Underground Empire: How America Weaponized the World Economy, Henry Farrell and Abraham Newman, Allen Lane, £25

In the aftermath of Hamas’ attack on Israel, one immediate focus of many American leaders was a seemingly extraneous issue: the status of Iranian oil revenues in South Korean banks. After withdrawing from the Iran nuclear deal in 2018, President Donald Trump re-imposed so-called ‘secondary sanctions’, targeting non-US entities that transact with specific Iranian sectors. Running afoul of US sanctions poses an existential risk to financial institutions – continued access to dollars is an imperative – so the funds were stuck in place. In September, the US had reached a deal to issue a waiver for the funds, allowing them to be released for the purchase of humanitarian goods in exchange for the liberation of several American hostages, but, citing Tehran’s support for Hamas on 10 October, Deputy Treasury Secretary Wally Adeyemo said the money would now not be ‘going anywhere anytime soon’. Underneath this policy debate was a raw demonstration of how the US had the capacity, at a moment’s notice, to decide whether to permit or suspend international commerce with which it had ostensibly no connection.

How the US came to possess and wield such unprecedented and unrivalled geo-economic power is the story that Henry Farrell and Abraham Newman tell in Underground Empire. It serves as both an essential account of contemporary financial and technological globalisation and hard geopolitics — indeed, its proposition is that the two are inextricably linked.

Farrell and Newman’s central thesis is that the infrastructure underpinning globalisation — international payments systems and financial messaging, communications networks, high-tech supply chains— has been increasingly appropriated by the United States as a tool of coercion. It is not novel to assert that geopolitical power derives from economic might. Rather, the authors’ substantial contribution comes from their observation regarding the networked nature of America’s ‘underground empire’ and the unique power it affords. They are not concerned with general trade or capital flows and industrial capacity. Instead, they focus on the ways in which the US wields authority over key nodes of the networks through which global communications, finance and technology move.

Farrell and Newman take the reader on a sprawling tour of the often-ignored plumbing of the global economy, showing how control over this infrastructure has become a core element of American statecraft. They demonstrate how the much-debated US surveillance capacities depend not only on the maximisation of the government’s legal authorities, but also the basic fact that many global communications networks physically transit or land in the US, enabling easy access for the intelligence community. These networks function as a panopticon in which vast amounts of foreign-to-foreign communications are ultimately subject to American jurisdiction and collection. The authors carefully trace how the dollar’s indispensable role in international trade and finance allows American sanctions to have truly global effects. The US’s unmatched financial unipolarity enables it to impose costs, extract concessions, and reroute capital flows.

Similarly, the proliferation of sweeping US export controls (which restrict particular technologies from being sold to specific countries or companies) has turned US hi-tech into another choke point. The US has attempted to use these powers to limit certain American exports from being shipped to companies such as Huawei, as well as to international companies, controlling sales of foreign-made items that are still direct products of US technology inputs. Companies such as Taiwan Semiconductor Manufacturing Corporation (the world’s dominant chip manufacturer) have been required to obtain US licenses to sell certain semiconductors to Huawei because they were made with US technology. Across these examples, Farrell and Newman show how the US is able to act as an unavoidable regulatory tollbooth on the highways of international commerce. In doing so, they reshape the reader’s mental model of the global economy to resemble an airline’s flight route map – vast amounts of activity channelled via specific routes and through particular hubs which the US dominates.

Farrell and Newman outline this unique source of American hegemony and portray how it has rapidly become a core tool of foreign policy. They connect disparate headlines – semiconductor ‘chip wars‘ and ‘de-risking‘, mass surveillance, sanctions and de-dollarisation, TikTok and Huawei – into a larger cohesive story about how the competition over the ‘underground empire’ has become a prominent arena of international rivalry.

Among the book’s most revealing points is that the US’s control of the myriad ‘subterranean’ webs powering the international economy was not deliberately cultivated. It was an accidental consequence of private sector-driven globalisation, rather than a White House strategy document. Farrell and Newman recount how the development of the international economic networks which the US would come to ‘weaponise’ – from telecommunications to financial messaging – was led by quixotic, libertarian titans of industry who believed they were building a world of diminished state power. The internet was ‘not supposed to have hubs or bull’s-eyes’, while the internationalisation of supply chains and finance were similarly thought to have a decentralising effect. Instead, the globalised economy generated a ‘system of tunnels and conduits that the US could move into and adapt as easily as if it had been custom-designed.’

Farrell and Newman show how the US government itself has only gradually developed an awareness of the strategic potential of its ‘underground empire’. The book is about a unique (perhaps singular) dynamic in international politics – a hegemon progressively discovering and exercising an unequalled source of global power.

The authors’ portrayal of the compounding intensity of American sanctions policy provides an instructive example. In the frantic search for counterterrorism tools after 9/11, the Treasury Department was tasked with disrupting terrorist financing. Soon after, its financial crosshairs were directed at disrupting North Korea’s nuclear programme. According to the authors, no one expected these actions against bit players in the international economy to serve as a playbook against more significant rivals. Soon after, the Treasury Department would methodically cut out Iran from the global financial system to bring it to the nuclear negotiating table, a success that reportedly earned them President Obama’s affection as his favourite combatant command. The Iran sanctions seemed at the time to bump ‘against the ceiling of the possible’, but instead became the ‘floor on which even more ambitious’ programmes – namely, the sprawling sanctions placed on Russia after its invasion of Ukraine – have been constructed. Farrell and Newman conclude that American policymakers, searching for tools to ‘deal with one damn problem after another’, inadvertently found they could turn economic interdependence into a mechanism of coercion.

Farrell and Newman’s model of an ‘underground empire’ is an abnormal form of geopolitical power because it is entirely intermediated by private companies. Unlike military actions directly executed by the state, communications service providers, financial institutions, and technology companies serve as conduits through which the US exercises control by regulatory dictates. Many of these companies were founded under panglossian assumptions that geopolitics had been rendered an anachronism, that the world was ‘flat’. TSMC, for example, benefitted from a world where ‘national security strategists paid no attention to it’. Now, the company’s dominance in semiconductor manufacturing has become a chokepoint that the US can exploit, using far-reaching export controls to halt it from exporting the most advanced chips to China without US permission.

It is within this context of US-China tensions that Farrell and Newman turn from their sweeping narrative to policy prescriptions. The authors describe how the relationship has become more confrontational, in part, because of US concerns regarding China’s ambitions to develop its own control of economic and technological infrastructure – most notably represented by Huawei’s sectoral dominance in telecommunications equipment. Both the Trump and Biden administrations have seen ‘economic warfare’ as the primary response to resurgent great power competition.

Farrell and Newman express alarm that this economic confrontation of China, executed through control of technological and financial chokepoints, might lead to a dangerous escalatory spiral. More simply, when the global economy’s basic infrastructure becomes a primary mechanism through which international powers confront each other, everything becomes a point of leverage and national security risk. Analogising to the Cold War’s nuclear arms race, they argue that a new ‘dynamic of mutual fear’ in US-China relations threaten to bring an ever-widening set of companies, countries, and technologies into a ‘frozen conflict between armed and hostile camps’.

Farrell and Newman highlight the dramatic uncertainty in how China will react to the US’s actions – whether by acquiescing and reducing its exposure to American chokepoints, retaliating via its own leverage points (which we are already seeing in its recent controls on graphite exports), or perhaps even turning towards military aggression. Citing John Lewis Gaddis’ work, Farrell and Newman point out that it might have been the absence of economic ties, and accompanying friction points, that kept the Cold War from going hot. The reader is left wondering whether this observation of peace through ‘independence, not interdependence’ means that China reducing its exposure to the American ‘underground empire’ paradoxically might have a stabilising effect on deteriorating bilateral relations. If interdependence drives insecurity-driven spirals of escalation, then perhaps some amount of fragmentation and ‘de-risking’ offers a potential off-ramp.

While the Cold War arms race analogy is perhaps excessively stretched, the authors identify the central strategic challenge that the US faces: how to navigate intense great power rivalry in a world of dense economic connectivity. Both the US’s recent adoption of a more adversarial posture towards China (and Russia) and its increased willingness to use the economic tools that Farrell and Newman describe in the book are downstream of a common phenomenon that the authors omit: the failure of the US’s sanguine assumptions that global economic connectivity would necessarily lead to the liberalisation of competitors.

Farrell and Newman portray America’s weaponisation of globalisation’s networks as embodying the death of a dominant intellectual and strategic model predicated on an idea that ever-closer international economic and technological ties would have a pacifying effect. They quote German Chancellor Olaf Scholz, who laments the notion that ‘economic ties and mutual dependence would foster stability and security’. The mechanism by which globalisation was meant to deliver this security and stability was through its supposedly inexorable liberalising effects.

Interdependence was not merely supposed to generate incentives to avoid conflict among trading partners, it was meant to produce domestic political change. The project of deliberately enmeshing China (and Russia) into the international economy has not had this outcome – just the opposite. Beijing and Moscow have descended into heightened authoritarianism at home and sharply revisionist foreign policies abroad. China in particular has challenged fundamental assumptions in Washington by achieving robust growth and becoming a more central actor in the global economy without any underlying political liberalisation. It is within this context that the US escalated from weaponising its ‘underground empire’ against terrorist groups and rogue states to UN Security Council members.

The recognition that economic interdependence failed to achieve some of its foreign policy objectives has become a rare point of consensus in Washington. For example, top Biden administration officials wrote in 2018 (while outside government): ‘commercial engagement [has] not brought political… openness’ to China, which necessitated a ‘clear-eyed re-thinking’ of the US’s approach to Beijing, mirroring the Trump administration’s framing in its 2017 National Security Strategy. The rapid shattering of this elite consensus underlies the US’ increasing willingness to exercise the coercive economic power the authors depict – despite the risks of upsetting allies, provoking counterbalancing, and creating fissures in the global economy, or even escalation to military confrontation. To many US policymakers, the old equilibrium felt just as unsustainable; they are wielding the tools Farrell and Newman describe as they search for a new one.

The authors also astutely point out that the US is frequently flying blind here, which is perhaps the most dangerous element of the present moment. They highlight the critical role of conceptual frameworks from researchers such as Thomas Schelling, who popularised modern nuclear deterrence theory, in guiding policymakers during the Cold War. Whether in academia or the halls of Washington, few frameworks have emerged to steer the exercise of the ‘underground empire’. Inside the government, this is exacerbated by the fact that the tools Farrell and Newman describe are wielded in Washington by a highly disparate set of bureaucracies, which in turn are vastly under-resourced in proportion to their growing importance. They argue that this institutional design, combined with the paucity of relevant research, contributes to an acute absence of any overarching strategic doctrine.

Underground Empire will serve as a foundational text because it does the hard work of charting the basic contours of the era of weaponised interdependence, a phrase the authors themselves fashioned in their 2019 article upon which the book builds. Farrell and Newman shine an overdue light on the vexing problems raised by competition amid connectivity, issues whose resolution will shape the course of the 21st century.