductor technology, the United States
has the ability to impose really devastating economic harm on
foreign countries. Even just with the stroke of the pen.
President Trump any other president can really exact quite a
(04:58):
bit of pressure on foreign government. The question is can
we translate that pressure into the political outcomes we seek.
I think with respect to Iran, we were quite successful
in changing the calculus of the Iranian regime and the
idea that they should actually come to the table and
negotiate on the nuclear program. I think with Russia we've struggled,
frankly to change Putin's calculus. And I think the concern
there isn't so much that we haven't been able to
(05:20):
harm Russia's economy. It's that Putin has routinely doubted Western
resolve and doubted our willingness to actually wage economic warfare
against Russia, with the determination it would take over years.
Speaker 2 (05:32):
In a sense, it's also a function of how tough
your adversary is in the level of pain they want
to put up with.
Speaker 3 (05:39):
Yes, I think that's exactly right.
Speaker 2 (05:41):
As you know, the president has emergency authority to raise
in lower tariffs that has been delegated to him by Congress.
And we're talking the week that he had what he
called Liberation Day, which I'm not sure is what any
other country of the planet we'll call it. Well, what
is your take on his whole approach to trying to
develop individualized reciprocal tariffs.
Speaker 3 (06:04):
You started off by talking about the emergency authority that
the president has. This is a nineteen seventy seven law
called the International Emergency Economic Powers Act, and that law
has been used to give the president authority to impose
financial sanctions on Iran and Russia and North Korea and
other rogue regimes. What it hasn't been used for up
(06:24):
until now, actually for the first time during the second
Trump administration, is tariffs. So the first time that that
law has ever been used for tariffs was when Trump
on February first imposed the twenty five percent tariff on
Canada and Mexico on the fentanyl and migration crisis, and
the initial ten percent tariff on China. The new tariffs
that Trump put in place on this so called Liberation
(06:47):
Day were also justified by this law, the nineteen seventy
seven International Emergency Economic Powers Act. However, I think there's
some doubt within the legal community about whether this ultimately
will hold up in court, because that law really is
supposed to be used for a national security crises. What
Trump has said is that the trade deficit overall gives
him blanket authority to impose this massive tariff. The issue is,
(07:11):
despite what Trump says, a tariff is a tax right.
So American importers are going to be paying these tariffs,
and so there's a real question. I think that lawyers
and courts will need to work out whether the President
does have the authority to just unilaterally impose taxes this way,
because if these tariffs do remain in place, mister speaker,
(07:31):
the economic analysis that I've seen suggests that it could
be the largest single active tax increases in American history,
and one sort of fell swoop. And so if the
president has that authority, I think it's a bit of
an abandonment, frankly, of the Congress's authority to raise taxes
in association with the President, it.
Speaker 2 (07:47):
Would require the Congress surpass some limitation with a veto
overriding majority.
Speaker 3 (07:55):
Well, I think there's a question. I mean, it's possible
that the tariffs themselves are ultimately enjoined in because there's
a question whether the present authorities under the International Emergency
Economic Powers Act allow him to impose a unilateral universal
tariff the way that he has right because in addition
to the reciprocal tariff, he's also imposed a ten percent
universal tariff on every other country in the world. Let's
(08:16):
say that it does hold up, because you also asked me,
do I think it's a good idea. I think that
the United States has benefited largely from the structure of
the international economy as it's existed since World War Two.
There have been sacrifices the United States made. Of course,
it's not been in all good things. And I think,
certainly with respect to China, we've for too long allowed
(08:38):
China to do things like steal intellectual property from American companies,
bar US companies from accessing the Chinese market without really
retaliating at all. And I credit President Trump during his
first term for really starting to fight back against Chinese
economic aggression, and this is something that President Biden built upon.
I think what is a bit more questionable is the
idea that we should be imposing massive tariffs on everybody else,
(09:01):
including our allies and other emerging economies that want to
be closely associated with the United States, like the country
like Vietnam, for instance, which I think, in a sort
of perverse fashion under these Trump tariffs, has a higher
teriff rate than China.
Speaker 2 (09:14):
You did an article for Politico where you suggested that
Trump could learn a lot from Nixon's Treasury Secretary William
Simon and how he used both economic and military incentives
to preserve US power. Talk a little bit about Simon.
What was it that he understood and that he did
so well.
Speaker 3 (09:31):
Yeah, I think Bill Simon is a good person for
us to look back to now, because in some ways
he has a lot in common with President Trump and
others in the current Trump administration. He was a career
bond trader on Wall Street, was not someone who is
really typically involved in politics. He initially joined the Nixon
administration as the energies are and actually was in that
(09:51):
position when the Arab oil embargo happens in nineteen seventy three,
and he has this funny quote where he actually admits
that he's the guy who caused the lines at the
gap stations in America. So I think if he had
said that at the time, there may have been people
with pitchforks outside of his house. But I think this
was something he said in retrospect. In nineteen seventy four,
we were not in a great place as a country.
(10:11):
Nixon had justin seventy one unilaterally delinked the dollar from
gold because countries had lost faith in the value of
the dollar. It was initially pegged at thirty five dollars
an ounce, and this was something we could not defend
any longer. We started running massive deficits because of the
Vietnam War, we lost our position as the world's leading
oil producer, and then of course we're hit with a
(10:31):
big embargo from the Saudis after the yomki Por War
in nineteen seventy three, and we were entering a period
of very low economic growth and high inflation, right this
idea that has not been called stagflation. And what the
biggest problem that Simon saw at the time was that
the US just couldn't continue running the deficits that it
was running, and so he had to come up with
(10:52):
a formula for this. And as Nixon is kind of
struggling amid the Watergate scandal, he appoints Simon as Treasury
Secretary in May of nineteen seventy four, and Simon comes
up with, I think what winds up being this quite
ingenious idea, which is that he wants to convince the
Saudi government, which is getting paid all of these dollars
for its oil, to take the dollars that it's generating
(11:14):
and reinvest them in US government debt, to reinvest them
in treasuries. And the idea he comes up with isn't
to try to bully the Saudis into doing it, but
really to try to cut a deal, this sort of
transactionalism that some people talk about in association with President Trump.
So in July of nineteen seventy four, he hops on
a plane flies to Jetta. Interestingly enough, on that plane
(11:35):
winds up indulging in copious amounts of whiskey, so it
gets nice and drunk before this meeting, which is I
guess funny too, because at the time Saudi Arabia had
banned alcohol. And he goes into the meeting with the
Saudi government, and he offers them the ability to buy
US treasuries outside of the normal auctions, and also to
get access to US military equipment in exchange for agreeing
to price oil in dollars and to recycle the dollars
(11:58):
that Saudi Arabia was generating into US government debt, basically
to plug the US deficit with the dollars that America
was paying it. And this is what then became known
as the petro dollar and has basically undergirded the entire
dollar based financial system and frankly the way that America
finances its government ever since, because to this day it
(12:18):
is foreigners who are essentially allowing US to run these
budget deficits year after year. And so I think the
lesson for Trump is if you think about how Simon
got the Saudis to agree to this deal. It wasn't
by threatening military action against Saudi Arabia or sanctions against
Saudi Arabia. It was coming with carrots. It was showing
the Saudis what was in their interests in terms of
(12:39):
linking their financial system and their economy to the United States.
And so what I'm hoping happens is in the coming
weeks and months after this initial tariff barrage, that Trump
can actually move to the carrot and start actually finding
ways to incentivize other countries to cut deals with the
United States and move their economies closer to US, as
opposed to pushing them into the laps of the Chinese
(12:59):
c Comunist Party, which I fear is what will happen
if these tariffs remain in place indefinitely.
Speaker 2 (13:19):
One of the points that you make is that this
sustains the dollar. What would have happened if the Saudis
had decided that they were going to denominate in Swiss
francs or neuros or Chinese You wan me, how would
that have changed the world in the American situation.
Speaker 3 (13:35):
There's a few ways to answer it. I think on
a macro level, the petro dollar really became the lynchpin
of an overall dollarized global financial system. Back in the
nineteen seventies, you basically had a very tiny foreign exchange
market effectively didn't exist. Today, you've got something like seven
trillion dollars in turnover every single day in foreign exchange,
and ninety percent of those trades involved the dollar. And
(13:57):
so what that does is it gives the American government
this enormous leverage that we can threaten to cut other
countries off from the dollar. We can basically come and
if we need to resolve global financial crises by offering
swap lines. This is what's made the US Federal Reserve
kind of the center of the global financial system. And
then from just a domestic perspective, and there's a lot
(14:18):
of benefits. This is why many have called the dollars
role an exorbitant privilege. First of all, other countries, other governments,
other companies always have demand for dollars, really regardless of
the fiscal situation in the United States, and this is
what has enabled the United States to run budget deficits.
The other piece, and this actually is a bit of
a double edged sword, although I think the benefits outweigh
(14:39):
the costs. And this is another thing we can explore
because it's part of the rationale for some people in
the Trump administration to be seeking this so called Mara
Lago accord, which is that it makes the dollar more
valuable than it would be otherwise because normally the value
of your currency is just based on your terms of trade.
But because there's such a huge demand for American assets,
the dollar is stronger than would be based on just
(15:01):
our trading position. And so what that does on the
plus side is it means that every American has more
purchasing power than they would otherwise. Their salaries allow them
to buy more goods than they would if the dollar
were valued more cheaply. The downside of it, and the
thing that some people in the Trump administration don't like,
is it weakens the export competitiveness of certain sectors in
(15:21):
the United States. It makes their goods more expensive than
they would be on foreign markets. And so folks who
believe that we need to revive manufacturing in the United
States have often thought that we need to weaken the
value of the dollar. What I would say, though, is
weakening the value of the dollar would help a segment
of society, manufacturers who are trying to export on global markets,
but it would harm everyone because we're all paid in
(15:42):
dollars and so our paychecks would not go as far.
And so I think, ultimately, as you know better than anyone,
politics involves trade offs. There's no policy where everyone's a winner,
and so you've got to pick ultimately, what's your priority
and how many people you can help versus hurt with
a specific policy.
Speaker 2 (15:56):
As you look at the way the systems evolving right now,
how real is the danger that China could create an
alternative reserve currency.
Speaker 3 (16:06):
I think it's very real. What China has been doing
is they've been building effectively parallel infrastructure to the dollar
based system. After twenty fourteen, after we imposed sanctions on
Rusho for the annexation of Crimea, China started developing an
alternative to the SWIFT system, which is this financial messaging
system based in Brussels called CIPS, or the cross Border
(16:28):
Interbank Payment System. It started small, but it's been growing very,
very rapidly, and so I think the trajectory of growth
is such that if it keeps on growing at this pace,
eventually it will be not quite as large as Swift,
but a significant competitor. They've also done things like launch
a central bank digital currency, the digital RMB, which they
launched in twenty twenty. And of course the United States
does not have an answer to this. You know, there's
(16:49):
no digital dollar or anything that we've responded to. The
biggest impediment to the RMB actually challenging the dollar is
of course, China's own political systemitarian, unmoored to the rule
of law, arbitrary and with capital controls. Right, if you
have an investment in China, it's not clear that you'll
be able to get your money out. I think the
(17:10):
key for China would be are they willing to be
more predictable as a player. Are they willing to loosen
capital controls? I think if they were to be willing
to go in that direction, they would pose a threat
to the dollar. The thing I'd say, though, before I
pass it back to you, is that the R and
B isn't the only potential rival to the dollar. Right,
you also have the Euro, which in some ways has
many of the same benefits that the dollar has, and
(17:32):
that most people trust European courts. The Euro is a
freely convertible currency. There aren't capital controls on it. You
already have something like twenty percent of global foreign exchange
that's nominated in euros compared to sixty percent in dollars.
The biggest impediment for Europe, of course, has been that
they don't issue joint debt, right they don't have a
fiscal union. But right now with Europe really seriously pondering
(17:54):
a big rearmament program, and with a new chancellor in Germany,
it's possible that the Europeans could come around to join
debt ish tues. And I think that in some ways
could wind up posing a threat to the dollar in
the near term, more so than the Chinese R and B.
Speaker 2 (18:07):
The process that you're describing is compounded, I think by
the whole situation that Trump is doing with the tariffs.
In a sense, we're sort of rattling the whole system.
Speaker 3 (18:20):
I think that's right, and I think on the most
basic level, what the tariffs have done so far is
they've been really bad for American asset prices. Right the
stock market is down something like twenty five percent from
its peak in February, and so what that has done
is it's led asset managers to reallocate their investments from
the United States to other countries, to Europe actually number one.
(18:43):
And there's actually something that's very interesting that I believe
could be a Canarian the coal mine about the real
threat that we see to the dollar today, which is
that economic theory suggests that if you impose tariffs, your
currency actually should strengthen because Americans would have smaller demand
for foreign currency. But what we've seen is with all
these tariffs, the dollars actually weakened quite a bit. And
(19:04):
I think that's because of this loss of confidence in
the American market because of the tariffs. And then secondarily,
I think there's a fear around the world about Trump's
use of economic warfare. I think, no matter what Trump did,
because of honestly presidents dating back to George W. Bush
Obama Trump's first term, we're never going to get China
and Russia or Iran to feel comfortable relying on American
(19:27):
controlled economic systems.
Speaker 2 (19:29):
Right.
Speaker 3 (19:29):
We've declared them as our adversaries, and we've been waging
economic warfare against them now for years. But what is
new so far is really this economic warfare against everybody else, right,
against the Canada's, Mexicos, Europe's now even Vietnam, Japan, South Korea.
I think that's the thing that really risks a broader
referendum on the dollar. And that's why I'm hoping that
Trump ultimately views these tariffs more as negotiating leverage that
(19:52):
he can eventually peel back, as opposed to something that's
going to be a permanent feature of our world.
Speaker 2 (19:57):
In your mind, this is sort of a stage set
up rather than a permanent experience.
Speaker 3 (20:03):
I'm expressing my hope. We've heard a lot of goals
attached to the tariffs, right. We've heard the tariffs as
a potential revenue raiser, right, maybe as a way to
justify a new tax cut or extension of the original
tax cuts. We've heard as tariffs as a way to
protect American domestic manufacturing. And we've also heard of tariffs
as a way to get deals with foreign countries on
various issues, ranging from migration to lowering their own tariffs.
(20:27):
The thing is, these goals, many of them are at
cross purposes with one another. If you want tariffs to
incentivize American companies to invest in the United States and
onshore manufacturing, you've got to tell those companies that these
tariffs are going to be in place for decades, right,
or otherwise they're not going to shell out the investment
domestically to actually move manufacturing back to the United States.
But then that then undermines our negotiating leverage, because if
(20:50):
we've already committed to these tariffs being in place for decades,
how are we then going to incentivize foreign countries to
do what we want. So I'm expressing a hope you
would know, frankly better than me, might be in Trump's mind.
But so far we've seen that these are various goals
he has. There are different factions in the administration duking
it out, and I just hope that the deal maker
Trump triumphs over the protectionist Trump.
Speaker 2 (21:11):
In a world where people really want stability, we are
now guaranteeing them in a couple of years of pretty
amazing instability. I think I don't quite understand. On the
banking side, we're able to have an extraordinary level of
control over how people have transactions internationally.
Speaker 3 (21:32):
Yes, that's exactly right.
Speaker 1 (21:33):
And what's the practical effect of that?
Speaker 3 (21:36):
You know, my book is called choke Points because what
happened really in the nineteen nineties in the wake of
this hyper globalization. When you bring countries like China and
Russia and the countries in the former Soviet bloc into
global financial systems, into this dollar based financial system that
originates with Bill Simon's trip to Saudi Arabia in the
early seventies, what you get is a system where even
(21:59):
when two countries trade with each other. Let's say China
trading with Saudi Arabia, more often than not, that trade
is settled in US dollars, right, So when countries are
buying oil, no matter what their currency is, they're paying
the Saudis in the dollar. They're not paying in their
home currency. And if you think about it, just practically speaking,
think about all the currencies in the world, it wouldn't
make sense for a Saudi bank to hold every single
(22:21):
type of currency, right, So what banks do is they
tend to hold big stores of their own currency. So
in the Saudi case, the Saudi real and then the dollar,
and when they want to do business internationally, they'll take
the dollar and exchange that for the currency that they need.
It's basically the way I say it in my book,
is trying to do business internationally without access to the dollar,
it's kind of like traveling without access to a passport.
(22:44):
That's really the systemic significance of the dollar. And so
this key choke point. What it does is it allows
the president to say to a foreign bank, you know,
you don't have access to the dollar anymore, in which
case they're basically shut off from this global financial system.
So it is a tremendous lever that the president has
at his disposal. It's one that's worked tremendously well against
(23:07):
countries like Iran and Russia, and frankly, I think it's
a more effective geopolitical tool than, for instance, tariffs, which
wind up having broad based effects on Americans ourselves, right,
because all Americans wind up paying higher prices for goods
when you're using tariffs instead of financial sanctions, When you
(23:39):
have this.
Speaker 2 (23:40):
Kind of approach, to what extent can you actually coerce
countries just by economic pressure. I've been watching Trump recently
as he gets more frustrated with Putin, and he's trying
to talk about dramatically deepening and expanding the sanctions, which
I soon means in some way using the international banking
(24:00):
How would that work?
Speaker 3 (24:02):
People have asked, Well, Russia's economy is sort of muddling through,
they haven't fully collapsed. Doesn't this show that the sanctions
aren't as strong as we thought they were. The truth is,
the Russians are not sanctioned evasion magicians. They haven't come
out with this secret code that allows them to bypass
this dollar system. We've talked about. What happened was Frankly,
(24:23):
the United States fought this economic war since twenty twenty
two with one hand tied behind our back. Joe Biden
was unwilling ultimately to go after Russia's oil sales for
fear of worsening inflation domestically and potentially spiking prices at
the pump for Americans. And I understand why he had
this mentality. In twenty twenty two, you had oil prices
above one hundred dollars a barrel and inflation at a
(24:46):
four decade high, the highest it had been since a
Mount William Simon's time in the nineteen seventies. The thing is, though,
the situation is very different now. You know, inflation is
under control, oil prices are the lowest they've been in years.
There's something almost closer to sixty dollars a barrel all
the time that we're talking, and so there's quite a
bit of flexibility. I think Trump does have to crack
down on Russian oil sales. What would that look like?
(25:07):
It would mean threatening foreign buyers of Russian oil, be
they oil traders in places like Dubai or refineries and
places like China, with being cut off from the dollar
base system if they continue buying Russian oil. You'd have
to structure this cleverly. You couldn't ask them to go
to zero overnight, because Russia is a giant seller of oil.
(25:28):
They're selling like five million barrels of crude oil a day.
But what you could do is you could say that
you can only continue buying Russian oil if every three
to six months you're significantly reducing the amount of purchases
that you have. So you basically build a glide path
that over a six to twelve month period or an
eighteen month period, Russian oil sales have significantly dropped. And
(25:49):
I think the other benefit of creating that kind of
glide path is it also sends a market signal to
shale producers in places like my home state of Pennsylvania,
or Texas or Louisiana. They need to drill more oil
and basically have more product on global markets to compensate
for the loss of Russian exports. So I think there
is this formula where Trump could impose significant pressure on
(26:10):
Russia while also advancing his goal that he stated of
American energy dominance.
Speaker 2 (26:15):
That would be the kind of sophisticated economic strategy which
might well coerce putin because if they don't have oil sales,
they don't have anything. Their whole economy will grind to
a halt. But that does require a very tough minded
with India, with China, with others, convincing them that they
have to do this.
Speaker 3 (26:36):
It's not easy.
Speaker 1 (26:36):
Look.
Speaker 3 (26:37):
One of my early jobs in government, my first job
at the State Department after I moved over from Treasury,
is I was on the Iran sanctions team responsible for Asia.
So I had to go to places like Singapore and
Malaysia and talk to shipping companies and oil companies and
basically warn them that if they kept doing business with
Iran that we would cut them off from the US
financial system. And I know you've engaged with diplomacy. These
(26:59):
conversations are not the nicest conversations, right, and they're not
pleasant to have, and oftentimes countries don't like hearing it,
and so you better have a good reason. And I
think what helped us back in that period in twenty
twelve twenty thirteen, there are a couple things. First of all,
we had the backing of the US Congress. So US
Congress had imposed these sanctions with veto proof majorities, and
(27:20):
so I could credibly say as an American diplomat that
I'm here just implementing American law. I don't have a
choice whether or not to be here. So I think
there is a real, I think urgency for Congress to
get in the game, not just Trump. I think the
second thing we had at our disposal is we had
a viable strategy. We would say, look, we don't want
these sanctions to be in place indefinitely. We want a
(27:42):
nuclear deal. We're trying to do this so that we
can get a peaceful resolution to Iron's nuclear program that
doesn't involve going to war, and that was oftentimes persuasive.
So I think that in some ways the stars are
aligned right now for a similar strategy with Trump, where
Trump can credibly say that he wants to negotiate peace,
that he's willing to sort of sit down with Zelenski
(28:03):
and with Putin. But I think that he's going to
need significant leverage over Putin to get Putin to be serious,
because it's clear he's got leverage over Zelenski. He's used
that leverage in spades over the last couple months. But
what we don't have right now is enough leverage over
Putin to get him to take this diplomacy seriously.
Speaker 2 (28:19):
Given Putin's background as a KGB agent and the degree
to which he has passionately committed to a great Russia strategy,
do you think there's any level of economic pain that
was stop him?
Speaker 3 (28:30):
I mean, economic pain alone is always a tough sell, right,
But I think what you got to look at is
the overall situation that Putin is in right now, where
the war that he's fighting is not one that has
broad support in the Russian society. Yes, people will say
that they support the war, but do they want to
be drafted and put on the front lines in Ukraine?
Speaker 1 (28:50):
No?
Speaker 3 (28:51):
Do they want their kids to be drafted and put
on the front lines in Ukraine? No? Right, Russia's face
had hundreds of thousands of casualties. I mean, this has
been a catastrophe for Russia, and so there's pressure I
think from society in and of itself to potentially wind
down the war. What can economic pressure do? I think
what it will do is it will add another dimension
to that because so far Russia's economy has kind of
(29:13):
muddled through because of this enhanced military spending and kind
of moving into a military led economy that Putin has
done over the last few years. But if all of
a sudden you get into hyperinflation territory and a substantial
recession in Russia, I do think there would be some
pressure from society that Putin would have to respond to.
And I think this is another important point about sanctions,
(29:35):
and it's an unfortunate reality, is that governments that have
no accountability whatsoever can be quite hard to get them
to change their policies. And that's why I think sanctions
have not worked well against you know, North Korea for instance,
or Cuba. But the Russian people, while yes they're living
in an authoritarian state right now, you know, they did
get used to relatively high standards of living and Putin
(29:57):
was able to really ossify his control over Russia in
the early two thousands because standards of living were going up,
the Russian economy was doing better than it was in
the nineteen nineties. I think if that progress is rapidly undone,
I do think he'll feel some pressure both from below
and frankly from people in his inner circle to change course.
Speaker 2 (30:14):
It's a fascinating situation because the truth is that all
of these leaders, whether it's Jijinping or it's putin. In
both of those cases, popular support matters, and I have
a hunch that Hamani the Ayatola also is very worried
about the larger Iranian.
Speaker 1 (30:32):
Population and whether or not in fact they're.
Speaker 2 (30:35):
About No, I don't think when you get to say
to a North Korea that it has the same effect,
or for that matter, of Cuba, because of their very
effective police states and they're very willing to be radically coercive.
But originally it was one of those people who thought
that Young Chopeg's Southern tour talking about the need for
market economies was actually a first step towards opening up
(30:56):
Chinese society. That was embarrassed to realize that. Actually Dun
Chopeg was one of the fourteen founding members of the
Chinese Communist Party in Powis during World War One, went
to Lenin University in Moscow for a year and is
a hardcore, totally dedicated Leninist, And what he was actually
saying was we need to have a market economy so
(31:18):
we're doing well enough that they.
Speaker 1 (31:20):
Won't throw us out.
Speaker 2 (31:21):
It was actually a step towards consolidating the dictatorship, not reforming.
It's one of the reasons I had to really rethink
a lot of what we were doing. I don't sense
that you have the kind of party structure in Russia
that you have in China. That's a very very different environment.
Speaker 3 (31:37):
Yeah, the Russian system is more personalist. It's sort of
more rooted in the Russian intelligence services and Putin's own
roots in the KGB, you know, the government itself, and
the most powerful people are really what I would call
Putin loyalists or Putin cronies. There are people that he
is personally inserted in those roles. There are people who
would not be within one thousand miles of power if
it weren't for being Putin's childhood Judo part or or
(32:00):
something like that. I don't think that we should get
giddy right and think that, oh, sanctions are going to
cause regime change in Russia. I don't think that's plausible.
I think what economic pressure can do is it can
put pressure on Putin and give him a reason to
actually cut a deal, because, look, you know, in some
ways Putin's already has in some ways what he wanted
in twenty fourteen, which is he's got a land bridge
(32:22):
to crimea right they took Mariupol. They've connected the Crimean
peninsula by land to Russia. He does not control all
of the oblast that he has claimed to annex, but
you know, would he be willing to back out of
those and claim victory. I think he probably could claim
victory to the Russian people. I don't think if he
were to stop now give up some of the territory
he's conquered, but then also get to keep things like
(32:43):
Crimea and parts of the Dunboss, I don't think the
Russian people would revolt. I think it's more likely that
the Russian people revolt if you draft another one hundred
thousand Russians and send him to fight and die in Ukraine. Meanwhile,
while their standard of living is collapsing under oil sanctions
that I hope the Trump administration will consider implementing.
Speaker 2 (33:01):
I think that the Trump team is very serious about
getting Putin's attention. They've been patient, they've been pleasant, because
that's a negotiating style, But down deep, they're very very
serious about getting his attention.
Speaker 3 (33:13):
Music to my ears and look, I've heard comments from
top Trump officials like Scott Besson, for instance, that do
make me sanguine about the possibility of doing things like
oil sanctions. If you look at Mike Waltz's writing before
he became the National Security Advisor, or Marco Rubio's comments
when he was in the Senate, they suggest that those
people would be in favor of these types of sanctions.
(33:33):
I think the real question is is Trump on board.
The thing it's interesting is you may have seen this.
There's a new Senate bill. It's got I think fifty
co sponsors already. I think half Republicans, half Democrats that
would put very aggressive secondary oil sanctions on Russia. And
so what I'm going to be looking for in the
coming days and weeks is what's the White House's perspective
(33:53):
on this bill. Is this something that they are going
to fight tooth and nail, in which case I doubt
it goes anywhere because the Speaker Johnson is not going
to let it see the light of day. Or is
it something that they see as hey, this is our
chance to have a real bad cop, you know, to
allow Congress to step up and post some serious sanctions
and then give our diplomats some real leverage with Putin
at the negotiating table.
Speaker 1 (34:13):
Edward, I want to thank you for joining me.
Speaker 2 (34:16):
Your new book, Choke Points American Power in the Age
of Economic Warfare is available now on Amazon and in
bookstores everywhere. It is a very relevant book to exactly
what we're doing right now, and I recommend that every
citizen get a copy and read it. And I really
appreciate you helping educate us.
Speaker 3 (34:33):
Thanks so much for having me on the show. I
really enjoyed our conversation.
Speaker 2 (34:39):
Thank you to my guest, Edward Fishman. You can get
a link to buy his new book, Choke Points American
Power in the Age of Economic Warfare on our show
page at newtsworld dot com. News World is produced by
gengishree sixty and iHeartMedia. Our executive producer is Guarnci Sloan.
Our researcher is Rachel Peterson. Art work for the show
was created by Steve Special Thanks to.
Speaker 1 (35:01):
The team at Gingwish three sixty.
Speaker 2 (35:03):
If you've been enjoying newts World, I hope you'll go
to Apple Podcast and both rate us with five stars
and give us a review so others can learn what
it's all about. Right now, listeners of newts World can
sign up for my three free weekly columns at Gingwishtree
sixty dot com slash newsletter.
Speaker 1 (35:20):
I'm newt Gingriish. This is Newtsworld.
On this episode of its world.
Speaker 2 (00:06):
In his new book Choke Points American power in the
Age of Economic Warfare, Edward Fishman takes us deep into
the back rooms of power to reveal the untold history
of the last two decades of US foreign policy, in
which America renounced the gospel of globalization and waged a
new kind of economic war. As Vladimir Putin, Jijiping and
(00:30):
Iatola Kameni wrecked havoc on the world stage, mavericks within
the US government built a fierce of new arsenal of
economic weapons, exploiting America's dominance in global finance and technology.
Speaker 1 (00:42):
Successive US presidents have relied on.
Speaker 2 (00:44):
These unconventional weapons to address the most pressing national security threats.
For good and for ill, economic warfare has become the
primary way the United States confronts international crises and counter's rivals.
Sometimes it has achieved spectacular success, other times bidder failure.
Speaker 1 (01:02):
The result we live with today is.
Speaker 2 (01:04):
A new world order and economic arms race am on
great powers and a fracturing global economy. I can't imagine
a more appropriate time to have this discussion. So here
to discuss this new book, and I'm really pleased to
Welcome my guest, Edward Fishman. He is a leading authority
on economic state craft and sanctions. He teaches a Columbia
University School of International and Public Affairs. Previously served at
(01:26):
the US State Department as a member of the Secretary
of State's Policy Planning Staff, at the Pentagon as an
advisor to the Chairman that joined Chiefs of Staff, and
at the US Treasury Department as a special assistant to
Undersecretary for Terrorism and Financial Intelligence. Edward, Welcome and thank
(01:54):
you for joining me on News World.
Speaker 3 (01:56):
Mister speaker, thank you so much for having me on today.
Speaker 2 (01:59):
I'm very curious about your own background. How did you
end up getting into this kind of economic project.
Speaker 3 (02:06):
Yeah, so it really dates back to my time as
a college student at Yale in the years after nine
to eleven. I was studying history and learning about how
we were living in a unipolar moment. America was the
world's sole superpower. But then when I was just following
the news and seeing America struggle to get what we
wanted in places like Iraq and Afghanistan in those two wars,
(02:28):
it just didn't add up to me, and it made
me think that perhaps we weren't using our power as
effectively as we could to advance American interests abroad. And
it was right at that time that Iran's nuclear weapons program,
right in the sort of mid two thousands, became the
top national security priority for the United States, because folks
may remember that when Mahmud Akmanitterjad was elected president in
(02:51):
two thousand and five of Iran, he would routinely threaten
to wipe Israel off the face of the earth, and
he restarted nuclear enrichment programs, and there was a real
threat that Iran could transfer nuclear material to a terrorist
proxy like Camas or Hesbala or even al Qaeda, and
that we could have a nuclear nine to eleven basically
a terrorist attack on US oil that was an order
(03:12):
of magnitude worse than the nine to eleven attacks. But
of course at the time there was no appetite politically
to fight another war in the Middle East. We already
fighting in Iraq and Afghanistan. And so it was right
around that time that a guy at the Treasury Department
named Stuart Levy started pioneering new forms of financial sanctions
to try to actually put pressure on Iran and then
(03:33):
maybe negotiate away their nuclear program. As I was watching
this as a student, I was just fascinated and I
actually wrote to Stuart asking if he could bring me
on as an intern, and it turned out that he
was actually in the process of leaving. This was in
twenty eleven, but his successor was kind enough to offer
me a job as a special assistant, and so within
a few days of graduating college, I moved down to Washington,
(03:54):
DC and joined the Treasury Department as the Special Assistant
to the Undersecretary of the Treasury for Terrorism and Financial
intel Leigence, and then had the good fortune of getting
to work on things like the Iran sanctions that led
to the first Nuclear Deal, and then the Russia sanctions
in twenty fourteen after Putin invaded Ukraine for the first time.
Speaker 2 (04:10):
From your perspective, has sanctions worked that they achieve the
goals we wanted?
Speaker 3 (04:15):
People often ask me, you know, do sanctions work right?
The thing that I find a little curious is and
I also had the good fortune of doing a stint
at the Pentagon working for the Chairman of the Joint
Chiefs of Staff, General Marty Dempsey. And one thing I
never heard at the Pentagon asked was does a bomb work. Well, yeah,
bombs work quite well to blow things up, but they
(04:35):
don't always get you what you want politically. And I
think sanctions are very similar, particularly American sanctions, Because the
US controls the key choke points in the global economy,
like the US dollar, advanced semiconductor technology, the United States
has the ability to impose really devastating economic harm on
foreign countries. Even just with the stroke of the pen.
President Trump any other president can really exact quite a
(04:58):
bit of pressure on foreign government. The question is can
we translate that pressure into the political outcomes we seek.
I think with respect to Iran, we were quite successful
in changing the calculus of the Iranian regime and the
idea that they should actually come to the table and
negotiate on the nuclear program. I think with Russia we've struggled,
frankly to change Putin's calculus. And I think the concern
there isn't so much that we haven't been able to
(05:20):
harm Russia's economy. It's that Putin has routinely doubted Western
resolve and doubted our willingness to actually wage economic warfare
against Russia, with the determination it would take over years.
Speaker 2 (05:32):
In a sense, it's also a function of how tough
your adversary is in the level of pain they want
to put up with.
Speaker 3 (05:39):
Yes, I think that's exactly right.
Speaker 2 (05:41):
As you know, the president has emergency authority to raise
in lower tariffs that has been delegated to him by Congress.
And we're talking the week that he had what he
called Liberation Day, which I'm not sure is what any
other country of the planet we'll call it. Well, what
is your take on his whole approach to trying to
develop individualized reciprocal tariffs.
Speaker 3 (06:04):
You started off by talking about the emergency authority that
the president has. This is a nineteen seventy seven law
called the International Emergency Economic Powers Act, and that law
has been used to give the president authority to impose
financial sanctions on Iran and Russia and North Korea and
other rogue regimes. What it hasn't been used for up
(06:24):
until now, actually for the first time during the second
Trump administration, is tariffs. So the first time that that
law has ever been used for tariffs was when Trump
on February first imposed the twenty five percent tariff on
Canada and Mexico on the fentanyl and migration crisis, and
the initial ten percent tariff on China. The new tariffs
that Trump put in place on this so called Liberation
(06:47):
Day were also justified by this law, the nineteen seventy
seven International Emergency Economic Powers Act. However, I think there's
some doubt within the legal community about whether this ultimately
will hold up in court, because that law really is
supposed to be used for a national security crises. What
Trump has said is that the trade deficit overall gives
him blanket authority to impose this massive tariff. The issue is,
(07:11):
despite what Trump says, a tariff is a tax right.
So American importers are going to be paying these tariffs,
and so there's a real question. I think that lawyers
and courts will need to work out whether the President
does have the authority to just unilaterally impose taxes this way,
because if these tariffs do remain in place, mister speaker,
(07:31):
the economic analysis that I've seen suggests that it could
be the largest single active tax increases in American history,
and one sort of fell swoop. And so if the
president has that authority, I think it's a bit of
an abandonment, frankly, of the Congress's authority to raise taxes
in association with the President, it.
Speaker 2 (07:47):
Would require the Congress surpass some limitation with a veto
overriding majority.
Speaker 3 (07:55):
Well, I think there's a question. I mean, it's possible
that the tariffs themselves are ultimately enjoined in because there's
a question whether the present authorities under the International Emergency
Economic Powers Act allow him to impose a unilateral universal
tariff the way that he has right because in addition
to the reciprocal tariff, he's also imposed a ten percent
universal tariff on every other country in the world. Let's
(08:16):
say that it does hold up, because you also asked me,
do I think it's a good idea. I think that
the United States has benefited largely from the structure of
the international economy as it's existed since World War Two.
There have been sacrifices the United States made. Of course,
it's not been in all good things. And I think,
certainly with respect to China, we've for too long allowed
(08:38):
China to do things like steal intellectual property from American companies,
bar US companies from accessing the Chinese market without really
retaliating at all. And I credit President Trump during his
first term for really starting to fight back against Chinese
economic aggression, and this is something that President Biden built upon.
I think what is a bit more questionable is the
idea that we should be imposing massive tariffs on everybody else,
(09:01):
including our allies and other emerging economies that want to
be closely associated with the United States, like the country
like Vietnam, for instance, which I think, in a sort
of perverse fashion under these Trump tariffs, has a higher
teriff rate than China.
Speaker 2 (09:14):
You did an article for Politico where you suggested that
Trump could learn a lot from Nixon's Treasury Secretary William
Simon and how he used both economic and military incentives
to preserve US power. Talk a little bit about Simon.
What was it that he understood and that he did
so well.
Speaker 3 (09:31):
Yeah, I think Bill Simon is a good person for
us to look back to now, because in some ways
he has a lot in common with President Trump and
others in the current Trump administration. He was a career
bond trader on Wall Street, was not someone who is
really typically involved in politics. He initially joined the Nixon
administration as the energies are and actually was in that
(09:51):
position when the Arab oil embargo happens in nineteen seventy three,
and he has this funny quote where he actually admits
that he's the guy who caused the lines at the
gap stations in America. So I think if he had
said that at the time, there may have been people
with pitchforks outside of his house. But I think this
was something he said in retrospect. In nineteen seventy four,
we were not in a great place as a country.
(10:11):
Nixon had justin seventy one unilaterally delinked the dollar from
gold because countries had lost faith in the value of
the dollar. It was initially pegged at thirty five dollars
an ounce, and this was something we could not defend
any longer. We started running massive deficits because of the
Vietnam War, we lost our position as the world's leading
oil producer, and then of course we're hit with a
(10:31):
big embargo from the Saudis after the yomki Por War
in nineteen seventy three, and we were entering a period
of very low economic growth and high inflation, right this
idea that has not been called stagflation. And what the
biggest problem that Simon saw at the time was that
the US just couldn't continue running the deficits that it
was running, and so he had to come up with
(10:52):
a formula for this. And as Nixon is kind of
struggling amid the Watergate scandal, he appoints Simon as Treasury
Secretary in May of nineteen seventy four, and Simon comes
up with, I think what winds up being this quite
ingenious idea, which is that he wants to convince the
Saudi government, which is getting paid all of these dollars
for its oil, to take the dollars that it's generating
(11:14):
and reinvest them in US government debt, to reinvest them
in treasuries. And the idea he comes up with isn't
to try to bully the Saudis into doing it, but
really to try to cut a deal, this sort of
transactionalism that some people talk about in association with President Trump.
So in July of nineteen seventy four, he hops on
a plane flies to Jetta. Interestingly enough, on that plane
(11:35):
winds up indulging in copious amounts of whiskey, so it
gets nice and drunk before this meeting, which is I
guess funny too, because at the time Saudi Arabia had
banned alcohol. And he goes into the meeting with the
Saudi government, and he offers them the ability to buy
US treasuries outside of the normal auctions, and also to
get access to US military equipment in exchange for agreeing
to price oil in dollars and to recycle the dollars
(11:58):
that Saudi Arabia was generating into US government debt, basically
to plug the US deficit with the dollars that America
was paying it. And this is what then became known
as the petro dollar and has basically undergirded the entire
dollar based financial system and frankly the way that America
finances its government ever since, because to this day it
(12:18):
is foreigners who are essentially allowing US to run these
budget deficits year after year. And so I think the
lesson for Trump is if you think about how Simon
got the Saudis to agree to this deal. It wasn't
by threatening military action against Saudi Arabia or sanctions against
Saudi Arabia. It was coming with carrots. It was showing
the Saudis what was in their interests in terms of
(12:39):
linking their financial system and their economy to the United States.
And so what I'm hoping happens is in the coming
weeks and months after this initial tariff barrage, that Trump
can actually move to the carrot and start actually finding
ways to incentivize other countries to cut deals with the
United States and move their economies closer to US, as
opposed to pushing them into the laps of the Chinese
(12:59):
c Comunist Party, which I fear is what will happen
if these tariffs remain in place indefinitely.
Speaker 2 (13:19):
One of the points that you make is that this
sustains the dollar. What would have happened if the Saudis
had decided that they were going to denominate in Swiss
francs or neuros or Chinese You wan me, how would
that have changed the world in the American situation.
Speaker 3 (13:35):
There's a few ways to answer it. I think on
a macro level, the petro dollar really became the lynchpin
of an overall dollarized global financial system. Back in the
nineteen seventies, you basically had a very tiny foreign exchange
market effectively didn't exist. Today, you've got something like seven
trillion dollars in turnover every single day in foreign exchange,
and ninety percent of those trades involved the dollar. And
(13:57):
so what that does is it gives the American government
this enormous leverage that we can threaten to cut other
countries off from the dollar. We can basically come and
if we need to resolve global financial crises by offering
swap lines. This is what's made the US Federal Reserve
kind of the center of the global financial system. And
then from just a domestic perspective, and there's a lot
(14:18):
of benefits. This is why many have called the dollars
role an exorbitant privilege. First of all, other countries, other governments,
other companies always have demand for dollars, really regardless of
the fiscal situation in the United States, and this is
what has enabled the United States to run budget deficits.
The other piece, and this actually is a bit of
a double edged sword, although I think the benefits outweigh
(14:39):
the costs. And this is another thing we can explore
because it's part of the rationale for some people in
the Trump administration to be seeking this so called Mara
Lago accord, which is that it makes the dollar more
valuable than it would be otherwise because normally the value
of your currency is just based on your terms of trade.
But because there's such a huge demand for American assets,
the dollar is stronger than would be based on just
(15:01):
our trading position. And so what that does on the
plus side is it means that every American has more
purchasing power than they would otherwise. Their salaries allow them
to buy more goods than they would if the dollar
were valued more cheaply. The downside of it, and the
thing that some people in the Trump administration don't like,
is it weakens the export competitiveness of certain sectors in
(15:21):
the United States. It makes their goods more expensive than
they would be on foreign markets. And so folks who
believe that we need to revive manufacturing in the United
States have often thought that we need to weaken the
value of the dollar. What I would say, though, is
weakening the value of the dollar would help a segment
of society, manufacturers who are trying to export on global markets,
but it would harm everyone because we're all paid in
(15:42):
dollars and so our paychecks would not go as far.
And so I think, ultimately, as you know better than anyone,
politics involves trade offs. There's no policy where everyone's a winner,
and so you've got to pick ultimately, what's your priority
and how many people you can help versus hurt with
a specific policy.
Speaker 2 (15:56):
As you look at the way the systems evolving right now,
how real is the danger that China could create an
alternative reserve currency.
Speaker 3 (16:06):
I think it's very real. What China has been doing
is they've been building effectively parallel infrastructure to the dollar
based system. After twenty fourteen, after we imposed sanctions on
Rusho for the annexation of Crimea, China started developing an
alternative to the SWIFT system, which is this financial messaging
system based in Brussels called CIPS, or the cross Border
(16:28):
Interbank Payment System. It started small, but it's been growing very,
very rapidly, and so I think the trajectory of growth
is such that if it keeps on growing at this pace,
eventually it will be not quite as large as Swift,
but a significant competitor. They've also done things like launch
a central bank digital currency, the digital RMB, which they
launched in twenty twenty. And of course the United States
does not have an answer to this. You know, there's
(16:49):
no digital dollar or anything that we've responded to. The
biggest impediment to the RMB actually challenging the dollar is
of course, China's own political systemitarian, unmoored to the rule
of law, arbitrary and with capital controls. Right, if you
have an investment in China, it's not clear that you'll
be able to get your money out. I think the
(17:10):
key for China would be are they willing to be
more predictable as a player. Are they willing to loosen
capital controls? I think if they were to be willing
to go in that direction, they would pose a threat
to the dollar. The thing I'd say, though, before I
pass it back to you, is that the R and
B isn't the only potential rival to the dollar. Right,
you also have the Euro, which in some ways has
many of the same benefits that the dollar has, and
(17:32):
that most people trust European courts. The Euro is a
freely convertible currency. There aren't capital controls on it. You
already have something like twenty percent of global foreign exchange
that's nominated in euros compared to sixty percent in dollars.
The biggest impediment for Europe, of course, has been that
they don't issue joint debt, right they don't have a
fiscal union. But right now with Europe really seriously pondering
(17:54):
a big rearmament program, and with a new chancellor in Germany,
it's possible that the Europeans could come around to join
debt ish tues. And I think that in some ways
could wind up posing a threat to the dollar in
the near term, more so than the Chinese R and B.
Speaker 2 (18:07):
The process that you're describing is compounded, I think by
the whole situation that Trump is doing with the tariffs.
In a sense, we're sort of rattling the whole system.
Speaker 3 (18:20):
I think that's right, and I think on the most
basic level, what the tariffs have done so far is
they've been really bad for American asset prices. Right the
stock market is down something like twenty five percent from
its peak in February, and so what that has done
is it's led asset managers to reallocate their investments from
the United States to other countries, to Europe actually number one.
(18:43):
And there's actually something that's very interesting that I believe
could be a Canarian the coal mine about the real
threat that we see to the dollar today, which is
that economic theory suggests that if you impose tariffs, your
currency actually should strengthen because Americans would have smaller demand
for foreign currency. But what we've seen is with all
these tariffs, the dollars actually weakened quite a bit. And
(19:04):
I think that's because of this loss of confidence in
the American market because of the tariffs. And then secondarily,
I think there's a fear around the world about Trump's
use of economic warfare. I think, no matter what Trump did,
because of honestly presidents dating back to George W. Bush
Obama Trump's first term, we're never going to get China
and Russia or Iran to feel comfortable relying on American
(19:27):
controlled economic systems.
Speaker 2 (19:29):
Right.
Speaker 3 (19:29):
We've declared them as our adversaries, and we've been waging
economic warfare against them now for years. But what is
new so far is really this economic warfare against everybody else, right,
against the Canada's, Mexicos, Europe's now even Vietnam, Japan, South Korea.
I think that's the thing that really risks a broader
referendum on the dollar. And that's why I'm hoping that
Trump ultimately views these tariffs more as negotiating leverage that
(19:52):
he can eventually peel back, as opposed to something that's
going to be a permanent feature of our world.
Speaker 2 (19:57):
In your mind, this is sort of a stage set
up rather than a permanent experience.
Speaker 3 (20:03):
I'm expressing my hope. We've heard a lot of goals
attached to the tariffs, right. We've heard the tariffs as
a potential revenue raiser, right, maybe as a way to
justify a new tax cut or extension of the original
tax cuts. We've heard as tariffs as a way to
protect American domestic manufacturing. And we've also heard of tariffs
as a way to get deals with foreign countries on
various issues, ranging from migration to lowering their own tariffs.
(20:27):
The thing is, these goals, many of them are at
cross purposes with one another. If you want tariffs to
incentivize American companies to invest in the United States and
onshore manufacturing, you've got to tell those companies that these
tariffs are going to be in place for decades, right,
or otherwise they're not going to shell out the investment
domestically to actually move manufacturing back to the United States.
But then that then undermines our negotiating leverage, because if
(20:50):
we've already committed to these tariffs being in place for decades,
how are we then going to incentivize foreign countries to
do what we want. So I'm expressing a hope you
would know, frankly better than me, might be in Trump's mind.
But so far we've seen that these are various goals
he has. There are different factions in the administration duking
it out, and I just hope that the deal maker
Trump triumphs over the protectionist Trump.
Speaker 2 (21:11):
In a world where people really want stability, we are
now guaranteeing them in a couple of years of pretty
amazing instability. I think I don't quite understand. On the
banking side, we're able to have an extraordinary level of
control over how people have transactions internationally.
Speaker 3 (21:32):
Yes, that's exactly right.
Speaker 1 (21:33):
And what's the practical effect of that?
Speaker 3 (21:36):
You know, my book is called choke Points because what
happened really in the nineteen nineties in the wake of
this hyper globalization. When you bring countries like China and
Russia and the countries in the former Soviet bloc into
global financial systems, into this dollar based financial system that
originates with Bill Simon's trip to Saudi Arabia in the
early seventies, what you get is a system where even
(21:59):
when two countries trade with each other. Let's say China
trading with Saudi Arabia, more often than not, that trade
is settled in US dollars, right, So when countries are
buying oil, no matter what their currency is, they're paying
the Saudis in the dollar. They're not paying in their
home currency. And if you think about it, just practically speaking,
think about all the currencies in the world, it wouldn't
make sense for a Saudi bank to hold every single
(22:21):
type of currency, right, So what banks do is they
tend to hold big stores of their own currency. So
in the Saudi case, the Saudi real and then the dollar,
and when they want to do business internationally, they'll take
the dollar and exchange that for the currency that they need.
It's basically the way I say it in my book,
is trying to do business internationally without access to the dollar,
it's kind of like traveling without access to a passport.
(22:44):
That's really the systemic significance of the dollar. And so
this key choke point. What it does is it allows
the president to say to a foreign bank, you know,
you don't have access to the dollar anymore, in which
case they're basically shut off from this global financial system.
So it is a tremendous lever that the president has
at his disposal. It's one that's worked tremendously well against
(23:07):
countries like Iran and Russia, and frankly, I think it's
a more effective geopolitical tool than, for instance, tariffs, which
wind up having broad based effects on Americans ourselves, right,
because all Americans wind up paying higher prices for goods
when you're using tariffs instead of financial sanctions, When you
(23:39):
have this.
Speaker 2 (23:40):
Kind of approach, to what extent can you actually coerce
countries just by economic pressure. I've been watching Trump recently
as he gets more frustrated with Putin, and he's trying
to talk about dramatically deepening and expanding the sanctions, which
I soon means in some way using the international banking
(24:00):
How would that work?
Speaker 3 (24:02):
People have asked, Well, Russia's economy is sort of muddling through,
they haven't fully collapsed. Doesn't this show that the sanctions
aren't as strong as we thought they were. The truth is,
the Russians are not sanctioned evasion magicians. They haven't come
out with this secret code that allows them to bypass
this dollar system. We've talked about. What happened was Frankly,
(24:23):
the United States fought this economic war since twenty twenty
two with one hand tied behind our back. Joe Biden
was unwilling ultimately to go after Russia's oil sales for
fear of worsening inflation domestically and potentially spiking prices at
the pump for Americans. And I understand why he had
this mentality. In twenty twenty two, you had oil prices
above one hundred dollars a barrel and inflation at a
(24:46):
four decade high, the highest it had been since a
Mount William Simon's time in the nineteen seventies. The thing is, though,
the situation is very different now. You know, inflation is
under control, oil prices are the lowest they've been in years.
There's something almost closer to sixty dollars a barrel all
the time that we're talking, and so there's quite a
bit of flexibility. I think Trump does have to crack
down on Russian oil sales. What would that look like?
(25:07):
It would mean threatening foreign buyers of Russian oil, be
they oil traders in places like Dubai or refineries and
places like China, with being cut off from the dollar
base system if they continue buying Russian oil. You'd have
to structure this cleverly. You couldn't ask them to go
to zero overnight, because Russia is a giant seller of oil.
(25:28):
They're selling like five million barrels of crude oil a day.
But what you could do is you could say that
you can only continue buying Russian oil if every three
to six months you're significantly reducing the amount of purchases
that you have. So you basically build a glide path
that over a six to twelve month period or an
eighteen month period, Russian oil sales have significantly dropped. And
(25:49):
I think the other benefit of creating that kind of
glide path is it also sends a market signal to
shale producers in places like my home state of Pennsylvania,
or Texas or Louisiana. They need to drill more oil
and basically have more product on global markets to compensate
for the loss of Russian exports. So I think there
is this formula where Trump could impose significant pressure on
(26:10):
Russia while also advancing his goal that he stated of
American energy dominance.
Speaker 2 (26:15):
That would be the kind of sophisticated economic strategy which
might well coerce putin because if they don't have oil sales,
they don't have anything. Their whole economy will grind to
a halt. But that does require a very tough minded
with India, with China, with others, convincing them that they
have to do this.
Speaker 3 (26:36):
It's not easy.
Speaker 1 (26:36):
Look.
Speaker 3 (26:37):
One of my early jobs in government, my first job
at the State Department after I moved over from Treasury,
is I was on the Iran sanctions team responsible for Asia.
So I had to go to places like Singapore and
Malaysia and talk to shipping companies and oil companies and
basically warn them that if they kept doing business with
Iran that we would cut them off from the US
financial system. And I know you've engaged with diplomacy. These
(26:59):
conversations are not the nicest conversations, right, and they're not
pleasant to have, and oftentimes countries don't like hearing it,
and so you better have a good reason. And I
think what helped us back in that period in twenty
twelve twenty thirteen, there are a couple things. First of all,
we had the backing of the US Congress. So US
Congress had imposed these sanctions with veto proof majorities, and
(27:20):
so I could credibly say as an American diplomat that
I'm here just implementing American law. I don't have a
choice whether or not to be here. So I think
there is a real, I think urgency for Congress to
get in the game, not just Trump. I think the
second thing we had at our disposal is we had
a viable strategy. We would say, look, we don't want
these sanctions to be in place indefinitely. We want a
(27:42):
nuclear deal. We're trying to do this so that we
can get a peaceful resolution to Iron's nuclear program that
doesn't involve going to war, and that was oftentimes persuasive.
So I think that in some ways the stars are
aligned right now for a similar strategy with Trump, where
Trump can credibly say that he wants to negotiate peace,
that he's willing to sort of sit down with Zelenski
(28:03):
and with Putin. But I think that he's going to
need significant leverage over Putin to get Putin to be serious,
because it's clear he's got leverage over Zelenski. He's used
that leverage in spades over the last couple months. But
what we don't have right now is enough leverage over
Putin to get him to take this diplomacy seriously.
Speaker 2 (28:19):
Given Putin's background as a KGB agent and the degree
to which he has passionately committed to a great Russia strategy,
do you think there's any level of economic pain that
was stop him?
Speaker 3 (28:30):
I mean, economic pain alone is always a tough sell, right,
But I think what you got to look at is
the overall situation that Putin is in right now, where
the war that he's fighting is not one that has
broad support in the Russian society. Yes, people will say
that they support the war, but do they want to
be drafted and put on the front lines in Ukraine?
Speaker 1 (28:50):
No?
Speaker 3 (28:51):
Do they want their kids to be drafted and put
on the front lines in Ukraine? No? Right, Russia's face
had hundreds of thousands of casualties. I mean, this has
been a catastrophe for Russia, and so there's pressure I
think from society in and of itself to potentially wind
down the war. What can economic pressure do? I think
what it will do is it will add another dimension
to that because so far Russia's economy has kind of
(29:13):
muddled through because of this enhanced military spending and kind
of moving into a military led economy that Putin has
done over the last few years. But if all of
a sudden you get into hyperinflation territory and a substantial
recession in Russia, I do think there would be some
pressure from society that Putin would have to respond to.
And I think this is another important point about sanctions,
(29:35):
and it's an unfortunate reality, is that governments that have
no accountability whatsoever can be quite hard to get them
to change their policies. And that's why I think sanctions
have not worked well against you know, North Korea for instance,
or Cuba. But the Russian people, while yes they're living
in an authoritarian state right now, you know, they did
get used to relatively high standards of living and Putin
(29:57):
was able to really ossify his control over Russia in
the early two thousands because standards of living were going up,
the Russian economy was doing better than it was in
the nineteen nineties. I think if that progress is rapidly undone,
I do think he'll feel some pressure both from below
and frankly from people in his inner circle to change course.
Speaker 2 (30:14):
It's a fascinating situation because the truth is that all
of these leaders, whether it's Jijinping or it's putin. In
both of those cases, popular support matters, and I have
a hunch that Hamani the Ayatola also is very worried
about the larger Iranian.
Speaker 1 (30:32):
Population and whether or not in fact they're.
Speaker 2 (30:35):
About No, I don't think when you get to say
to a North Korea that it has the same effect,
or for that matter, of Cuba, because of their very
effective police states and they're very willing to be radically coercive.
But originally it was one of those people who thought
that Young Chopeg's Southern tour talking about the need for
market economies was actually a first step towards opening up
(30:56):
Chinese society. That was embarrassed to realize that. Actually Dun
Chopeg was one of the fourteen founding members of the
Chinese Communist Party in Powis during World War One, went
to Lenin University in Moscow for a year and is
a hardcore, totally dedicated Leninist, And what he was actually
saying was we need to have a market economy so
(31:18):
we're doing well enough that they.
Speaker 1 (31:20):
Won't throw us out.
Speaker 2 (31:21):
It was actually a step towards consolidating the dictatorship, not reforming.
It's one of the reasons I had to really rethink
a lot of what we were doing. I don't sense
that you have the kind of party structure in Russia
that you have in China. That's a very very different environment.
Speaker 3 (31:37):
Yeah, the Russian system is more personalist. It's sort of
more rooted in the Russian intelligence services and Putin's own
roots in the KGB, you know, the government itself, and
the most powerful people are really what I would call
Putin loyalists or Putin cronies. There are people that he
is personally inserted in those roles. There are people who
would not be within one thousand miles of power if
it weren't for being Putin's childhood Judo part or or
(32:00):
something like that. I don't think that we should get
giddy right and think that, oh, sanctions are going to
cause regime change in Russia. I don't think that's plausible.
I think what economic pressure can do is it can
put pressure on Putin and give him a reason to
actually cut a deal, because, look, you know, in some
ways Putin's already has in some ways what he wanted
in twenty fourteen, which is he's got a land bridge
(32:22):
to crimea right they took Mariupol. They've connected the Crimean
peninsula by land to Russia. He does not control all
of the oblast that he has claimed to annex, but
you know, would he be willing to back out of
those and claim victory. I think he probably could claim
victory to the Russian people. I don't think if he
were to stop now give up some of the territory
he's conquered, but then also get to keep things like
(32:43):
Crimea and parts of the Dunboss, I don't think the
Russian people would revolt. I think it's more likely that
the Russian people revolt if you draft another one hundred
thousand Russians and send him to fight and die in Ukraine. Meanwhile,
while their standard of living is collapsing under oil sanctions
that I hope the Trump administration will consider implementing.
Speaker 2 (33:01):
I think that the Trump team is very serious about
getting Putin's attention. They've been patient, they've been pleasant, because
that's a negotiating style, But down deep, they're very very
serious about getting his attention.
Speaker 3 (33:13):
Music to my ears and look, I've heard comments from
top Trump officials like Scott Besson, for instance, that do
make me sanguine about the possibility of doing things like
oil sanctions. If you look at Mike Waltz's writing before
he became the National Security Advisor, or Marco Rubio's comments
when he was in the Senate, they suggest that those
people would be in favor of these types of sanctions.
(33:33):
I think the real question is is Trump on board.
The thing it's interesting is you may have seen this.
There's a new Senate bill. It's got I think fifty
co sponsors already. I think half Republicans, half Democrats that
would put very aggressive secondary oil sanctions on Russia. And
so what I'm going to be looking for in the
coming days and weeks is what's the White House's perspective
(33:53):
on this bill. Is this something that they are going
to fight tooth and nail, in which case I doubt
it goes anywhere because the Speaker Johnson is not going
to let it see the light of day. Or is
it something that they see as hey, this is our
chance to have a real bad cop, you know, to
allow Congress to step up and post some serious sanctions
and then give our diplomats some real leverage with Putin
at the negotiating table.
Speaker 1 (34:13):
Edward, I want to thank you for joining me.
Speaker 2 (34:16):
Your new book, Choke Points American Power in the Age
of Economic Warfare is available now on Amazon and in
bookstores everywhere. It is a very relevant book to exactly
what we're doing right now, and I recommend that every
citizen get a copy and read it. And I really
appreciate you helping educate us.
Speaker 3 (34:33):
Thanks so much for having me on the show. I
really enjoyed our conversation.
Speaker 2 (34:39):
Thank you to my guest, Edward Fishman. You can get
a link to buy his new book, Choke Points American
Power in the Age of Economic Warfare on our show
page at newtsworld dot com. News World is produced by
gengishree sixty and iHeartMedia. Our executive producer is Guarnci Sloan.
Our researcher is Rachel Peterson. Art work for the show
was created by Steve Special Thanks to.
Speaker 1 (35:01):
The team at Gingwish three sixty.
Speaker 2 (35:03):
If you've been enjoying newts World, I hope you'll go
to Apple Podcast and both rate us with five stars
and give us a review so others can learn what
it's all about. Right now, listeners of newts World can
sign up for my three free weekly columns at Gingwishtree
sixty dot com slash newsletter.
Speaker 1 (35:20):
I'm newt Gingriish. This is Newtsworld.
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