Chapter 10: The Future of Economic Coercion
Executive Summary
In March 2023, China and Brazil announced bilateral trade settlement in yuan and reais, bypassing the U.S. dollar for transactions worth tens of billions annually. Within months, similar announcements followed: Russia and China expanding yuan-ruble trade to circumvent sanctions, Saudi Arabia accepting yuan for oil sales, ASEAN countries establishing local currency settlement mechanisms. Individually, each announcement represented modest shifts—bilateral trade between specific partners, limited commodity categories. Collectively, they signaled accelerating de-dollarization: gradual erosion of the dollar's monopoly as global reserve currency and medium of exchange (Farrell and Newman 2019). American policymakers faced uncomfortable questions: Would weaponizing dollar dominance through sanctions ultimately destroy the source of that power? Could alternative payment systems (China's CIPS, cryptocurrency, central bank digital currencies) provide viable substitutes? How long would the dollar's "exorbitant privilege" persist if adversaries and even allies systematically reduced dollar dependence? The dollar's power was like a loaded gun: you could use it, but every shot reminded everyone else to find their own weapons.
This is the paradox of economic statecraft: every weapon, once used, teaches adversaries how to defend against it. Financial sanctions excluding Russia from SWIFT and freezing $300+ billion in reserves demonstrated American power—and accelerated Chinese, Russian, Indian, and Brazilian efforts to build alternative financial infrastructure. Export controls degrading adversary capabilities spur indigenous innovation. Investment screening blocks technology access but fragments the global markets that enriched Western economies. The tools of strategic competition undermine the very system that made the West powerful enough to wield them.
What happens next? Projecting forward to 2035-2050, the trends point in unsettling directions.
First, current trends point toward increasing economic fragmentation—partial decoupling between rival blocs, parallel technological ecosystems, competing financial architectures—rather than complete autarky or renewed integration. Full decoupling is economically prohibitive: even hostile powers maintain trade in non-strategic sectors (China-U.S. bilateral goods trade remains approximately $575-580 billion annually, down from the 2022 peak of $690 billion, despite tensions), and global supply chains resist comprehensive restructuring. But selective decoupling accelerates: semiconductors, AI, biotechnology, critical minerals face strategic controls; financial systems develop redundancies; standards and protocols diverge. The resulting "partially fragmented globalization" combines sectoral decoupling (strategic domains) with continued integration (commodity trade, consumer goods) forcing firms and policymakers to manage operations across bifurcated markets.
Second, emerging technologies—artificial intelligence, quantum computing, biotechnology, clean energy, space systems—will become central battlegrounds for strategic competition, with economic coercion tools adapted to control technology diffusion. Unlike semiconductors (where chokepoints concentrate in specific equipment and materials), AI development distributes across talent, algorithms, data, and computing infrastructure. Quantum computing remains early-stage, with uncertain timelines for practical applications but potentially revolutionary implications for cryptography, optimization, and sensing. Biotechnology advancements (CRISPR gene editing, synthetic biology, personalized medicine) create dual-use capabilities with economic and security dimensions. Each technology requires tailored coercion strategies: talent restrictions for AI, specialized equipment controls for quantum, data sovereignty for biotech. Yet technology's rapid evolution, diffusion speed, and software-centricity resist traditional export controls designed for physical goods.
Third, alliance structures will prove decisive in determining economic statecraft effectiveness, with competition between U.S.-led networks and alternative coalitions shaping global economic governance. The post-1945 order presumed Western economic dominance enabling rule-setting: IMF/World Bank governing finance, WTO managing trade, dollar-denominated transactions, English-language internet protocols. China's rise, Russia's resistance, and Global South agency challenge this structure. Alternative institutions (AIIB, BRICS New Development Bank, SCO) provide parallel financial infrastructure. Digital currencies and payment systems (e-CNY, cryptocurrencies, bilateral settlement) reduce dollar dependence. Technology standards competition (5G, AI governance, internet protocols) fragments global systems. The future likely features competing economic blocs with varying degrees of integration, overlap, and conflict—multipolar economic order replacing unipolar Western dominance.
Future economic statecraft will operate in an environment shaped by decisions made today. Weaponizing interdependence through sanctions, export controls, and investment restrictions yields short-term advantages but risks fragmenting the integrated global economy that generated Western prosperity. We are sawing off the branch we're sitting on, confident that we'll land on our feet. Managing this trade-off—maintaining competitive advantages while preserving beneficial integration—represents the central challenge for policymakers over the next three decades of strategic competition. Get it right, and managed rivalry becomes the foundation for a stable, if tense, world order. Get it wrong, and the edifice of globalization collapses, taking much of our prosperity with it.
De-Dollarization and the Future of Financial Architecture
The U.S. dollar's role as global reserve currency and dominant medium of exchange provides "exorbitant privilege": Americans borrow cheaply (foreign demand for dollar assets lowers U.S. interest rates), purchase imports through dollars printed domestically, and wield financial sanctions excluding adversaries from dollar-denominated systems. This privilege depends on network effects (more users increase utility), path dependency (existing dollar infrastructure creates inertia), and confidence (dollar perceived as safe store of value). Yet dollar weaponization through financial sanctions, combined with emerging alternatives, creates de-dollarization pressures that could fundamentally reshape global financial architecture by 2035-2050.
Dollar Privilege and Its Vulnerabilities
Current Dollar Dominance
As of 2024, the dollar's dominance spans every dimension of international finance. It comprises approximately 58% of global foreign exchange reserves, down from 71% in 2000 (IMF COFER 2024), and roughly 50% of cross-border trade is invoiced in dollars, including approximately 80% of oil transactions. The dollar's role in foreign exchange markets is even more pronounced, representing roughly 90% of currency transactions globally. Over 60% of international bonds and loans are denominated in dollars, and approximately 42% of SWIFT international payment messages involve the currency.
This dominance provides U.S. with:
Seigniorage: Profit from printing currency used globally
Cheap borrowing: Foreign demand for Treasury bonds lowers U.S. government borrowing costs (~0.3-0.5% interest rate reduction estimated, saving hundreds of billions annually)
Financial sanctions power: Ability to exclude adversaries from dollar systems imposes severe costs (Chapter 7 analysis)
Vulnerabilities and Risks
Dollar privilege faces erosion pressures:
1. Sanctions overuse risks credibility
Every use of financial sanctions demonstrates dollar vulnerability, incentivizing adversaries and even neutral parties to reduce dollar exposure:
Russia (post-2014 and especially post-2022) accelerated de-dollarization, reducing dollar reserves from 40% (2018) to 10% (2024)
China diversified reserves, though dollar still represents estimated 60% (exact composition undisclosed)
Even allies (France, Germany) expressed concerns about dollar weaponization following extraterritorial Iran sanctions
2. Alternative payment systems emerging
Technology enables competing infrastructure:
CIPS (China Cross-Border Interbank Payment System): Yuan-denominated payment system processing approximately $24 trillion annually (RMB 175 trillion in 2024), with 40-43% year-on-year growth, though still relying on SWIFT messaging for over 80% of transactions (PBOC 2025)
SPFS (Russia System for Transfer of Financial Messages): Russian SWIFT alternative, limited international adoption but functional
Cryptocurrency and stablecoins: Decentralized alternatives avoiding state control, though volatile and limited in scale
Central Bank Digital Currencies (CBDCs): Over 130 countries exploring or piloting, with China's e-CNY furthest advanced
3. Geopolitical fragmentation
U.S.-China competition creates incentives for dollar alternatives:
China promotes yuan internationalization through Belt and Road Initiative, yuan-denominated oil futures (Shanghai), bilateral swap lines
BRICS exploring common currency or settlement mechanisms
Local currency settlements (yuan-ruble, yuan-real) bypass dollars
De-Dollarization Trajectories
Pathway 1: Gradual Erosion (Baseline Scenario)
Dollar share declines slowly (1-2% annually) through incremental shifts:
Central banks diversify reserves toward euro, yuan, gold
Bilateral trade increasingly settles in local currencies
Regional payment systems handle intra-regional transactions
Timeline: Dollar drops from 60% of reserves (2024) to 45-50% (2035) to 35-40% (2050)
Implications:
U.S. borrows slightly more expensively but remains privileged
Financial sanctions retain power but face greater circumvention
Multipolar currency system emerges with dollar as first among equals
Pathway 2: Crisis-Accelerated Fragmentation
Major crisis (Taiwan conflict, broader U.S.-China confrontation, global financial panic) triggers sudden dollar rejection:
China dumps Treasury holdings (~$850 billion as of 2024) or restricts yuan-dollar conversion
Oil exporters accept yuan/euros for crude, ending petrodollar
Coordinated shift by BRICS+ away from dollar trade
Timeline: Sharp decline within 5-10 years of crisis, dollar falling to 30-35% of reserves by 2035
Implications:
U.S. interest rates spike, borrowing costs surge
Financial sanctions lose much effectiveness as alternative systems mature
Global financial instability during transition
Permanent reduction in American economic coercion capabilities
Pathway 3: Technology-Driven Displacement
Digital currencies (CBDCs, cryptocurrencies) displace dollar through superior technology:
E-yuan achieves critical mass in Belt and Road countries, offering instant settlement, lower transaction costs
Cryptocurrency-based systems enable sanctions evasion at scale
Programmable currencies with embedded compliance replace traditional banking
Timeline: Gradual acceleration as technology matures, significant shift by 2040-2050
Implications:
Dollar retains safe-haven status but loses transaction dominance
Financial surveillance (tracking transactions) becomes harder
New regulatory challenges for controlling capital flows
Most Likely Scenario: Gradual Erosion with Periodic Acceleration
Baseline expectation combines slow structural decline with crisis-driven jumps. Major events (financial sanctions expansions, geopolitical crises) temporarily accelerate de-dollarization, followed by stabilization. By 2050:
Dollar: 35-45% of reserves (vs. 60% today)
Yuan: 15-20% (vs. ~3% today)
Euro: 20-25% (vs. ~20% today)
Other (gold, SDRs, digital currencies): 15-20%
The 2050 Currency Projection If current trends continue, the global reserve currency landscape in 2050 will look fundamentally different from today. The dollar won't collapse—but it will share the stage. A multipolar currency system with the dollar at 35-45% of reserves (down from 60% today) means the U.S. retains significant privilege but cannot unilaterally dictate global financial terms. Sanctions will require genuine multilateral coalitions to be effective. The era of American financial hegemony is ending; the question is whether it ends gradually and manageably, or suddenly and chaotically.
Implications for Financial Sanctions
De-dollarization doesn't eliminate U.S. financial sanctions power but constrains it:
Reduced scope: Countries with diversified reserves and alternative payment access less vulnerable to dollar cutoff. Russia post-2022 demonstrates adaptation: bilateral yuan-ruble trade, gold settlements, cryptocurrency use sustained economic activity despite SWIFT exclusion.
Slower impact: Targets can delay adjustment costs by using alternatives, reducing sanctions' immediate bite.
Allied coordination more critical: If dollar alone insufficient, coordinating euro, yen, pound exclusions becomes necessary—requiring diplomatic effort, increasing defection risks.
Sectoral limitations: Financial sanctions may retain effectiveness in specific domains (cutting off high-tech firms needing Western capital markets) while losing power over commodity trade (payable in yuan/rupees).
Strategic trade-off: Aggressive sanctions hasten de-dollarization, gradually eroding future sanctions power. Restraint preserves privilege longer but foregoes near-term coercion. Managing this trade-off requires:
Targeting: Focus sanctions on highest-priority objectives, avoid overuse
Multilateralization: Coordinate with allies so sanctions don't rely solely on dollar
Alternatives: Develop non-financial coercion tools (technology restrictions, trade controls)
Adaptation: Accept that financial sanctions will prove less effective over time, plan accordingly
Climate, Resources, and the Security Nexus
Climate change is reshaping the conditions for economic coercion. It alters resource availability and geographic distribution, creates new dependencies (critical minerals for clean energy), generates humanitarian crises exploitable for coercive purposes, and changes strategic calculations about long-term competition. Economic statecraft in 2035-2050 will increasingly intersect with climate adaptation, resource scarcity, and energy transitions.
Critical Minerals and Clean Energy Dependencies
The Green Transition's Material Requirements
Decarbonization requires massive increases in specific mineral production (IEA 2021):
Lithium (EV batteries, grid storage):
Current production: ~130,000 tons/year (2024)
Required by 2050: 2-3 million tons/year
Major sources: Australia (50%), Chile (25%), China (15% production but 60% processing)
Cobalt (battery cathodes):
Current: ~200,000 tons/year
Required 2050: 500,000-700,000 tons
Sources: DRC (70%), Russia/China (25% combined)
Rare earths (wind turbine magnets, EV motors):
Already stressed supply (Chapter 2, Chapter 9 rare earth case)
China: 85% of processing, 60% of mining
Nickel, copper, graphite, manganese: All require 2-5x production increases
New Dependencies Replace Old
Transitioning from fossil fuels to renewables doesn't eliminate strategic dependencies—it relocates them. We trade the oil sheikhs for the lithium barons:
Geographic concentration: Critical mineral processing even more concentrated than oil production (OPEC produced ~40% of oil; China processes 60-85% of key minerals)
Refining chokepoints: Mining dispersed globally but processing concentrated in China due to economies of scale, environmental externalization, integrated supply chains
Technology dependencies: Battery manufacturing, solar panel production, wind turbine assembly concentrated in China (60-80% global market share)
Trading Oil Sheikhs for Lithium Barons The green energy transition doesn't end resource-based strategic vulnerabilities—it transforms them. China's dominance of critical mineral processing (60-85% of lithium, cobalt, rare earths) exceeds OPEC's historical control of oil (40%). The 1970s oil shocks demonstrated how resource concentration enables coercion. The 2010 rare earth embargo (Chapter 9) previewed what's possible. Unless the West builds alternative processing capacity—a costly, environmentally challenging, decade-long project—the clean energy future runs through Beijing.
Strategic Implications
1. China's structural advantage: Controlling critical mineral processing provides leverage analogous to OPEC oil leverage (1970s). China can restrict exports (2010 rare earths precedent) or mandate downstream manufacturing (processing in China before export).
2. Western vulnerabilities: U.S. and Europe dependent on Chinese supply chains for climate transition face trade-off: accelerate decarbonization (increasing Chinese dependence) or slow transition (missing climate targets, maintaining fossil fuel dependencies).
3. "Green OPEC" potential: Countries with lithium, cobalt, nickel reserves (Chile, Argentina, Indonesia, DRC, Australia) could coordinate supply restrictions, extracting economic and political concessions.
4. Resource nationalism: Developing countries increasingly demand local processing, technology transfer, equity stakes rather than accepting extraction-only arrangements. Bolivia, Chile, Argentina coordinate lithium strategies; Indonesia banned nickel ore exports forcing domestic processing.
Mitigation Strategies
Western nations are pursuing diversification through investments in alternative mining in the United States, Canada, and Australia, along with expanded processing capacity. Recycling offers a complementary pathway, with battery recycling projected to provide 25-30% of lithium and cobalt needs by 2040, reducing virgin material requirements. Technology substitution—including sodium-ion batteries, rare-earth-free motors, and alternative chemistries—could further diminish dependence on concentrated supply sources. Governments are also stockpiling critical minerals as strategic reserves, and friend-shoring efforts aim to develop supply chains through allied countries such as Australia, Canada, Chile, and Peru.
Water Scarcity and Agricultural Leverage
Projected Water Stress
By 2040-2050:
5 billion people (>50% of global population) projected to face water scarcity at least one month annually
Transboundary river disputes: Over 260 rivers cross international borders; water stress increases conflict risks
Agricultural impacts: Water scarcity reduces crop yields, threatening food security in water-stressed regions
Strategic Waterways and Leverage
Upstream control provides coercive leverage:
Nile: Ethiopia's Grand Renaissance Dam gives upstream control over water flows to Egypt/Sudan (90% of Egypt's water from Nile). Ethiopia can reduce flow, threatening Egyptian agriculture and drinking water. Egypt threatened military action; ongoing negotiations.
Mekong: China's upstream dams control flow to Vietnam, Thailand, Laos, Cambodia. Chinese dam operations (water retention, sudden releases) cause downstream flooding, droughts. Potential coercive tool in regional disputes.
Tigris-Euphrates: Turkey controls flows to Syria and Iraq through dam construction. Used as leverage in past conflicts.
The Ultimate Chokepoint: Upstream Dam Leverage Water is the one resource with no substitute. A country controlling upstream water flows holds existential leverage over downstream neighbors. Ethiopia's Grand Renaissance Dam could reduce Egypt's water supply by up to 25% during filling—threatening food production for 100 million people. China's Mekong dams already cause droughts and floods in Vietnam, Thailand, Laos, and Cambodia. Unlike oil (which has alternatives) or semiconductors (which can eventually be produced elsewhere), water leverage cannot be circumvented. When water becomes weapon, the consequences can be measured in famines.
Agricultural Dependencies
Water scarcity concentrates agricultural production in water-rich regions, creating food dependencies:
Grain exporters dominance: U.S., Russia, Ukraine, Canada, Australia, Brazil, Argentina account for ~80% of wheat, corn, soy exports. Climate change may consolidate further (higher latitudes benefit from warming; tropical regions suffer).
Food import dependencies: Middle East, North Africa, Sub-Saharan Africa increasingly import grain. Disruptions (Russia-Ukraine war, export restrictions) cause price spikes, political instability.
Coercive potential: Grain exporters can restrict sales (Russia 2022 grain deal, U.S. 1980 grain embargo precedent) imposing costs on import-dependent countries.
Climate-Driven Migration and Hybrid Coercion
Climate Migration Projections
World Bank estimates 216 million internal climate migrants by 2050 (baseline scenario, World Bank 2021) due to:
Sea level rise displacing coastal populations (Bangladesh, Pacific islands, coastal cities)
Agricultural failure in water-stressed, heat-affected regions
Extreme weather events (hurricanes, floods, droughts) increasing frequency/severity
Cross-border climate migration could reach tens of millions, concentrated in:
Central America → United States
Sub-Saharan Africa → Europe
South Asia → Middle East, Southeast Asia
Southeast Asia → Australia
Weaponized Migration (Chapter 9 analysis extended)
Climate migration creates coercive opportunities:
1. Sending refugees: States can facilitate or prevent refugee flows, using border control as leverage (Turkey-EU model applied to climate migrants).
2. Domestic backlash: Large-scale migration provokes political instability in receiving countries (anti-immigrant populism, welfare costs, cultural tensions), weakening adversaries indirectly.
3. Demographic manipulation: Directing refugee flows to specific regions alters demographics, creating ethnic tensions or political shifts.
4. Humanitarian blackmail: Threatening to release refugee flows unless receiving economic concessions, policy changes.
Countermeasures: Border security investments, regional burden-sharing agreements, addressing root causes (climate adaptation funding), managed migration systems.
Emerging Technologies and Strategic Competition
Artificial intelligence, quantum computing, biotechnology, and space systems represent future technological frontiers where strategic competition will intensify. Unlike historical technology races (nuclear weapons, semiconductors) with relatively clear milestones and state-dominated development, emerging technologies feature:
Diffuse development: Private firms, universities, startups alongside government programs
Dual-use applications: Commercial and military uses intertwined
Rapid evolution: Faster innovation cycles than traditional hardware
Global talent pools: Success depends on attracting international scientists, engineers
Economic coercion tools must adapt to control these technologies' strategic diffusion.
Artificial Intelligence: The Defining Technology Competition
AI Strategic Significance
AI applications span:
Military: Autonomous weapons, intelligence analysis, cyber operations, logistics optimization
Economic: Automation, productivity enhancement, new products/services
Social control: Surveillance, censorship, population monitoring, predictive policing
AI dominance confers decisive advantages across military, economic, and social domains, making it central to U.S.-China competition (Miller 2022; National Intelligence Council 2021).
AI Development Requirements
Success requires combining:
1. Talent: AI researchers, engineers, data scientists
U.S. advantages: Top universities (Stanford, MIT, CMU, UC Berkeley), immigration attracting global talent, private sector dynamism (Google, Microsoft, Meta, OpenAI)
China advantages: Large domestic talent pool (more STEM graduates than U.S. + EU combined), government-directed recruitment, retaining domestic talent
2. Data: Training large models requires massive datasets
China advantages: Population scale (1.4 billion), weak privacy protections enabling data collection, government access to private sector data
U.S. advantages: High-quality curated datasets, English-language internet dominance, commercial data from global user bases
3. Computing power: Training frontier models requires thousands of high-end GPUs
U.S. advantages: Leading AI chip designs (Nvidia H100, AMD), semiconductor equipment export controls restrict Chinese access
China vulnerabilities: Dependent on imports for advanced chips, domestic alternatives (Huawei Ascend) lag performance, SMIC fabrication 2-3 generations behind TSMC/Samsung
The Compute Chokepoint AI development has a bottleneck that export controls can target: computing power. Training frontier AI models like GPT-4 requires thousands of cutting-edge GPUs that cost tens of millions of dollars. Nvidia's H100 chips—the gold standard for AI training—are designed in the U.S. and manufactured in Taiwan with American equipment. By restricting these chips and the equipment to make them, the U.S. can directly constrain adversaries' AI capabilities. This compute chokepoint is currently the most effective lever for slowing Chinese AI development.
4. Algorithms and models: Neural network architectures, training techniques, foundation models
Diffuse globally: Research published openly, Chinese papers match or exceed U.S. volume
U.S. edge in frontier models (GPT-4, Claude, Gemini) but narrowing
AI Export Controls and Coercion
U.S. semiconductor export controls evolved rapidly from 2022 to 2025, revealing the inherent tensions in using technology denial as a coercive instrument (see Chapter 4 for detailed analysis of these controls, including mechanisms, allied coordination, and Chinese countermeasures):
October 2022-2024 (Biden era): Blanket restrictions on advanced AI chips (Nvidia A100/H100, AMD MI250), semiconductor manufacturing equipment, and U.S. persons supporting Chinese chip development. Progressive tightening closed loopholes (October 2023 updates banned "China-compliant" variants like the A800/H800).
January 2025: Outgoing Biden administration issued a global "AI Diffusion Rule" creating three-tier country licensing framework — an attempt to prevent third-country circumvention.
2025 (Trump era): Rescinded the AI Diffusion Rule and shifted to case-by-case licensing for advanced chips (Nvidia H200, AMD MI325X) to approved Chinese customers, while simultaneously adding 140 PRC entities to the Entity List.
Effectiveness:
Short-term degradation: Chinese labs faced GPU shortages; training frontier models became more expensive and slower during the 2022-2024 restriction period
Medium-term adaptation: Chinese firms developed workarounds (smuggling, cloud computing access), and Huawei/SMIC pursued indigenous alternatives. The 2025 policy relaxation partly reflects recognition that blanket restrictions were driving innovation losses for American firms without permanently blocking Chinese progress.
Long-term uncertainty: Whether China achieves self-sufficiency or remains perpetually behind depends on semiconductor technology trajectory, Chinese state investment effectiveness, and whether U.S. policy oscillation between restriction and selective engagement undermines the credibility of export controls as a coercive tool
AI Governance Fragmentation
Competing regulatory frameworks:
U.S./Europe: Emphasis on safety, ethics, transparency, preventing bias/misuse
EU AI Act: Risk-based regulation, high-risk applications face strict requirements
U.S. approach: Voluntary guidelines, sector-specific rules (healthcare, finance), national security restrictions
China: Emphasis on state control, censorship, social stability
Regulations require algorithm disclosures to government, content monitoring, ideological alignment
State access to private sector AI systems, data
Divergent standards create:
Incompatible systems (Chinese models comply with censorship, Western models prioritize openness)
Data flow restrictions (Chinese data localization, GDPR limiting transfers)
Talent flow impediments (security clearances, visa restrictions, exit controls)
Future AI Competition Scenarios
Scenario A: U.S. Sustained Lead
Export controls successfully limit Chinese access to cutting-edge compute; U.S. talent advantages and innovation ecosystem maintain 2-5 year frontier model lead. China develops capable AI but remains behind state-of-the-art, relying on specialized applications where data/domain knowledge compensate for model limitations.
Scenario B: Convergence
Chinese state investment, large domestic market, talent development enable catching up. By 2035-2040, Chinese and U.S. frontier models roughly equivalent, competing primarily on applications, data advantages, regulatory environments rather than raw capability gaps.
Scenario C: Fragmented Ecosystems
Regulatory divergence, data localization, incompatible standards create separate AI ecosystems. Chinese AI dominates authoritarian markets (surveillance, censorship, state control). Western AI leads democracies (open systems, privacy-preserving, ethical AI). Global South countries choose between models, creating bifurcated technology spheres.
Quantum Computing: Uncertain Timelines, Transformative Potential
Quantum Computing Promise
Quantum computers exploiting quantum mechanics (superposition, entanglement) could:
Break encryption: Shor's algorithm threatens RSA, elliptic curve cryptography securing internet communications, financial systems, military networks
Optimize complex systems: Drug discovery, materials science, logistics, financial modeling
Enhance sensors: Quantum sensing for navigation, detection, imaging
Current State (2024)
"Noisy intermediate-scale quantum" (NISQ) devices with 50-1000 qubits demonstrated, but error rates limit practical applications
No cryptographically relevant quantum computer exists; estimates suggest 2030s-2040s for machines capable of breaking current encryption (highly uncertain)
U.S. leadership: Google, IBM, Microsoft, Amazon quantum programs; national labs (Argonne, Oak Ridge)
China investments: State-funded quantum programs, University of Science and Technology of China achievements (quantum satellite, quantum communication)
Quantum Competition Dynamics
1. Long timelines reduce urgency: Unlike AI (deployed now), quantum's transformative applications remain years/decades away, limiting immediate competition intensity.
2. "Quantum surprise" risk: Breakthrough could suddenly make adversary communications readable, financial systems vulnerable. Post-quantum cryptography transition required before quantum computers achieve RSA-breaking capability (NIST standardizing post-quantum algorithms).
The Cryptography Threat When (not if) cryptographically relevant quantum computers arrive, they will break the encryption protecting virtually all digital communications, financial transactions, and classified information. Adversaries are already harvesting encrypted communications today with the intention of decrypting them once quantum computers mature—a strategy called "harvest now, decrypt later." The transition to post-quantum cryptography must happen before quantum computers achieve this capability, but the timeline is uncertain (estimates range from 2030s to 2050s). The country that achieves quantum supremacy first gains a potentially decisive intelligence advantage.
3. Quantum communication and sensing: Near-term applications (quantum key distribution for secure communications, quantum sensors) deployable sooner than general quantum computing.
Export Controls Challenges
Quantum technology diffuses globally:
Fundamental research published openly
International collaborations common
Specialized equipment requirements (dilution refrigerators, control systems) but not as concentrated as semiconductor manufacturing
Software and algorithms transferable instantly
Controlling quantum technology harder than semiconductors due to diffusion, but U.S. restricts quantum computing exports to China, monitors research collaborations.
Biotechnology and Synthetic Biology
Biotech Strategic Dimensions
Chapter 8's analysis of the BIOSECURE Act (enacted December 2025) demonstrated how biotech competition has become a domain for economic coercion. Future developments intensify strategic significance:
CRISPR gene editing: Potential applications include:
Agricultural enhancement (drought-resistant crops, higher yields)
Medical treatments (curing genetic diseases, personalized medicine)
Bioweapons (engineered pathogens, targeting specific populations—禁止生物武器公约 concerns)
Synthetic biology: Designing organisms from scratch enables:
Biomanufacturing (producing chemicals, materials, pharmaceuticals through engineered organisms)
Environmental applications (pollution remediation, carbon capture)
Dual-use risks (creating dangerous pathogens de novo)
Personalized medicine and genomics: Collecting population genetic data enables:
Tailored treatments based on individual genetics
Population health insights
Intelligence applications (identifying individuals, assessing health vulnerabilities)
Biotech Competition and Coercion
Genetic data as strategic asset: Countries protecting population genetic data as national resource (Chapter 5 data sovereignty, BIOSECURE Act context).
Pharmaceutical dependencies: Reliance on foreign biotech firms (Chinese biotech in U.S., U.S. pharma in China) creates mutual vulnerabilities exploitable during crises.
Biosecurity risks: Gain-of-function research, synthetic biology capabilities create accidental or deliberate pathogen release risks—strategic competition must balance innovation against catastrophic risks.
Export controls and talent restrictions: The BIOSECURE Act established the legal framework; its designation-based model can expand administratively—restricting collaborations, limiting talent flows, controlling biological materials/reagents trade.
Space Systems: The High Frontier
Space as Strategic Domain
Space systems provide:
Communications: Satellite networks (Starlink, Chinese equivalents) enable global connectivity
Navigation: GPS, BeiDou, Galileo, GLONASS enable military precision, commercial navigation
Intelligence/surveillance: Spy satellites, earth observation
Missile warning: Early warning systems detect launches
Space Competition Intensifying
U.S. dominance challenged: Historically unquestioned U.S. space leadership (NASA, commercial sector) now faces Chinese competition
China's rapid advancement: Space station (Tiangong), lunar missions (Chang'e), Mars rover (Zhurong), growing launch capabilities
Commercialization: SpaceX, Blue Origin, proliferation of space startups changing economics
Military applications: Anti-satellite weapons, space-based weapons potential, counterspace capabilities
Economic Coercion Through Space
1. Communication denial: Disrupting adversary satellite communications during conflict
2. Navigation jamming: GPS jamming/spoofing degrades precision weapons, civilian navigation
3. Technology export controls: U.S. restricts space technology exports, limiting adversaries' access to satellite components, launch systems
4. Launch service denial: Refusing to launch adversary satellites (though Chinese, Russian, European launch capacity reduces leverage)
Alliance Evolution and Institutional Competition
Future economic coercion effectiveness depends on alliance structures and institutional alignments. Western-led order (G7, NATO, IMF/World Bank, WTO) faces challenges from alternative coalitions (BRICS+, SCO, regional frameworks) and neutral Global South countries avoiding alignment. Economic statecraft's future depends on how these alignments evolve.
Western Coordination: Strengths and Strains
G7 and Transatlantic Partnership
U.S., Canada, UK, France, Germany, Italy, Japan coordinate economic policies through:
G7 summits: Regular leader-level coordination on sanctions, trade, technology
U.S.-EU Trade and Technology Council (TTC): Coordinates semiconductor policy, AI governance, export controls, investment screening
NATO: Military alliance expanding to economic security (supply chain resilience, critical infrastructure protection)
Strengths:
Economic weight: G7 represents ~45% of global GDP, ~60% including broader allies (Australia, South Korea, etc.)
Technology leadership: Controls most advanced semiconductors, AI, biotechnology, aerospace
Financial dominance: Dollar, euro, yen collectively dominate global finance; SWIFT, correspondent banking controlled by Western institutions
Institutional depth: Decades of cooperation, established mechanisms, interoperable systems
Strains and Challenges:
1. Cost distribution disputes: Burden-sharing tensions (defense spending, sanctions costs) create friction. U.S. frustration with European free-riding; Europeans resist U.S. extraterritoriality.
2. China exposure asymmetries: European firms more dependent on Chinese market than U.S. (Germany exports $100B+ to China); Asian allies (South Korea, Japan) face acute trade-offs between U.S. alliance and Chinese economic ties.
Divergent Threat Perceptions Alliance coordination on China faces a fundamental asymmetry: the U.S. sees China as an existential threat to its global position, while European allies see China primarily as an economic partner with some security concerns. Germany exports over $100 billion annually to China; for German industry, "decoupling" means lost profits and jobs. South Korea and Japan face even sharper trade-offs—geographically closer to China, more economically intertwined, yet depending on U.S. security guarantees. Maintaining alliance cohesion requires acknowledging these different perspectives rather than demanding uniform alignment with U.S. priorities.
3. Policy divergences:
Climate policy (U.S. lagged Europe until IRA; divergent carbon pricing approaches)
Technology regulation (EU tougher on U.S. tech firms than Washington)
China strategy (European strategic autonomy aspirations vs. U.S. containment)
4. Domestic politics: Populist movements, polarization create alliance skepticism. Trump presidency demonstrated alliance fragility.
Sustainability: Western coordination likely persists but faces periodic crises requiring diplomatic repair. Effectiveness depends on managing frictions, demonstrating value to skeptical publics, and adapting to shifting global power.
Alternative Coalitions: BRICS+ and the Global South
BRICS Expansion (2024+)
Original BRICS (Brazil, Russia, India, China, South Africa) expanded 2024 to include:
Egypt, Ethiopia, Iran, Saudi Arabia, UAE (confirmed)
~40 additional countries expressing interest
BRICS+ represents:
~37% of global GDP (PPP terms)
~45% of world population
~25% of global trade
Major commodity exporters (oil, minerals, agricultural products)
Institutional developments:
New Development Bank (NDB): Alternative to World Bank, ~$30B in project funding
BRICS payment systems: Exploring common currency or local currency settlement mechanisms
Political coordination: Joint statements challenging Western dominance, promoting multipolarity
Limitations:
1. Internal divisions: India-China border tensions, Saudi-Iran rivalries, Brazil-Russia ideological differences limit cohesion. Unlike G7's shared values, BRICS unites primarily around anti-Western positioning.
2. Economic asymmetries: China accounts for ~70% of BRICS+ GDP; power imbalances create resentment (concern about Chinese domination).
3. Institutional immaturity: NDB, payment systems remain limited compared to IMF, World Bank, SWIFT's scale and depth.
4. No security dimension: Unlike NATO, BRICS lacks collective defense, mutual support obligations.
Trajectory: BRICS+ likely expands as symbolic alternative to Western dominance, provides limited institutional infrastructure (development finance, trade settlement), but doesn't replace G7/NATO as primary economic-security coordination mechanism. Effectiveness depends on:
Managing internal tensions (particularly India-China)
Building institutional capacity beyond rhetoric
Offering tangible benefits to members (cheaper finance, favorable trade terms, diplomatic support)
Global South: Non-Alignment 2.0
Re-emergence of Non-Alignment
Cold War non-aligned movement resurrected as Global South countries resist pressure to choose between U.S. and China:
Motivations:
Economic pragmatism: Trade with both China and U.S./Europe; accepting investment from all sources
Sovereignty concerns: Resent great power coercion (U.S. sanctions, Chinese economic pressure)
Development priorities: Climate finance, technology transfer, market access matter more than geopolitical alignment
Key players: Indonesia, Mexico, Turkey, Saudi Arabia, UAE, Nigeria, Vietnam, Thailand—large emerging economies with global connections
Strategies:
Hedging: Maintain security ties with U.S. (arms sales, training) while expanding economic links with China
Playing both sides: Extract concessions from U.S. and China competing for influence
Institutional entrepreneurship: Building regional institutions (ASEAN, African Union, Arab League) as alternative power centers
Implications for Economic Coercion:
1. Sanctions circumvention: Neutral countries facilitate trade with sanctioned parties (Russia exports via Turkey, UAE; Chinese goods rerouted through third countries).
2. Technology transfer: Countries refusing to enforce Western export controls enable technology leakage.
3. Diplomatic isolation failures: U.N. votes, international forums show Global South refusing to isolate Russia, China despite Western pressure.
4. Alternative markets: Sanctioned countries find buyers/sellers in non-aligned world, limiting sanctions effectiveness.
Future trajectory: Global South non-alignment likely strengthens as multipolar order emerges. Economic coercion requiring universal participation increasingly difficult; effective sanctions must either:
Secure Global South cooperation through inducements (development finance, market access, technology transfer)
Accept lower effectiveness with partial participation
Target leverage points (e.g., financial sector where Western control remains) rather than comprehensive trade restrictions
Scenario Analysis 2035-2050
Projecting 25 years into an uncertain future requires scenario analysis: developing multiple plausible futures based on critical uncertainties, assessing implications, and identifying robust strategies effective across scenarios (National Intelligence Council 2021; Blackwill and Harris 2016). Two critical uncertainties shape future economic statecraft:
Dimension 1: Degree of Economic Integration
Highly fragmented: Rival blocs with minimal cross-bloc trade, parallel technology standards, separate financial systems
Selectively integrated: Sectoral decoupling (strategic tech) but continued integration (commodities, consumer goods)
Deeply integrated: Renewed globalization, reduced strategic competition, economic interdependence
Dimension 2: Competition Intensity
Managed competition: Rules-based rivalry, crisis management mechanisms, limited escalation
Intense confrontation: Economic warfare, comprehensive coercion, crisis-prone, risk of military conflict
Combining these dimensions generates four scenarios:
Scenario A: Managed Competition with Selective Integration (Baseline - 40% probability)
Description
U.S. and China maintain intense but managed strategic competition, combining sectoral decoupling (semiconductors, AI, biotechnology, critical defense tech) with continued trade in non-strategic goods. Institutional frameworks (WTO, G20, bilateral summits) facilitate crisis management. Regional conflicts (Taiwan, South China Sea) remain below military threshold through deterrence and diplomacy.
Economic patterns:
Bilateral U.S.-China trade: $400-500B annually (down from $690B peak but stable)
Technology ecosystems diverge: Chinese standards (5G, AI governance, digital currency) dominate Asia/Africa/Latin America; Western standards in Europe/North America/allies
Supply chain friend-shoring: Semiconductors, batteries, critical minerals sourced from allied countries but commodity trade remains global
Dollar share of reserves: 40-45% (gradual decline), yuan 15-18%, euro 22-25%
Alliance structures:
G7 coordination persists but strained by cost disputes
BRICS+ expands but remains loosely coordinated
Global South maintains non-alignment, extracting concessions from both sides
Economic coercion:
Financial sanctions retain power but face greater circumvention (yuan-based trade, alternative payment systems)
Export controls target cutting-edge technology (advanced semiconductors, AI chips, quantum systems)
Investment screening comprehensive in strategic sectors, open in consumer goods
Policy implications:
Sustain multilateral coordination despite frictions
Invest in technology leadership (AI, quantum, biotech, clean energy)
Manage Global South relationships through development finance, technology sharing
Maintain crisis communication channels to prevent escalation
Probability: 40% (baseline scenario reflecting current trajectory extension)
Scenario B: Economic Cold War with Deep Fragmentation (25% probability)
Description
U.S.-China confrontation escalates into comprehensive economic warfare following major crisis (Taiwan conflict, South China Sea clash, tech cold war spiral). Rival blocs emerge with minimal cross-bloc trade, parallel institutions, incompatible technology standards. Risk of military conflict elevated.
Trigger events: Taiwan crisis (military confrontation or reunification), comprehensive U.S. tech embargo triggers Chinese retaliation, financial crisis weaponizes dollar leading to sudden de-dollarization
Cold War Triggers An economic cold war wouldn't happen gradually—it would be triggered by a specific crisis that makes continued integration politically impossible. The most likely trigger: a Taiwan confrontation. If China blockades or invades Taiwan, the U.S. would face pressure for comprehensive sanctions; China would retaliate with export restrictions and debt weaponization; allies would be forced to choose sides. Other triggers include: a South China Sea military clash, a catastrophic cyberattack attributed to state actors, or a financial crisis that's weaponized by either side. The path to Scenario B runs through one of these crisis points.
Economic patterns:
U.S.-China trade collapses to <$100B annually (mostly agriculture, raw materials)
Complete technology decoupling: No Chinese access to Western semiconductors, AI systems, biotechnology; U.S. cuts off from Chinese rare earths, critical minerals, manufactured goods
Dollar loses reserve status rapidly: 25-30% of reserves, yuan 20-25%, euro 25-30%, gold/alternatives 20-25%
Global recession during transition: Supply chain disruptions, financial instability, reduced growth
Alliance structures:
NATO economic coordination deepens (shared sanctions enforcement, technology sharing, trade preferences)
BRICS+ becomes coherent anti-Western bloc led by China
Global South forced into alignment or faces isolation
Economic coercion:
Financial sanctions lose effectiveness as alternative systems mature (CIPS, BRICS currency, cryptocurrency)
Comprehensive export controls on all strategic goods
Complete investment bans between blocs
Trade restrictions extend to consumer goods (high tariffs, quotas)
Humanitarian costs: Lower living standards globally (reduced efficiency from lost comparative advantage), developing countries face fragmented technology access, climate transition slows (cooperation collapsed)
Policy implications:
Prepare for supply chain independence (expensive but necessary for security)
Strengthen allied integration (coordinate industrial policies, share technologies, burden-share costs)
Develop alternative supply chains before crisis forces rushed, costly adaptation
Manage escalation risks to prevent military conflict
Probability: 25% (tail risk requiring major triggering crisis)
Scenario C: Crisis-Driven Fragmentation with Regional Variation (20% probability)
Description
Series of crises (pandemic, financial shock, regional conflicts) fragment globalization unevenly by sector and region. Some domains remain integrated (energy, food, commodities), others fragment (technology, finance, defense). Regional blocs (Asian, European, Western Hemisphere) develop distinct characteristics rather than global bipolar split.
Trigger events: Pandemic exposing vulnerabilities triggers protectionism; financial crisis causes sudden capital controls; multiple regional conflicts (Taiwan, Ukraine, Middle East) simultaneously
Economic patterns:
Trade volumes decline 20-30% from peak but stabilize
Regional supply chains: "Americas-centric" (U.S.-Mexico-Canada-Brazil), "Asia-Pacific" (China-ASEAN-Japan-Korea with tensions), "European" (EU-UK-Africa ties)
Technology ecosystems regionalized: Each bloc develops standards, with limited cross-compatibility
Dollar, euro, yuan all weaken as regional currencies gain (rupee in South Asia, real in Latin America)
Alliance structures:
U.S. alliances weaken (reduced public support for global commitments)
Regional institutions strengthen (ASEAN, AU, OAS)
China pursues regional hegemony in Asia but limited global ambitions
Economic coercion:
Effectiveness varies by region: U.S. maintains leverage in Americas, China in Asia, Europe relatively independent
Sanctions require regional coordination rather than global
Fragmented systems create arbitrage opportunities, reducing all countries' coercion capabilities
Policy implications:
Prioritize regional partnerships over global frameworks
Accept reduced global influence, focus on vital interests
Diversify dependencies (technology, resources, finance) to operate in a fragmented world
Maintain flexibility to adapt as regional dynamics shift
Probability: 20% (plausible but requires specific crisis sequence)
Scenario D: Renewed Integration and Managed Competition (15% probability)
Description
Major shared threats (climate crisis exceeding worst projections, pandemic deadlier than COVID-19, economic depression) compel cooperation. U.S. and China recognize mutual interests outweigh competitive dynamics. Renewed globalization with reformed institutions providing better governance.
Trigger events: Climate catastrophe (massive crop failures, sea level rise displacing hundreds of millions); pandemic with high lethality forcing cooperation; financial crisis threatening global depression
Economic patterns:
Trade rebounds to near pre-competition levels ($600-700B U.S.-China)
Technology cooperation on climate (clean energy, carbon capture, geoengineering), health (pandemic preparedness)
Reformed WTO with updated rules managing state-owned enterprises, subsidies, digital trade
Dollar remains dominant (55-60% reserves) but with multilateral oversight preventing weaponization
Alliance structures:
G20 becomes primary coordination forum, G7 less exclusive
BRICS integrates into reformed global governance rather than parallel system
UN Security Council reformed to reflect contemporary power distribution
Economic coercion:
Restrained use due to cooperation norms
Focused on truly threatening actors (rogue states, terrorist groups) with universal enforcement
Technology controls target proliferation risks (bioweapons, nuclear) rather than competitive advantage
Policy implications:
Invest in cooperative frameworks despite current tensions
Maintain institutional capacity for integration
Address legitimacy deficits in current global governance
Prepare for black swan events demanding cooperation
Probability: 15% (optimistic scenario requiring either catastrophe forcing cooperation or unlikely political realignment)
Cross-Scenario Lessons
Robust strategies effective across scenarios:
1. Technology leadership: Whether competition managed or intense, technology advantages provide leverage
2. Alliance resilience: Allied coordination essential in all scenarios except renewed integration
3. Economic diversification: Reducing dependencies on adversaries prudent across scenarios
4. Institutional flexibility: Ability to operate through bilateral, regional, or global frameworks as circumstances dictate
5. Strategic patience: Competition likely spans decades; avoiding short-term temptations to escalate
Scenario-contingent strategies:
If fragmentation appears likely: Accelerate friend-shoring, build alternative supply chains, accept near-term costs
If integration persists: Maximize economic benefits, maintain leverage points, avoid premature decoupling
If crisis imminent: Stockpile critical goods, prepare for disruptions, enhance deterrence
Monitoring indicators (early warning signs):
Policymakers should track several key indicators as early warning signs. In technology ecosystems, the outcomes of standardization battles over 5G, 6G, and AI governance will signal the direction of bifurcation or integration. Financial flows—particularly reserve currency composition and payment system adoption, including the growth rate of China's CIPS—will reveal whether dollar alternatives are gaining meaningful traction. Bilateral U.S.-China trade volumes and friend-shoring progress will indicate the pace of economic reorientation. Alliance cohesion, measured through the quality of G7 coordination and the institutionalization depth of BRICS+, will shape the structural landscape. Finally, crisis management around flashpoints such as Taiwan, the South China Sea, and cyber incidents will reveal whether great-power tensions are being managed or escalating toward confrontation.
Chinese Perspective Box: China's Vision for Future Order
Chinese strategic thinkers envision a future global order shaped by multipolarity, technology self-reliance, and China's role in reshaping international economic architecture.
Multipolarity (多极化, duōjíhuà) as Inevitable Trajectory
Chinese analysts view multipolarity—a world with multiple great powers rather than U.S. hegemony—as historical inevitability. Key arguments:
Declining U.S. hegemony: American share of global GDP fell from 50% (1945) to 25% (2024) and projected to decline further. Unipolar moment (1991-2010s) was temporary aberration; multipolarity is historical norm.
Rise of multiple powers: China, India, Russia, Brazil, Indonesia, European Union all constitute independent power centers resisting U.S. dominance. Collective GDP, population, and agency challenge Washington's ability to set rules unilaterally.
Institutional reform needed: Post-WWII institutions (UN, IMF, World Bank, WTO) reflect 1945 power distribution, giving disproportionate influence to U.S. and Europe. Reform should increase Chinese, Indian, developing country representation to match contemporary power realities.
De-Westernization of Global Governance
Chinese vision for future international order emphasizes:
1. Sovereignty and non-interference: Primacy of state sovereignty over humanitarian intervention, democracy promotion. Internal affairs (governance, human rights, economic systems) are national prerogatives, not subjects for external pressure.
2. Development diversity: Multiple development models should coexist (Chinese state-directed capitalism, Western market economies, mixed systems). No universal "correct" path; countries choose models fitting their circumstances.
3. Institutional alternatives: Parallel institutions (AIIB, NDB, BRICS mechanisms) provide choices beyond Western-dominated IMF/World Bank. Competition improves all institutions.
4. Cultural equality: Reject Western cultural/ideological superiority claims. Chinese civilization's continuity (5,000 years), philosophical traditions (Confucianism), governance systems have equal legitimacy to Western models.
Technology Self-Reliance as Achieved Reality (by 2035-2050)
Chinese projections envision technology independence:
Semiconductors: Indigenous equipment (lithography, etching, deposition), materials, fabrication achieving parity with Western capabilities. Made in China 2025 70% self-sufficiency target met or exceeded.
AI leadership: Chinese AI matching or exceeding U.S. capabilities through:
Larger data resources (population scale, weak privacy constraints)
State coordination concentrating resources on strategic applications
Global talent recruitment and domestic STEM education investments
Commercial applications (surveillance, social credit, smart cities) providing development advantages
Quantum, biotech, space: Chinese programs achieving global leadership or near-parity through sustained state investment, reducing Western technology leverage.
Strategic logic: Technology self-reliance eliminates Western coercion leverage (export controls, sanctions lose power), enables China to support developing countries (technology transfer without political conditions), and validates state-directed model superiority.
Alternative Development Model Success
Chinese perspective expects:
1. Developing countries embrace Chinese model: State-directed development, infrastructure-focused growth, authoritarian stability appeals to Global South leaders prioritizing rapid development over democratic process. Belt and Road Initiative demonstrates Chinese willingness to invest without political conditions.
2. Western model failures: Financial crises, political polarization, inequality, COVID-19 mismanagement undermine Western system attractiveness. Chinese centralized system appears more effective at long-term planning, crisis response, collective mobilization.
3. Norm shift: Chinese concepts (cyber sovereignty, development rights over political rights, harmonious world vs. confrontation) gain acceptance as China's influence grows.
Peaceful Multipolarity vs. Containment Resistance
Chinese strategic narrative offers:
Peaceful rise: China seeks development, not hegemony. Unlike Western imperialism/colonialism, China respects sovereignty, pursues win-win cooperation, shares development opportunities.
Defensive resistance: Economic coercion (sanctions, export controls, investment restrictions) represents U.S. efforts to contain Chinese rise, repeating historical pattern of established powers suppressing challengers. China must resist to protect sovereignty, development rights, and provide alternative model for Global South.
"Community of common destiny for mankind" (人类命运共同体, rénlèi mìngyùn gòngtóngtǐ): Xi Jinping's vision of interconnected world facing shared challenges (climate change, pandemics, terrorism, economic crises) requiring cooperation not confrontation.
Internal Debates and Alternative Views
Western analysts should recognize diversity of Chinese strategic thinking:
Nationalist hardliners: Advocate more aggressive responses to Western pressure, accelerated military modernization, comprehensive confrontation if necessary to secure Chinese interests.
Economic pragmatists: Warn that excessive confrontation risks development goals; maintaining trade and technology access more important than ideological victories; accommodation sometimes prudent.
Regionalists: Argue China should focus on Asian regional leadership rather than global competition with U.S.; consolidate sphere of influence before challenging global order.
Institutionalists: Favor working within existing institutions (WTO, IMF) to gradually shift rules rather than building parallel systems; reform more effective than revolution.
Implications for Western Strategy
Understanding Chinese perspectives doesn't require accepting their validity but clarifies strategic choices:
1. Time horizons: Chinese strategic thinking operates over decades and centuries. Expecting short-term Chinese capitulation to economic pressure ignores historical patience.
2. Technology competition: Chinese commitment to self-reliance is ideological and strategic, not merely economic. Export controls may spur indigenous innovation rather than compelling dependence.
3. Institutional competition: China seeks alternatives to U.S.-dominated order, not integration into Western system. AIIB, BRICS, SCO reflect genuine alternative vision, not simply anti-Western positioning.
4. Development model: Chinese believe their approach works and benefits Global South. Development finance without democracy conditions appeals to many governments.
5. Non-zero-sum opportunities: Despite competition, shared interests exist (climate change, pandemic preparedness, financial stability, nuclear non-proliferation). Identifying cooperation opportunities while competing in other domains defines effective strategy.
Conclusion: Strategic Choices for an Uncertain Future
This book has examined economic coercion's tools, targets, mechanisms, and effectiveness across contemporary cases and historical precedent. Chapter 10's scenario analysis reveals profound uncertainty about future trajectories: managed competition and selective integration appears most likely, but deep fragmentation, crisis-driven chaos, or renewed cooperation all remain plausible depending on decisions made today and black swan events beyond prediction.
Policy Recommendations
1. Sustain Multilateral Coordination
Historical cases (CoCom success, grain embargo failure) demonstrate multilateral sanctions' superior effectiveness. Yet coordination faces persistent challenges:
Burden-sharing disputes: Resolve through transparent cost calculations, side payments, burden redistribution
China exposure asymmetries: Provide economic support to allies facing disproportionate Chinese retaliation
Institutional adaptation: Reform G7, NATO, TTC mechanisms to accommodate new members, address emerging issues (climate, technology, development)
Action items:
Formalize G7+ coordination on sanctions, export controls, investment screening
Create compensation mechanisms for allies bearing disproportionate sanctions costs
Expand coordination to include Australia, South Korea, India on selective issues
2. Invest in Technology Leadership
Technology advantages provide leverage across scenarios. Maintaining lead requires:
R&D investment: Public research funding (NSF, DOE, NIH) sustained despite fiscal pressures
Talent attraction: Immigration reform facilitating STEM talent recruitment, retention
Education: K-12 STEM emphasis, university research support
Private sector dynamism: Regulatory environment enabling innovation while addressing AI safety, biotech risks, data privacy
Action items:
Increase federal R&D budget 5-7% annually above inflation
Expand high-skill immigration (H-1B visas, green cards for STEM PhDs)
Coordinate allied technology sharing (U.S.-Europe-Japan-Korea-Australia consortia on semiconductors, AI, quantum)
3. Selective Integration - Protect Security, Preserve Economics
Complete decoupling imposes massive costs (Chapter 2 supply chain analysis); selective decoupling targets genuine security risks:
Prioritize restrictions on:
Advanced semiconductors (sub-14nm nodes, leading-edge manufacturing equipment)
AI training compute (high-end GPUs, large-scale clusters)
Biotechnology (genomics, synthetic biology capabilities)
Quantum systems (cryptographically relevant computers, secure communications)
Maintain openness in:
Consumer goods (electronics, apparel, household products)
Commodity trade (agricultural products, basic materials)
Non-strategic services (tourism, education, basic software)
Action items:
Develop clear criteria distinguishing strategic from non-strategic domains
Sunset reviews: Regularly assess whether controls remain necessary as technology evolves
Compensate affected industries (farmers facing Chinese retaliation, tech firms losing markets)
4. Strengthen Alliances Through Burden-Sharing and Value Demonstration
Alliance fatigue threatens coordination. Sustaining requires:
Fair burden-sharing: Defense spending, sanctions costs, development finance distributed equitably
Tangible benefits: Allies receive technology access, market opportunities, security guarantees
Consultation: Decisions affecting allies involve genuine consultation, not unilateral imposition
Flexibility: Accommodate varying levels of China exposure (Germany vs. Australia)
Action items:
Formal alliance burden-sharing agreements (defense spending targets, sanctions enforcement commitments)
Technology sharing frameworks (AUKUS model expanded to other allies)
Development finance competition with BRI (Build Back Better World, infrastructure investments)
5. Engage Global South Through Development, Not Coercion
Non-aligned countries resist pressure to choose sides. Attracting requires positive inducements:
Development finance: Infrastructure investment, climate adaptation funding, technology transfer
Market access: Trade agreements, tariff preferences
Institutional voice: Greater representation in IMF, World Bank, G20
No political conditions: Compete with Chinese "no strings attached" approach
Action items:
Increase development finance (matching or exceeding Chinese BRI levels)
Climate finance: Fulfill $100B annual commitment, increase adaptation funding
Trade agreements: Rejoin CPTPP, negotiate agreements with ASEAN, Africa, Latin America
6. Manage Risks and Unintended Consequences
Economic coercion creates blowback:
De-dollarization: Restrained use of financial sanctions to preserve dollar privilege longer
Technology stimulation: Export controls may spur Chinese innovation; anticipate and adapt
Humanitarian costs: Comprehensive sanctions harm civilian populations; targeted sanctions preferred
Rally-around-flag effects: Sanctions strengthen nationalist support for target regimes; combine with engagement, support for internal opposition
Action items:
Reserve financial sanctions for highest-priority cases (not routine policy tool)
Humanitarian exemptions for food, medicine, disaster relief
Information operations exposing regime corruption, supporting civil society
Off-ramps: Provide sanctions relief for target compliance (not just eternal punishment)
7. Prepare for Long-Term Competition
Strategic competition spans decades, requiring institutional capacity and political sustainability:
Institutional investment: Staff CFIUS, BIS (export controls), Treasury (sanctions) adequately
Congressional support: Bipartisan consensus on strategic competition (avoid politicization)
Public communication: Explain costs, benefits, and long timelines to sustain support
Adaptability: Economic coercion evolves; update tools, targets, and strategies regularly
Action items:
Quadrennial economic security review (analogous to defense reviews)
Congressional authorization of major sanctions programs (not just executive action)
Public education campaigns on strategic competition stakes, costs, and necessity
Final Reflections
Economic coercion has a mixed historical record. The cases examined throughout this book reveal that sanctions, export controls, investment restrictions, and industrial policies achieve strategic objectives under specific conditions: comprehensive multilateral coordination, target vulnerabilities, combined pressure across domains, realistic objectives, and sustained commitment. When these conditions exist, economic statecraft degrades adversary capabilities, imposes costs, and shapes behavior. When conditions are absent—unilateral actions, autarkic targets, standalone measures, maximalist goals, short time horizons—coercion disappoints initial expectations.
Contemporary U.S.-China competition occurs in context of deep economic interdependence historically unprecedented among great power rivals. Weaponizing this interdependence through financial sanctions, technology restrictions, and supply chain restructuring yields leverage but risks destroying the integrated global economy that enabled Western prosperity. Managing this paradox—competing strategically while preserving beneficial integration—requires sophisticated calibration beyond simple escalation or accommodation.
Future economic statecraft will operate in an environment defined by multipolar power distribution, fragmenting technology ecosystems, climate disruption reshaping resource geography, and the emergence of AI and quantum computing as strategic domains. Policymakers confronting these challenges need clear strategic objectives, realistic assessments of tools' effectiveness and limitations, sustained coordination with allies, and recognition that economic competition is marathon, not sprint.
Economic coercion will remain central to 21st-century statecraft. Understanding its possibilities and limitations—and adapting as conditions change—will define economic statecraft for the next generation.
Data Sources and Further Research
De-Dollarization and Financial Architecture
IMF COFER Database: Quarterly data on global foreign exchange reserves composition
SWIFT: RMB Tracker monitoring yuan internationalization
Bank for International Settlements (BIS): Triennial surveys of currency trading, international banking statistics
People's Bank of China: CIPS transaction volumes, yuan clearing data
Climate, Resources, and Security
International Energy Agency (IEA): The Role of Critical Minerals in Clean Energy Transitions (2021, updated annually)
U.S. Geological Survey: Mineral Commodity Summaries (annual)
IPCC Reports: Climate change projections, regional impacts
World Bank: Groundswell reports on climate migration
Emerging Technologies
AI:
Stanford AI Index: Annual report tracking AI development, investment, talent, applications
OECD AI Policy Observatory: Country policies, regulations
China AI Development Report: Annual assessments of Chinese AI progress
Quantum:
McKinsey: Quantum Technology Monitor
NIST: Post-quantum cryptography standardization
Chinese Academy of Sciences: Quantum program publications
Biotechnology:
Nature Biotechnology: Technology assessments
NIH, NSABB: Biosecurity and dual-use research governance
Bioeconomy databases: Commercial biotech tracking
Alliance and Institutional Evolution
G7, G20: Summit declarations, working group outputs
BRICS: Summit documents, New Development Bank reports
Asian Development Bank: Asian economic integration reports
Atlantic Council, CSIS, CFR: Alliance analysis, institutional competition tracking
Scenario Analysis and Forecasting
National Intelligence Council: Global Trends reports (every 4 years)
Shell Scenarios: Long-term energy and geopolitical scenarios
World Economic Forum: Global Risks Report (annual)
RAND Corporation: China strategy, future warfare scenarios
Contemporary Analysis
Brookings Institution: China strategy, technology competition
Carnegie Endowment: Russia sanctions, China economic policy
Center for Strategic and International Studies (CSIS): China Power Project, economic statecraft
Center for a New American Security (CNAS): Technology and national security
Royal United Services Institute (RUSI): European perspectives on economic security
Key Insights
Every weapon of economic statecraft, once used, teaches adversaries how to defend against it: Financial sanctions drive de-dollarization, export controls spur indigenous innovation, and investment screening fragments the global markets that enriched Western economies. The central paradox is that the tools of strategic competition undermine the very integrated system that made the West powerful enough to wield them.
Current trends point toward partial fragmentation rather than complete decoupling or renewed integration: Full decoupling is economically prohibitive (U.S.-China bilateral trade remains approximately $575-580 billion annually despite tensions), but selective decoupling accelerates in semiconductors, AI, biotechnology, and critical minerals. The result is a "partially fragmented globalization" where strategic domains decouple while commodity trade and consumer goods remain integrated.
De-dollarization is gradual but structurally accelerating: The dollar's share of global reserves has declined from 71% in 2000 to 58% in 2024, and alternative payment systems (CIPS, bilateral currency agreements, CBDCs) continue growing. While no single alternative approaches dollar dominance, the cumulative effect of many small shifts could fundamentally reshape financial architecture by 2035-2050, reducing U.S. sanctions leverage.
Climate change will create new vectors of economic coercion that compound existing vulnerabilities: Water scarcity enabling upstream dam leverage (Ethiopia over Egypt, China over Mekong nations), agricultural disruption concentrating food exports in fewer countries, critical mineral competition for the energy transition, and climate-driven migration all represent emerging coercion domains that current policy frameworks are unprepared to address.
Emerging technologies resist traditional export controls designed for physical goods: AI development distributes across talent, algorithms, data, and computing infrastructure rather than concentrating in specific equipment. Quantum computing timelines remain uncertain. Biotechnology's dual-use character is even more pronounced than semiconductors. Each technology requires tailored coercion strategies, but rapid evolution and software-centricity overwhelm control frameworks designed for hardware.
Alliance structures will prove decisive in determining economic statecraft effectiveness: The post-1945 order presumed Western economic dominance enabling rule-setting through IMF, WTO, and dollar-denominated systems. China's rise, BRICS expansion, and Global South agency challenge this structure. The future likely features competing economic blocs with varying degrees of integration -- multipolar economic order replacing unipolar Western dominance.
Strategic patience is essential because economic competition spans decades, not election cycles: Technology denial, industrial policy, and alliance building produce results over 10-30 year horizons. Policymakers operating under short electoral timelines face structural disadvantages against competitors planning in decades, suggesting the need for bipartisan institutional frameworks that sustain strategy across administrations.
Discussion Questions
The chapter presents four scenarios for 2035-2050: Managed Competition, Economic Cold War, Crisis-Driven Fragmentation, and Renewed Integration. Which scenario do you consider most likely, and what policy decisions in the next five years would most influence which scenario materializes? Are there hybrid outcomes the four-scenario framework fails to capture?
De-dollarization threatens to erode the foundation of U.S. financial sanctions power. Should the United States accept some reduction in sanctions effectiveness to preserve dollar dominance by using sanctions more sparingly, or should it maximize near-term leverage even at the cost of accelerating alternatives? Is there a middle path?
Climate change will reshape economic coercion through water scarcity, agricultural disruption, and critical mineral competition. How should international institutions prepare for climate-driven coercion? Are existing frameworks (WTO, UN, G7) adequate, or do we need new institutions specifically designed for climate-related economic security?
The chapter argues that emerging technologies like AI and biotechnology resist traditional export controls. Propose an alternative regulatory framework for controlling the diffusion of strategically significant technologies that exist primarily as software, algorithms, and data rather than physical goods. What would enforcement look like?
BRICS expansion, the AIIB, and bilateral currency agreements represent institutional alternatives to the Western-led economic order. How seriously should U.S. policymakers take these institutions as competitors to the IMF, World Bank, and WTO? What reforms to existing institutions might slow the shift toward parallel systems?
The book's overarching argument is that how the United States and China manage economic interdependence while competing strategically may determine whether this century sees managed rivalry or catastrophic conflict. Based on the evidence across all ten chapters, what single policy recommendation would you prioritize for reducing the risk of economic competition spiraling into military confrontation?
Tabletop Exercise: The tabletop exercise for this chapter — Multi-Domain Crisis in 2030 — can be found in Appendix A: Tabletop Exercises.
References
[Abbreviated reference list highlighting key sources]
Farrell, Henry, and Abraham L. Newman. "Weaponized Interdependence: How Global Economic Networks Shape State Coercion." International Security 44, no. 1 (Summer 2019): 42-79.
International Energy Agency. The Role of Critical Minerals in Clean Energy Transitions. IEA, 2021.
National Intelligence Council. Global Trends 2040: A More Contested World. NIC, 2021.
Stanford University. Artificial Intelligence Index Report. Stanford HAI, annual (2024 edition).
Blackwill, Robert D., and Jennifer M. Harris. War by Other Means: Geoeconomics and Statecraft. Harvard University Press, 2016.
Miller, Chris. Chip War: The Fight for the World's Most Critical Technology. Scribner, 2022.
Drezner, Daniel W. The Uses and Abuses of Weaponized Interdependence. Brookings Institution Press, 2021.
World Bank. Groundswell Part 2: Acting on Internal Climate Migration. World Bank, 2021.
Economy, Elizabeth C. The World According to China. Polity, 2022.
Allison, Graham. Destined for War: Can America and China Escape Thucydides's Trap? Houghton Mifflin Harcourt, 2017.
Last updated