This is an audio transcript of The Economics Show podcast episode: ‘Are US tariffs just the beginning? With Abraham Newman’
Alan Beattie
Hello, Abe, how are you doing?
Abraham Newman
I’m good, how’re you doing?
Alan Beattie
I kind of expected to see like a red sky in the background and plumes of smoke rising, and (laughter) empty blackened hulks are built. Anyway, oh my God.
Anyway, in case you were asleep last week, Donald Trump on Wednesday announced a minimum 10 per cent tariff on most of America’s goods imports, plus much higher tariffs on most of America’s major trade partners. He called it “liberation day” for the US economy. But tariffs are a very 19th-century policy tool. It’s a bit like starting a modern-day gunfight by firing off an antique blunderbuss. That’s because over the past few decades, globalisation has woven economies around the world more closely than ever before.
Meanwhile, the technology of trade, communications, and finance has become ever more sophisticated. And that’s created new ways for big countries to bend other nations to their will. Why rely on tariffs when you can impose tighter controls on high technology, energy, satellite communications, or perhaps payment systems?
So should we worry that Donald Trump may soon expand his arsenal to include these more 21st-century economic weapons? How might other big players like China and the EU respond? And by meddling with the financial plumbing of the world economy, might they risk tearing globalisation apart?
I’m Alan Beattie, the FT’s senior trade writer, and this is The Economic Show from the Financial Times. Today, we’re talking about weaponised interdependence and how governments are vulnerable to these modern forms of coercion. To discuss how we got here and where we’re going, I want to welcome Abraham Newman, political science professor at Georgetown University. With various co-authors, he pretty much invented the field of weaponised interdependence.
Abe, welcome to the show.
Abraham Newman
Thanks, Alan. It’s a pleasure to be here.
Alan Beattie
We often start with a simple question that we ask you to answer on a scale of one to 10. Now, we’ve seen Trump’s love of tariffs, so what’s the chance that one to ten, let’s say by the end of this year, he’ll still be using tariffs, import taxes, as his main tool to project international economic power? Or will he have moved on to some of these more modern forms of coercion?
Abraham Newman
Well, it’s definitely, he’s still gonna be using them, so I give it a 10. But I also think he will use these other forms as well. So I’ll give it two 10s. How about that?
Abraham Newman
OK, great! So, tell me, all these new tools, these new modern tools that are at Trump’s disposal, what are they? What are the important ones that he could use?
Abraham Newman
Sure. So, you know, there’s a full range of these. They basically centre on the fact that the US economy sits at the centre of a whole host of global economic networks. And then the US is toggling access on and off to them. So you can imagine sanctions, which is really the US doing that in global finance. Export controls, where it’s really about the key place that US intellectual property sits in production systems. And you can also imagine, you know, surveillance, it’s a big part of gleaning data. And if you’ve watched what Musk has been doing inside the United States over the last several months, you know it’s trying to get access to data in order to better understand what political adversaries are doing and then using that for political gain.
And so I think across all of those things, you could imagine the United States using these kind of what we would think of as, like, you know, new tools of economic coercion instead of the very blunt and, you know, sweeping tools of tariffs.
Alan Beattie
OK, so Trump has all these new instruments available to him. Why is he using the oldest tool in the toolbox?
Abraham Newman
Well, he has a number of political objectives, and that’s the key. He wants to do tax reform in the United States. And tariffs are a way to really shift the burden of taxation away from, you know, upper-income earners into your average person. And so his goal is to use the revenue from these tariffs in order to extend tax cuts from his first administration, that’s the first reason.
And then the second reason is he wants to really end the post-world war II free trade, rules-based international trading order. And so he’s using the tariffs in order to crack that open. And I think we’re starting to see at least hints of a future order that the US is promoting — one that is really thinking about coercion and not co-operation.
Alan Beattie
OK, so all of these things that he’s trying to achieve at once, and you mentioned breaking up the postwar order, coercion, and replacing income tax revenue with tariffs. But there are other things as well, like reducing trade deficits, overall trade deficits bilateral trade deficits. He wants to annex Canada. He wants the annex Greenland. Somehow, he wants to challenge the EU and China. Just how many of these tools or how many these targets are there is he trying to hit with this one tool?
Abraham Newman
Well, you have to take a step back and think for, you know, the last 70 years, we had a system — it was about rules, it was about open markets, and it was about liberal democracies. And really those three things do not fit well with this administration’s goals. And so he’s creating a system, or you know, offering a system where it’s not about rules. It’s about inequality. It’s saying, you know, Greenland, it can be part of us. Canada, it should be part of us. What I would think of is like domination strategies rather than co-operation strategies.
Similarly, he’s saying it’s not about openness because the winning of openness is not always distributed just to the United States. And so he’s gonna use closure tariffs in order to reset a debate where once again, it’s about kind of a dominant strategy where every country and every firm really has to come to the White House and say, how can we get out from under this pressure?
And so I think if you’re Europe or China, you just have to realise this isn’t the old game. And in order to deal with it, you have to not just bargain or, you know, try to strike some deal. You have to come up with a different game that you have to offer the world. And I think that’s the best strategy right now.
Alan Beattie
I mean, if you look at his attitude to deficits, he seems to want to close every single bilateral deficit with every country in the world. Most likely, he’s actually just gonna cut the US off from international trade. Do you think he cares about that? Do you think he thinks the US is big enough and strong enough and rich enough, it can just go it alone? It can become, you know, an autarky.
Abraham Newman
Once again, I think the goal is not to maximise economic power for the United States. The goal is political. The point is to reconfigure politics both in the United States and globally in a way that re-centres power, not just for the American people. It’s not about the American, it’s about the group in the United States that will benefit from all of these countries and companies coming to the door and saying, you know, we need access. What do we have to do? And all of those things feed power back into that political circle.
Alan Beattie
And if Trump weren’t there, if JD Vance took over or a different Republican president took over, would you have the same issues or is this really just personal to him?
Abraham Newman
Well, there’s no doubt that Trump has like particular pegs that he just can’t get off of. So one of them is Germany and Japan — these were legacies of the 1980s. His interaction with the global economy then where he sees them as kind of super competitors. But I ultimately . . . I do not think that this is just a Trump phenomenon. I think there is a faction within the Republican party that sees the postwar liberal order as constraining the United States and in particular, a vision of world politics, which should not be about creating equal rules among equal countries.
Alan Beattie
Trump seems to have this funny attitude to the dollar, that on the one hand, he thinks it’s too strong and that’s disadvantageous to American industry. And then he has this one adviser — Stephen Miran — who’s gone on about a Mar-a-Lago Accord, where they were trying to mass size the dollar downwards and get other countries to agree to realign their currencies up against the dollar — what’s going on there? How does the exchange rate fit into Trump’s view of this power-based politics?
Abraham Newman
It is really about status and power and seeking these kinds of dominance relationships where people become dependent on the United States or the Trump administration. And so you saw that in the tariff announcement that if countries introduce retaliatory programmes, there would be then ratcheting up coercion. I think the Mar-a-Lago Accords, it’s part of this kind of new economic interdependence used in order to create, you know, pressure on allies to do things that the United States wants.
So it’s not just about reducing the dollar, it is about, you know, if countries want security guarantees from the United States, they have to then, you know, shift their currency into a, you know, lower status so that the United States benefits.
I often say we need to reject the premise. You know, it’s like the tariffs are not about manufacturing. The Mar-a-Lago Accords are not about the dollar. They’re about restructuring the international economy, and so that the United States, and in particular, this group around the White House can get, extract more for the United States. It is the slogan, America First. And I think we have to see it as that.
Alan Beattie
So the fact that he wants a lower dollar out of the Mar-a-Lago Accords, is that just incidental or is that the sort of residue of the old competitiveness-manufacturing exports sort of view of the world?
Abraham Newman
There’s a narrative which is about, you know, it’ll help our manufacturing. I’m struggling to believe that that is actually the goal of the administration because they’re taking a whole set of policies that undermines US manufacturing capabilities. So whether it’s ending the subsidies for chip manufacturers or new clean tech in addition to attacking universities, undermining R&D, I don’t think that there is a clear strategy. If you want to be a manufacturing powerhouse, you need a bunch of engineers, and those engineers are powered by research and development and the university system. So I think that it’s a hard argument to make that that’s the clear goal.
But they’re trying to alter the global economic order away from the liberal rules-based system to a system that is really about arbitrary use of power, hierarchy, and dominance. And they’re doing that in the guise of the different economic sectors, tariffs, currencies, but we should, I think, see them as such.
Alan Beattie
OK. Now, I’m old enough to remember when the internet and the tech economy was going to level everything in the world, make everything much more equal, much more open, and give everyone equal access to information and power. Instead of which it seems to have concentrated quite a lot. And it’s interesting that for a tariff man, Trump is actually surrounded by a lot of people from the tech industry. And, you know, in some cases, such as Elon Musk with Starlink, the satellite systems is one of these networks that you talk about that can be weaponised. To what extent is the US tech industry, which was always supposed to be libertarian and distinct from government, actually just part of the US government now. How much is it the sort of thing that can be weaponised and can be controlled?
Abraham Newman
Yeah, I mean, I would first just totally agree with your first statement, which is most of the major global markets, they’re very concentrated. So think about your cell phone, it’s operated on one or two operating systems — Apple or Google. A chip made by one or two companies — TSMC or Samsung. And if you make a global financial transaction, it’s going through about 10 banks globally. So that concentration of economic activity then allows states like the United States, also Europe and China, to pressure those companies to act on their behalf.
And I think the Starlink example is a clear example of that, where the United States basically, reportedly, you know, used it as a lever against Ukraine over mineral rights. And I that these companies have to be very careful because it puts them in a position where they’re no longer viewed as independent actors, but could be viewed as part of national security established in the United States.
Alan Beattie
So let’s take an example like Starlink, you know. Satellite communications, huge importance for commercial reasons and for geopolitical and military reasons, and you know, as you and other people pointed out, increasingly it’s hard to see a difference between those two. If Starlink just gets seen as this is an arm of the US government, they cannot be trusted and so forth, essentially doesn’t every government in the world need a Starlink?
Abraham Newman
Well, I mean, I think, with all of these platforms, it is really important to remember that it’s very difficult to extricate yourself from them. You know, there aren’t easy answers to Starlink, to the dollar clearing system. We don’t have that many choices. And so in the short term, I think, like Ukraine, for example, it can’t easily replace Starlink on the battlefield.
I think the longer-term question is, how do countries respond as this new world where there’s, you know, coercion at every doorstep, how do they think about responding? Every country is not gonna be able to put up a Starlink-like system. So if you have several on offer, then it weakens anybody’s ability to really coerce you. And so whether that’s Starlink or the kind of production networks around semiconductors, I think a more stable equilibrium would be if people just had a few choices rather than focused on trying to make everybody independent of each other.
Alan Beattie
So we’ve seen these things being used, right? So Joe Biden used lots of these tools, controlling semiconductor tech exports to China, using financial sanctions in Russia. Did any of this actually work? I mean, China’s still a rising economy and Russia’s still fighting in Ukraine.
Abraham Newman
Yeah, I mean, I think, you know, what the Biden administration did was they tried to focus the tools on both Russia and limiting its territorial expansion in Ukraine. And then also in China, it was a very different objective — it was trying to slow down China’s progression in kind of advanced semiconductors that could lead to AI.
And I think if you look at the Russia campaign, you know, in my view, you know, the benchmark is you have to be very clear what it is. If there had been no economic sanctions, would it be easier for Russia to conduct its war in Ukraine? Absolutely. So I think for the Biden administration, it was a bet worth taking because it slowed down Russia’s expansion in Ukraine. Is it a silver bullet? Of course not. But also, you know, military arms, they’re not a silver bullet either. I like to think in foreign policy, like, if you get a success rate of, I don’t know, 10 per cent, you’re doing quite well. Most of the time, foreign policy is not effective. And in that case, I think it clearly limited Russia’s ability to move forward on the battlefield.
In China, I think it’s much less clear of whether the export controls were successful or not. I think people in the Biden administration would say they did slow down China’s ability to advance in sophisticated AI. But it’s also clear that it has incentivised China to indigenise innovation in these spaces. They were already doing that before these export controls, but it accelerated China’s need to do that.
Alan Beattie
Now, if we look at the tools America has, you know, there are some things where it’s undoubtedly dominant — it’s got this huge position in the financial system, in the payment system, it’s got enormous amounts of military power. But then there may be other technologies, other areas, other networks, other kinds of interdependence where other countries are more powerful than the US. I’m thinking, for example, the Chinese dominance of 5G and mobile technology. What can other countries do to the US if they really want to, if they want to exert whatever leverage they can, what can they do?
Abraham Newman
Well, I would be advocating that instead of kind of a tit-for-tat ratcheting up, the other members, you know, the other parties in the world, they should come together and continue and promote economic exchange amongst themselves. They should write basically their own version of where we’re gonna go in the future of the global economy.
And I could imagine, you know, a new G2. You know, that was kind of, people often talked about that of China-US kind of structure that was gonna organise the global economy. The US is kind of exiting that and so you could imagine a European and China co-operative bargain that says, look, we want to continue a global economy based on economic exchange, and we’re gonna organise it so that the rest of the world can continue to do that.
And, you know, yes, you can target specific US political export goods like you know, that the European Union targeted Harley-Davidson motorcycles or things like that to kind of put pressure on Trump’s supporters. But I think a bigger goal should be to create an alternative that is not based on coercion, but is really based on co-operation and win-wins where the rest of the world will see value in it.
Alan Beattie
OK, so we’re gonna throw to a break and when we come back, we’ll discuss exactly that. What the economy, which is probably more in Trump’s sights than any other, the EU, can do to increase its resilience.
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OK, so we’re back from the break. Now, some people might think it odd that I identified Europe as potentially Trump’s number one target rather than China. Do you think that’s true?
Abraham Newman
Well, I mean, I think really the European Union stands for something that is an anathema to the ideas that Trump is promoting. It is about rules, it is about openness, and it is about liberal democracy. And so for all those reasons, it’s like a thorn in his side. And so I do think that, you know, Trump has said multiple times things like the European Union is a scam to undermine the United States.
In his first administration, he had a comment, something like, you might not believe this, but Europe’s one of our biggest economic adversaries. And so it’s no doubt that Trump views the European Union, in particular, as something that stands in his way. And so I do think that Europe faces unique challenges from the Trump administration.
Alan Beattie
Where do you think this idea comes from? Because, you know, the alliance with Europe from across the American political spectrum since the end of the second world war, from liberal Democrats to conservative Republicans, has been pretty strong, right? There’s been annoyances over trade, there’s a continual annoyance that Europe isn’t picking up enough of the bill in Nato and so forth, but nonetheless, that’s been pretty much the most reliable alliance. Where does it come from? Where does this idea come from that it’s a fundamental rival?
Abraham Newman
I think that’s important when you think about what’s happening, it’s not the security issues, you know, like who’s a military threat to the United States? What he’s always coming back to is how could the United States get a better economic deal from these, you know, competitors. And the thing that just is so difficult for him with Europe is that Europe always comes back and says, well, it’s about the rules, it’s about the WTO, it’s the multilateral order. That’s not the way he thinks politics should function around these negotiations, which are, I think in my mind, they’re not about loyalty. They’re not you’re a great ally and you’re, you know, a great friend, they’re about dominance. It’s who has the power and what are you gonna concede to him?
And it’s really important to recognise concessions do not create loyalty. It only opens up for more concessions. And so I think it is important for Europe to recognise this is a different type of challenge than just a bargaining challenge. You know, if we can just get a good deal, this will be done. It really has to think of this as a new political economic challenge that it has to stand up and face.
Alan Beattie
How much of this is about tech? Because, you know, Americans are always chafed against European rules on various things like food standards and so forth. But tech is one where Europe is a rule setter in an entirely new field, you now, in data protection, in the regulation of the internet, in trying to tax digital services companies. So is this dislike of rules on Trump’s part, how much is this filtering what the tech industry, particularly, thinks about Europe and its rule setting?
Abraham Newman
Do you know how much money big tech makes in Europe? You know, it’s like they complain a lot about GDPR and, you know, the Digital Services Act or Digital Markets Act, but these regulations, they have barely done anything to dent revenue or, you know, anything to Big Tech. And even I think in Europe there is a recognition that these regulations cannot really you know, manage the difficulty that Europe has on its dependence with Big Tech.
And so Europe, when it stands up to the United States to US companies, it has to be willing to stand behind its position. Basically, Europe said, well these are our rules and Trump is saying, no, we don’t accept those rules. So now it’s up to Europe really to push back and have a common position.
Alan Beattie
What you say about that, you know, the treatment of companies in Europe really strikes a chord with me because US tech companies dominate Europe. It’s not as if Europe has these tech champions that it’s defending. So I’m just wondering why it is. I guess the US, in particular, sees Europe as so incredibly hostile when European rule setting hasn’t actually stopped them dominating the European tech scene.
Abraham Newman
When countries that are big and powerful, when they try to externalise their rules, other people complain. You just have to be ready for that. And so I don’t see this as uniquely European or uniquely American. I think the reality is, right now, there is a huge market disparity, asymmetry between the US and Europe in tech. Europe, I think, did not expect that. If you go back, you know, to 2000, there were all these national champions — Deutsche Telekom — they thought they were gonna win from the digital world. So Europe and the United States basically have these very liberal markets. Everybody could play, and the US firms just, you know, ate Europe’s lunch. And they now have, you know, 80, 90, you know, over 90 per cent market share in many of these key sectors — cloud, social media, search.
So now I think that, you know, the preferences have flipped for European citizens and politicians. It’s easier to demand regulation because they have very few firms that would be, you know, caught economically in those regulations. US firms, what’s their strategy is to push back, say we’d like less because it’s always better to have less.
But ultimately, I think this is kind of a red herring. European regulations are not going to significantly undermine US bottom line in Big Tech. I think the bigger threat to Big Tech right now is getting too close to the US administration and really hurting its brand. You already see that with Tesla, for example, sales in Europe, they’ve just plummeted because they’re viewed not as a competitiveness challenge, but rather potentially a strategic challenge.
Alan Beattie
OK, so let’s look at Europe and how it conducts itself. You’ve recently written a paper with Agathe Demarais from the European Council on Foreign Relations on Europe and its geoeconomic power. First of all, can you tell us what geoeconomic power is and then what should Europe be doing about it?
Abraham Newman
Yes. Basically, geoeconomic power is just the idea that people use markets for influence, whether that’s either to protect themselves from a shock like Covid or from other actors trying to target them like Russia with the kind of the gas weapon. And Europe is in such a powerful position. I often, you know, when I talk to Europeans, they often bemoan kind of their weakness. And now what can they do? You know, it’s the US and China and Russia . . .
But if you just look at what’s happening in the world, you know, Russia is in an, you know, an economic crisis from the war. China is going through a multiyear readjustment because of demographic issues, because of political issues, and the United States is right now basically withdrawing from the world. So I think Europe should see itself as one of the largest markets in the word that has so much economic power that it can use that to defend itself against these types of threats.
And in the paper, Agathe and I, we really argue that the key is not about economic resources, it is about governance. It’s about the institutions that can leverage that economic might for its geostrategic ends. And, in particular, you know, if you compare, the United States has hundreds of people working on sanctions, export controls, all of these different key elements of these 21st-century economic weapons. Where Europe, you know, it’s distributed across all of the different member states, there’s just a handful of people and there’s no way to co-ordinate them.
So when the [European] Commission, let’s say, does implement sanctions on Russia, it often has to turn to US counterparts to target those sanctions and get the intelligence to do that. Well, you know, that intelligence might not be there for much longer. So Europe really needs to take the institutional and governance part of this question seriously, if it’s gonna match its economic power to its capability to use that.
Alan Beattie
Now, you mentioned before the possibility of a G2 with the EU and China, apart from the fact that they both dislike Donald Trump, what is it about the EU and China that would really bring them together and actually make them work as a duo?
Abraham Newman
A G2 is not creating a free trade agreement between these two partners that then, you know, leads to deep integration, that’s not what a G2 is. When it was the US and China, that was not what it was either. What it was, was an idea that there were responsible stakeholders who agreed that they wanted to stabilise the global economy in order to prevent shocks that could destroy both of their economies in the process. And so I think that is the agenda that these two economic groups need to pursue is to say, where are the places that we can co-ordinate and help the rest of the world in order to prevent these kinds of shocks that could destabilise us?
I mean, the most immediate issue is how to manage trade diversion that is going to happen because of America’s tariffs. And that’s something where Europe and China are both interested in that question. And they, instead of just kind of randomly acting individually, they should be coordinating. If you think about what the US did in the global financial crisis, the swap lines that the Treasury department opened, you know, those kinds of things, like who is going to be the stabiliser in these types of crisis situations. I think there’s a role for China and Europe in order to play that kind of position.
Alan Beattie
Mm-hmm. Now, what institutions are there that, you know, this G2 co-operation — if not an alliance — could work through? The obvious one is the World Trade Organization, you know. Is that the sort of institution which the EU and China working together, can keep going and rejuvenating? Because then there are other countries like India, which is not a big fan of the WTO at all. So how do they do this? How do they operationalise this? What are the sets of rules? What are institutions that they can work through.
Abraham Newman
Yeah, I mean, I think this is really more a summiting process between the two parties. The first key is to say, we’re not going to just help ourselves, and we’re also not going to hit back at those that are harmed. It’s very similar to the problem that happened after Covid. You know, the first response was to say we’ll just hoard as many masks as we can get. It creates a vicious cycle where then everybody starts to do that, and that’s how you get into those kinds of economic crises at a global scale that we had in the 1930s.
And so I think in this moment, it’s a more a stabilisation function that a G2 thing could offer, which is to have the major parties come together and say, you know, we need to put some brakes in place. We’re not gonna break all the rules. We’re going to limit coercion against each other and we’re going try to manage absorbing these tariff diversions. That doesn’t mean that we will agree on, you know, these larger geopolitical ends and we will continue to have fights and we’ll have to be willing to be assertive in our interests. But there are these collective goods, these common goods in the global economy that we have to protect so that we don’t, you know, things don’t get out of control.
Alan Beattie
So let’s come to the final question: over the next decade, what’s gonna happen with weaponised interdependence, what will the world economy and globalisation look like at the end of it?
Abraham Newman
Well, I think we’re seeing the increased use of economic coercion on the global scale. I think the . . . We have kind of two different paths: One is where that really drives people to fragment and to decouple from each other. I think that that is the bad path. It will cost so many people their economic livelihood and it could risk spiralling in ways that don’t just threaten the economy, but also security.
The other alternative, which I think is the one that we really all need to work to get to, is a place where we contain the use of these tools in order to achieve legitimate ends — things that people agree on, like non-proliferation or human rights issues or coercion. And that requires that we have a language around when is coercion acceptable and when it’s not acceptable. And the first thing that people need to do is when it’s used in an illegitimate way, it needs to be called out. So instead of giving in to coercion and saying, Oh yes, can I strike a deal? There needs to be a collective response to say, that’s illegitimate and we’re not gonna bargain with people that use these tools in that way.
Alan Beattie
OK, so there’s a bad outcome and a good outcome, and I’m gonna press you which one is more likely at the end of a decade?
Abraham Newman
I mean, that is a hard question. I think that it’s really . . . If I had that, you know, magic eight ball, I would say it’s very uncertain right now, come ask me again in five years.
Alan Beattie
OK. Abe, thanks so much for joining us today
Abraham Newman
Thanks, Alan. This was a great conversation.
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Alan Beattie
That’s all for this week. You’ve been listening to The Economic Show with me, Alan Beattie. If you enjoy the show, then we’d be eternally grateful if you could rate and review us wherever you listen.
This episode was produced by Mischa Frankl-Duval and Laurence Knight. With original music by Breen Turner and sound engineering by Simon Panayi. Our executive producer is Manuela Saragosa. Cheryl Brumley is the FT’s global head of audio. I’m Alan Beattie, thanks for listening.
