Is this the end of Google? The weaponization of the global economy

Oct 26, 2024

Welcome to "The world, simplified", a weekly show that will break down some of the biggest developments in finance and economics that are shaping our world.

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In this episode, we break down two major stories reshaping our world:

The Trigger: Antitrust Lawsuits Against Google and Visa
Chokepoints and Weaponized Interdependence

The trigger: Antitrust lawsuits against Google and Visa

You probably use Google’s services more than once in every waking hour. If you're looking something up, you likely "Google" it. To communicate, there’s Gmail. For entertainment, there's YouTube. If you’re finding your way somewhere, Google Maps is your go-to.

On the other hand, if you’re big on using cards for payments, Visa is likely your main link to the world of shopping and transactions.

We depend on these companies for much of our daily life. So, what happens if these companies start taking advantage of that reliance?

This is the big question the American legal system is grappling with right now. In recent years, the U.S. Department of Justice has filed two major antitrust lawsuits against Google — and it has already lost one. These cases might fundamentally change how Google operates. Visa, meanwhile, has also been sued for allegedly blocking competition in the debit card business.

Today, we’re diving into the core of it all — why these lawsuits are happening and why they matter to you.

A World of mega-businesses

Our world is run by mega-businesses. We rely on companies that are sometimes larger than entire countries to handle big parts of our daily lives.

Here are just a few examples:

Every time someone swipes a card, there’s about a 60% chance that Visa is processing the transaction behind the scenes.
Of every ten rupees spent on digital ads worldwide, seven go to either Google or Meta.
One-third of the world’s cloud market — the backbone of the internet — is controlled by Amazon.

And the list goes on.

There may be no other time in history when so few companies have controlled so many parts of our lives — from how we communicate to how we pay to how we work.

These companies have certainly made life more convenient, but they've also made us more vulnerable. From important documents to personal details, they hold a lot of information about us. And they often set the rules we have to follow. Think about it: if you disagree with Google’s privacy policy, what are your options? Can you really fight it, or do you have to go along with it?

Thankfully, there’s a part of the law that can stand up for us — antitrust law, the ‘people’s champion.’

What is antitrust, and why does it exist?

Antitrust laws make sure businesses compete fairly. They’re based on one simple idea: competition keeps businesses in check. If customers can easily switch to a competitor, businesses have to work hard to keep them happy.

The problem today is that many big businesses don’t have any real competition. If you’re not a fan of YouTube’s membership model, for instance, there’s nowhere else you can find millions of videos on every topic imaginable. If you feel that Instagram is designed to hijack your attention, there’s still no other platform where you can keep up with your friends in the same way. We’re essentially trapped, which gives today’s mega-businesses a lot of power.

Antitrust laws aim to prevent these imbalances. When a business becomes too powerful, antitrust laws step in to stop it from doing things that might harm customers or push out other competitors.

This is why these cases matter to all of us. While they’re happening in America, they could help level the playing field between companies like Google and the rest of us worldwide.

Antitrust: A brief history

Antitrust laws came about during a time much like ours when the big businesses of the day had a huge influence over people’s lives.

It was the late 19th century, and the U.S. economy was booming. Railroads were expanding, connecting the country from coast to coast and creating a unified national economy for the first time. During this "Gilded Age," American businesses grew on an unprecedented scale.

While this era was one of amazing growth, it was also one of major consolidation. Those who owned these companies held immense power over the American economy and politics.

Take John D. Rockefeller, for example. His oil refining company, Standard Oil, became infamous for its aggressive tactics — exploiting workers, buying out competitors, and lobbying for political influence. By the 1880s, after two decades of operations, Standard Oil controlled 90% of the U.S. oil refining market.

The rise of monopolies like Standard Oil set off alarm bells. Oil workers faced harsh conditions, small businesses struggled to survive, and consumers had fewer choices. Something had to change.

In 1890, Congress passed the world’s first modern antitrust law, the Sherman Act, to break up monopolies and prevent companies from teaming up to kill competition.

In 1911, this law was enforced against Standard Oil. The U.S. Supreme Court found the company guilty of using monopolistic practices to maintain its dominance and ordered it to break up. Standard Oil was split into 34 independent companies, many of which — like ExxonMobil and Chevron — went on to become major oil players in their own right.

For much of the 20th century, people believed that a healthy market was one with plenty of companies, so no single one could dominate. This idea came from the Harvard Structuralist School. Structuralists argued that big companies would inevitably use their size to block new competitors, limit innovation, and control prices — even if they didn’t immediately raise prices for consumers. These ideas heavily influenced antitrust law.

In the 1970s, however, a new perspective emerged from the University of Chicago. This “Chicago School” argued that large companies weren’t necessarily bad for competition. It claimed that big firms could even be more efficient than smaller competitors, offering better services at lower costs.

Instead of focusing on the number of companies in a market, the Chicago School argued that antitrust laws should focus only on consumer welfare. They claimed that consumers cared less about having many choices and more about keeping prices low. So, they argued, the government should only step in if a company’s actions directly hurt consumers by raising prices. This view became popular in the 1980s, leading to a more selective enforcement of antitrust laws.

As Big Tech companies like Google and Facebook began their rise, this narrow focus on prices shielded them from antitrust scrutiny. These companies offered services that were technically “free.” Since they weren’t charging consumers, it was hard to argue they were causing harm in the traditional sense.

But behind the scenes, these companies were growing into giants, gaining the power to shape entire industries — and they often used that power freely. Their rise went largely unchecked because regulators weren’t looking beyond price to consider their broader impact on digital markets.

The increase in markups and profit margins suggests that these firms are using their market share to boost profits.

Now, we find ourselves in a new Gilded Age, where a handful of massive companies hold huge influence over markets. On one hand, we benefit greatly from the services they provide, but on the other, their immense power raises concerns. It’s hard to even imagine a tech industry that isn’t dominated by a few key players.

This is why today’s antitrust battles are so important.

The case for greater antitrust scrutiny

Big Tech companies like Google, Amazon, and Meta have undoubtedly brought tremendous value and convenience to our lives. But there’s a big unknown: how might digital markets have evolved if they’d been more competitive from the start?

For over a decade, the digital economy has grown without the constant pressure of competition to keep these companies in check. Without rivals pushing them to innovate responsibly and protect consumer interests, these companies set the rules for entire markets, shaping how technology evolves. Imagine a world where those rivals existed:

While Big Tech has driven groundbreaking innovation, with more competition, we might have seen even more diverse approaches to new technology and faster advancements.
In a competitive market, different platforms could have handled issues like misinformation or polarizing content differently, possibly leading to a less divided online environment.
If competition were stronger, some companies might have created privacy-first business models, giving users genuine choices that protect their personal information and the list goes on.

The true potential of these industries can only be realized when many companies are free to pursue their own paths. Right now, a few companies control the direction of entire sectors, limiting the diversity and benefits that open competition could bring. Greater antitrust scrutiny is key to unlocking these possibilities.

The complexities of digital antitrust

We’ve looked at the potential benefits of enforcing antitrust laws, but there are major challenges when it comes to suing digital companies. Antitrust laws were originally designed for an era of steel mills and railroads, not for digital empires built on data and free services.

For an antitrust case to succeed in court, it has to show that a company has caused harm. But it’s hard to prove “harm” when a company’s services are free. As long as digital companies provide something for consumers without directly charging them, it’s difficult to argue that they’re causing harm, no matter what their practices may be.
This is further complicated by the fact that, unlike traditional businesses that charge money, digital companies collect user data as their currency. People tend to treat their data very differently than they treat their money, so our current ways of defining consumer harm don’t quite fit.
Another challenge is that Big Tech companies operate globally, often beyond the reach of a single national regulator. Antitrust laws vary from country to country, making coordinated enforcement difficult.
And finally, these companies are also seen as strategic assets in the global economy, especially in competition with rivals from countries like China.

All these factors make digital antitrust enforcement far more complex than in the past due to which Antitrust Enforcement Cases Have Dropped Since the 1970s.

The Google cases: Search & Advertising

Let’s start by breaking down these two cases.

The first case centers around Google’s dominance in the search market, where it controls an astonishing 90% of global search traffic. How does Google maintain such a strong lead? Part of it comes from the billions of dollars Google spends each year—reportedly around $20 billion annually—to ensure it’s the default search engine on popular devices like Apple’s iPhones.

The U.S. Department of Justice (DOJ) argues that these deals effectively shut out competition. Competitors like Bing or DuckDuckGo can’t gain the same visibility when Google pays to be the default option everywhere.

Google argues that users choose its search engine because it provides the best experience. However, a judge recently ruled that these practices are anticompetitive, declaring Google a monopolist in the search market.

This ruling has led to several proposed remedies, each of which could dramatically change the search market:

Banning Exclusive Agreements: One option is to stop Google from making exclusive deals with companies like Apple. Imagine setting up your next device and being given a choice of search engines—Google, Bing, or DuckDuckGo.
Splitting Google’s Search Business: Another possibility is breaking up Google’s search business from its other products, like its advertising business or Android. This would prevent Google from tying its search engine to other services.
Data Sharing: Lastly, Google could be required to share anonymized search data with competitors. This would give other search engines access to similar data, making it easier for them to offer relevant search results and promoting fair competition.

Each of these remedies could significantly alter the search market, giving smaller competitors a fairer chance. However, it’s worth noting that Google will likely appeal, and these legal battles could take years to fully resolve.

The second major case against Google centers on its dominance in digital advertising, and things get even more complex here.

Google controls multiple layers of the ad tech ecosystem. It owns platforms like Google AdSense, which publishers use to sell ad space. It also runs Google Ads, the tool advertisers use to buy that space. And, on top of it all, Google controls Google AdX, the exchange where those ads are bought and sold. This setup gives Google an enormous amount of power—essentially making it the gatekeeper of digital advertising.

To put this in perspective, imagine a stock market where one company owns the exchange, acts as a broker for both buyers and sellers and even controls some of the stocks being traded. That’s essentially what Google has created in digital advertising.

The DOJ claims that Google uses this dominance to shut out competitors and force both advertisers and publishers to use its services, driving up ad prices and reducing transparency. This creates a market where small businesses and competitors struggle to compete, as Google controls nearly every part of the advertising process.

To address this, the DOJ is proposing that Google break up its ad tech business. By separating different parts of the ad ecosystem—such as the platforms where ads are bought and sold and the exchange where transactions occur—it could ensure that no single company holds all the power.

But, as with the search case, these legal battles will take time. Google is expected to appeal, so we may be looking at years of proceedings.

In both the search and advertising cases, the consequences could be enormous—not just for Google, but for the entire tech ecosystem. If these antitrust measures go through, they could reshape how we experience the Internet and how businesses operate in digital markets.

But Google isn’t the only giant facing regulatory scrutiny. Let’s turn our attention to Visa, a financial powerhouse whose dominance in the payments industry is now at the center of its own antitrust battles.

The Visa case: A gatekeeper of global transactions

Visa is more than just a name on the card you swipe. It’s a giant in the financial system, acting as a gatekeeper for most global transactions. With a network that processes trillions of dollars annually, Visa dominates the credit and debit card markets.

But Visa’s business model isn’t like a traditional bank. It doesn’t issue credit or hold deposits; instead, it operates as a payment network. When you use your debit or credit card, Visa handles the transaction and takes a small fee for each swipe. These interchange fees, paid by merchants to the banks and then split with Visa, make up a large part of the company’s revenue. So, in nearly every card transaction, Visa takes a cut.

The heart of the Department of Justice (DOJ) lawsuit is the claim that Visa is using its market dominance to stifle competition, especially in the debit card market. The DOJ alleges that Visa has created barriers to competition by controlling a large share of U.S. debit card transactions. In doing so, Visa has supposedly limited smaller networks and fintech startups from scaling effectively, locking them out of a market where Visa sets the rules.

One of the main tools Visa allegedly uses to maintain its dominance is exclusivity agreements. By requiring merchants and payment processors to route transactions solely through its network, Visa limits competing networks’ ability to grow. These restrictive measures make it challenging for smaller, PIN-based networks or new payment platforms to expand.

The DOJ argues that Visa’s practices effectively block competition, which could lead to higher fees for small businesses and, eventually, higher costs for consumers. Visa has also been accused of actively working to maintain its monopoly by making it difficult for newer, lower-cost payment systems to gain traction.

So, what might happen next? If Visa is found to be abusing its market power, we could see some major changes. The DOJ may require Visa to change its business practices to foster more competition in the payments industry, which could lead to lower fees for consumers and merchants alike. Much like the Google cases, the outcomes here could reshape the industry and change how we think about and interact with financial transactions in the future. However, there’s still a long legal road ahead.

Global antitrust efforts: The world takes on Big Tech

It’s not just the U.S. dealing with the dominance of companies like Google, Amazon, and Visa. Regulators around the world are facing the same challenge, each with its own approach. In particular, the European Union has been very active in addressing these tech giants.

The EU’s approach to competition law focuses on ensuring fair access and stopping gatekeepers—like Google and Apple—from abusing their dominant positions. This is why we’ve seen big fines against these companies in Europe and why the EU passed the Digital Markets Act (DMA). This legislation specifically targets companies with disproportionate power, preventing them from unfairly promoting their own services over those of competitors. For example, Google can no longer favor its own shopping services in search results over others.

In contrast, the U.S. has typically taken a hands-off approach to regulating Big Tech, focusing more on consumer welfare, particularly on keeping prices low. Since companies like Google, Facebook, and Amazon offer many services for “free,” it was challenging to justify antitrust cases under this framework. After all, how can consumers be harmed if they aren’t paying for the service?

But with growing concerns over privacy, misinformation, and the sheer market power of these companies, the U.S. has started to ramp up its antitrust efforts. Through these lawsuits and investigations, the government is now trying to rebalance competition.

So, why should this matter to you? Ultimately, it’s about choice and fairness. These powerful companies impact nearly every part of our lives—from what we see online, to the hidden fees we pay, to how innovation is shaped by their dominance. The choices you have, the services you use, and the costs you incur are all influenced by how these giants operate.

We’re at a pivotal moment in history in regulating some of the most powerful companies the world has ever seen. The decisions made in these antitrust cases could reshape not only the tech industry but also how we interact with technology itself.

Chokepoints and weaponized interdependence

Imagine a world where entire economies can be crippled—not by bombs or armies, but by controlling a single strategic resource or location. Picture the flow of oil, semiconductors, or global finance being turned on or off like a tap. This isn’t a movie plot but the fragile reality of our interconnected world.

Today, let’s talk about something that quietly shapes global markets, trade, and even our daily lives—chokepoints.

Chokepoints are critical pathways in global trade, and any disruption has immediate consequences. We’re going to explore how vital resources move through these chokepoints and how nations are increasingly using them as tools of economic warfare.

You might be wondering, "Why should I care about these chokepoints?"

Well, our global economy depends on keeping these chokepoints open. When one gets blocked, the impact is immediate and severe. For example, about one-fifth of the world’s seaborne oil passes through the Strait of Hormuz every day.

Now, imagine if there were a conflict in this narrow waterway, which is only 21 miles wide at its narrowest point. Oil prices would skyrocket globally, and we’d all feel the pinch at the gas pump.

The Taiwan Strait is another critical chokepoint—an essential route for global trade and home to Taiwan, a major semiconductor hub. If this chokepoint were blocked or attacked, it wouldn’t just delay the latest iPhone you ordered. Everything from washing machines to lifesaving medical devices could become little more than useless pieces of metal and plastic, left unfinished on factory floors.

And those are just two of the hundreds of chokepoints in the global economy.

We live in a world built on fragile connections, and these chokepoints are the weak links in that chain. They can be blocked, disrupted, or even weaponized. And this isn’t just a theoretical threat—it’s happening more and more as global tensions rise and the world becomes more fragmented.

Let’s take a look at some history to understand how we got here.

In the early 20th century, a British journalist named Norman Angell made a bold prediction. He argued that war between major nations had become pointless because of economic interdependence. His logic was simple: if countries were economically tied together, war would only harm their own economies along with their enemies’. After all, who would willingly set fire to their own house?

In a world where trade and industry were growing more global by the day, Angell’s idea made sense. Why would any rational nation destroy the very system keeping it prosperous?

Was he right? Just a few years later, World War I erupted, drawing in deeply connected nations like Britain, France, and Germany. The devastation proved Angell’s theory wrong—wars didn’t happen in spite of economic ties; sometimes, they happened because of them.

So what went wrong?

While economic connections can encourage peace, they also create vulnerabilities. Becoming too dependent on another country for resources or trade can pose serious risks. When those ties break, it can create severe problems for dependent nations, as World War I tragically demonstrated.

Fast forward to today, and the idea of interdependence has morphed into something even more dangerous. Welcome to the age of "Weaponized Interdependence." What does that mean? In simple terms, it’s when countries use others’ economic dependence against them as a tool of power.

Political scientists Henry Farrell and Abraham Newman coined this term to explain how, in our hyper-connected world, military force isn’t the only way nations exert control. Now, countries can weaponize the very systems that drive the global economy—trade, technology, and finance—to gain leverage over their adversaries.

When that happens, it can lead to chaos, as we’ll soon see.

So, what are the world’s most critical chokepoints, and why should we care?

Let’s start with natural chokepoints. These are narrow geographic passages connecting major waterways. With over 90% of global trade moving by sea, any disruption here could have massive consequences.

Take the Strait of Hormuz, for example. Picture an oil tanker departing from the Persian Gulf, a region that’s home to the world’s biggest oil producers, including Saudi Arabia, Kuwait, Iran, and the UAE. To deliver its cargo, the tanker must pass through the Strait of Hormuz, a narrow waterway just 39 kilometers wide at its tightest point, linking the Persian Gulf to the Arabian Sea. This strait is one of the most strategically crucial passages on the planet.

Why? Every day, around 21 million barrels of oil—roughly 20% of the world’s total supply—flows through the Strait of Hormuz. And it’s not just oil; 20% of the world’s natural gas also passes through here.

If this narrow waterway were blocked due to conflict, global oil prices would surge, sending shockwaves worldwide. The costs of everything—fuel, pharmaceuticals, fertilizers, food, and consumer goods—would spike.

This isn’t just hypothetical; ongoing tensions between Iran and Israel are increasingly putting the Strait at risk.

Another critical chokepoint is the Strait of Malacca, a narrow sea passage running between Indonesia, Malaysia, and Singapore. It connects the Indian Ocean to the South China Sea, with over 40% of global trade flowing through it. For major economies like China, Japan, and South Korea, 64% of their maritime trade passes through the Malacca Strait.

If the Malacca Strait were blocked, these economic giants would feel the impact almost immediately. Factories would run out of fuel, industries would grind to a halt, and the ripple effects would reach every corner of the global economy. Shortages, price hikes, and widespread disruption would follow, all because one narrow stretch of water was compromised.

Finally, there’s the Suez Canal, another chokepoint that often makes headlines.

Located in Egypt, the Suez Canal is a vital shortcut between Europe and Asia, allowing ships to avoid the long, costly journey around Africa’s southern tip. Around 12% of global trade, 7-10% of the world’s oil supply, and about 8% of global natural gas pass through this canal. To put that in perspective, one-third of all global shipping container traffic goes through this narrow waterway.

In 2021, we saw just how fragile this chokepoint could be when the Ever Given, a massive container ship, got stuck, blocking the canal for nearly a week. The incident led to an estimated $9 billion in losses per day, with more than 400 ships stuck waiting to pass through at the peak of the crisis.

Fast forward to November 2023, and the Suez Canal faced yet another challenge—this time linked to the conflict between Israel and Gaza. Houthi rebels, backed by Iran, have been targeting vessels in the Red Sea, near the Bab al-Mandab Strait—a crucial route for ships traveling between Europe and Asia.

As a result, many major shipping companies began redirecting their vessels around the Cape of Good Hope. This alternative route added 30% more travel distance or an extra 3,500 nautical miles. Traffic through the Red Sea dropped sharply, with container ship activity falling by 50-60% compared to previous years.

But not all chokepoints are physical. Some are production chokepoints—specific places where the world’s critical goods are made.

Take Taiwan, for example. It’s a small island, but it’s essential to the global economy. Taiwan produces over 90% of the world’s most advanced semiconductors and around 77% of the global market for integrated circuit manufacturing. One company in particular, TSMC (Taiwan Semiconductor Manufacturing Company), makes nearly 90% of the world’s most advanced chips. These tiny chips are the brains behind everything from smartphones to electric cars. Without them, much of modern technology simply wouldn’t function.

Imagine if Taiwan’s chip production were disrupted, either by natural disaster or rising tensions with China. This wouldn’t just delay your next phone; it would force entire industries to halt. Car manufacturers would struggle to meet demand, tech companies would face production delays, and prices for anything with a chip inside would skyrocket.

We got a preview of this scenario during the COVID-19 pandemic. Taiwanese chipmakers faced factory shutdowns and supply chain disruptions, leading to severe shortages worldwide. The automotive industry was hit especially hard. Companies like General Motors and Volkswagen had to pause production, losing billions due to chip shortages. This was just a glimpse of how crucial Taiwan’s semiconductor industry is to the global economy.

The United States, specifically North Carolina, is also critical due to its supply of ultra-pure quartz. This isn’t just any mineral; it’s essential for semiconductor manufacturing. Without ultra-pure quartz, producing advanced semiconductors would be impossible. In 2024, when Hurricane Helene hit North Carolina, mining operations were affected, raising concerns over quartz supplies for the semiconductor industry. Now, imagine a scenario where the U.S. and China are in conflict, and the U.S. stops exporting quartz to China. Such a disruption would cause chaos in the global semiconductor market, rippling through the entire global economy.

Now, let’s talk about China, a mega chokepoint for many resources. One of the most critical is its control over rare earth elements. These minerals are essential for everything from smartphones to military equipment, and China controls about 80% of the world’s supply. Rare earths are difficult to substitute, and back in 2010, during a territorial dispute with Japan, China briefly stopped exports of these vital minerals, creating chaos in Japan. It was a powerful example of how disruptive these chokepoints can be when weaponized.

And it doesn’t stop there. China also leads the market for lithium-ion batteries, controlling over 70% of global production capacity. As the world shifts toward electric vehicles and renewable energy, these batteries are becoming the backbone of green technology. Any disruption in China’s supply chains would have far-reaching consequences, not only for the electric vehicle market but also for the entire green transition.

Now, let’s shift our focus to something even more fundamental: food. In 2022, the world got a harsh reminder of just how fragile global food systems are when Russia invaded Ukraine. Together, these two countries account for nearly 30% of the world’s wheat exports. When the war disrupted their ability to export, global wheat prices soared by over 70%, hitting some of the poorest economies the hardest.

The impact wasn’t limited to food—the war also shook up the global fertilizer market. Before the conflict, Russia and Belarus made up 40% of the world’s potash trade. Potash, a potassium-rich mineral, is vital for plant growth and is primarily used as fertilizer to boost agricultural production.

After the invasion, global fertilizer prices spiked due to disruptions and sanctions against Russia and Belarus. This drop in supply led to fears of widespread impacts on farming, especially in developing countries that heavily rely on these imports.

The hardest-hit countries were poorer nations in Africa and the Middle East, which depend heavily on wheat imports from Russia and Ukraine. For these regions, it wasn’t just about rising food prices—it became a matter of survival as global food insecurity grew.

Now, let’s talk about something less visible but just as powerful: financial chokepoints. At the heart of this is the U.S. dollar—a tool that doesn’t involve missiles, armies, or bases, but banks.

The U.S. dollar became the backbone of the global financial system due to a mix of historical events and strategic choices. After World War II, the world needed a stable financial system to support post-war recovery. At the 1944 Bretton Woods Conference, the dollar was chosen as the global reserve currency, backed by gold. This system linked other currencies to the dollar, providing much-needed stability.

In 1971, however, President Richard Nixon took the U.S. off the gold standard, effectively decoupling the dollar from gold. From that point on, the dollar wasn’t backed by anything tangible; its value was linked to the strength of the U.S. economy. Despite this shift, the dollar’s global dominance continued to grow.

At the height of the Cold War, the U.S. was not only the world’s military leader but also its financial leader. As it became clear that control over global finance could be a powerful tool, the U.S. began to weaponize the dollar. Economic sanctions became a core part of U.S. foreign policy, allowing it to pressure adversaries without resorting to military action.

Understanding economic sanctions

Economic sanctions are penalties imposed by one country on another or specific individuals, aiming to deter or weaken them. Sanctions come in many forms: trade restrictions, asset freezes, bans from the global banking system, travel bans, and even technology blocks. The goal? To exert influence without firing bullets.

The U.S. has a long history of using sanctions to assert its power. One of the longest-running sanctions targets Cuba. After Fidel Castro nationalized U.S.-owned companies in 1960, the U.S. imposed a trade embargo to isolate Cuba from American goods and capital, aiming to weaken Castro’s regime. Over 60 years later, that embargo is still in effect.

But Cuba was only the beginning. During the Cold War, the U.S. ramped up sanctions against the Soviet Union and its allies, using economic penalties to counter countries aligned with communism. The goal wasn’t just to punish but to cut off adversaries’ ability to fund their military actions—all without a single shot fired.

Then came the terrorist attacks of 9/11, marking a turning point in how the U.S. viewed its financial power. The government realized that terrorist groups like al-Qaeda weren’t just using guns and bombs; they relied on complex financial networks to move money across borders, often through shell companies and hidden accounts.

The SWIFT network and financial tracking

This realization led the U.S. to use its financial control to combat terrorism, expanding its powers to track transactions, freeze assets, and investigate suspected terrorist financing. Central to this effort was the SWIFT network.

SWIFT is not a bank but a secure messaging system that allows banks worldwide to transfer money across borders. It’s essential to how modern banking functions. Being cut off from SWIFT is like losing access to the global financial system.

After 9/11, the U.S. started using SWIFT to track money flows related to terrorism. Here’s the catch: while SWIFT is a European organization, a copy of its data is stored on U.S. servers, giving U.S. authorities access to vast amounts of financial information worldwide.

This move wasn’t without controversy. European nations argued that the U.S. was overstepping and violating privacy. But despite the pushback, the U.S. had found a powerful new way to leverage its global financial influence.

Sanctions and SWIFT weren’t limited to tracking terrorist networks. Soon, they were used against entire countries. Take Iran, for example. In the early 2000s, the U.S. imposed strict sanctions on Iran by targeting its access to SWIFT, aiming to stop its nuclear program.

The impact on Iran was severe. Oil exports plunged, inflation soared, and unemployment rose sharply. With just a few decisions, the U.S. had effectively cut off one of the world’s largest oil producers from the global financial system.

The most dramatic use of sanctions came in 2022 after Russia’s invasion of Ukraine. The U.S. and its allies froze $300 billion of Russia’s central bank reserves and cut Russia out of the international banking system, making it nearly impossible for the country to stabilize its currency or fund its war efforts. It was a stunning display of the power of the dollar.

Imagine spending decades building up financial reserves as a buffer, only to lose access to them overnight.

While these sanctions have been effective, countries are increasingly wary of U.S. dominance over global finance. China and Russia are leading efforts to create alternatives to the U.S.-centric system, developing their own SWIFT-like networks and encouraging others to join them.

These systems are still in their early stages, but they signal a desire to break free from U.S. financial control.

So, where does this leave us?

The U.S. remains the gatekeeper of the global financial system, wielding the dollar to influence global politics without firing a shot. But as more countries are targeted by U.S. sanctions, they’re increasingly looking for ways to operate outside of the U.S.’s reach. This could lead to a more fragmented financial system, where power is less centralized.

To truly understand this concept of weaponized interdependence, it helps to look at a bit of history.

Let’s start with World War I. At the time, Britain was the dominant naval power, and it didn’t just use its navy for military operations. Britain turned its naval supremacy into an economic weapon by enforcing a blockade against Germany. This blockade wasn’t just about stopping military supplies—it aimed to cut off essential goods like food and raw materials that civilians needed to survive.

The effects were brutal. Germany’s civilian population suffered greatly, and by the end of the war, over 400,000 German civilians had died from malnutrition and related diseases. The blockade crippled Germany’s economy and pushed it closer to defeat.

But sanctions aren’t the only tools of weaponized interdependence. Trade wars play a role too. Take Australia in 2020: after calling for an international investigation into COVID-19’s origins, China responded by imposing tariffs on Australian wine, restricting coal imports, and slowing shipments of key agricultural products. The message to Australia was clear: “If you cross us, we can cause you serious economic pain.”

These examples show that wars aren’t always fought with weapons. Sanctions, blockades, and trade restrictions have become powerful tools in the global economy, causing damage that can be as devastating as bombs.

At the heart of modern economic warfare is the growing tension between the U.S. and China. As the world’s largest economies, their rivalry isn’t just about trade tariffs or currency disputes. This conflict could have far more serious consequences if it continues to escalate, with some experts even warning of the risk of direct confrontation. But instead of relying solely on traditional military tactics, both countries have learned to weaponize their global economic influence—though in very different ways.

For the U.S., economic warfare has traditionally revolved around its dominance of the global financial system. The U.S. dollar is the world’s reserve currency, giving America immense leverage. Since World War II, the U.S. has used sanctions as a primary tool, imposing financial penalties on countries that defy its policies. This power only grew after 9/11, as the U.S. incorporated the SWIFT system—the backbone of global financial messaging—into its financial strategy.

China, on the other hand, takes a different approach, relying more on its role in global supply chains and its massive domestic market. While China doesn’t use sanctions as frequently as the U.S., it uses its market access to punish countries or companies that challenge it. For example, when Australia called for a COVID-19 investigation, China responded by imposing tariffs on Australian goods.

A recent example of this approach is China’s export restrictions on gallium and germanium—materials critical for advanced semiconductor production. In 2022, China produced 98% of global gallium and 60% of germanium, giving it leverage over the global tech industry, especially as tech tensions between the U.S. and China continue to rise.

But resources and market access aren’t the only tools these giants use in economic battles. The U.S. has a history of leveraging international organizations to its advantage. For example, under the Trump administration, the U.S. threatened to weaken the World Trade Organization (WTO) by blocking the appointment of judges.

China, meanwhile, has been accused of using its Belt and Road Initiative (BRI) as a form of economic pressure. The BRI involves major infrastructure projects in developing countries, but critics argue that many of these projects lead to “debt traps”—situations where countries borrow from China, can’t repay, and end up giving up control of strategic assets. For instance, when Sri Lanka couldn’t repay loans for the Hambantota port, it had to lease the port to a Chinese company for 99 years. Similarly, countries like Djibouti, Kyrgyzstan, and Montenegro are dealing with unsustainable debt tied to Chinese infrastructure projects, raising fears that they, too, might lose control of key resources or territories.

In the end, both the U.S. and China are engaged in a high-stakes game of economic warfare, but they play it based on their unique strengths. The U.S. dominates financial networks and influences international organizations, while China uses its market power to pressure other nations. As these superpowers continue to weaponize their economic relationships, countries around the world find themselves caught in the middle, trying to navigate a web of economic dependencies that could shift at any moment.

This ongoing economic conflict between the U.S. and China isn’t just about trade policies or financial systems—it’s about power. And as both nations flex their economic muscles, the rest of the world is left dealing with the consequences of this new kind of warfare.

Now, let’s step back and look at how all these shifts in global power are shaping a more divided world—one that’s increasingly split into competing blocs. The consequences of this fragmentation could be far more dangerous than we realize.

Today, the world is splitting into distinct blocs—reminiscent of Cold War divisions, but with some key differences. After World War II, the world was divided into two main camps: the Western Bloc, led by the U.S., and the Eastern Bloc, led by the Soviet Union. Most countries were pressured to pick a side, though some chose a different route, forming the Non-Aligned Movement in the 1950s, with countries like India, Yugoslavia, and Egypt trying to stay out of the East-West struggle.

By the 1990s, the collapse of the Soviet Union seemed to mark the end of this divided era. The U.S. emerged as the world’s sole superpower, and many believed that liberal democracy and free markets had “won.” There was a sense that this new order, based on these values, was here to stay. But history doesn’t move in a straight line. By the 2020s, the global landscape had started to shift again, with new powers rising and old rivalries re-emerging.

Historians now argue that today’s world isn’t simply returning to a Cold War-style bipolar structure. Instead, it’s becoming multipolar, with countries like China, Russia, and India, along with coalitions like BRICS, trying to carve out their own spheres of influence. This has created a world far more complex and fragmented than the Cold War divisions ever were.

One worrying aspect of this fragmentation is what some experts call the rise of an “Axis of Authoritarians.” Political scientist Aaron Friedberg describes this bloc as led by China and Russia, whose partnership has only grown, especially since Russia’s invasion of Ukraine. Their “no limits” alliance is just one piece of a broader trend where authoritarian states unite to counter Western influence. This alliance extends beyond China and Russia to countries like Iran, North Korea, and Venezuela.

As this authoritarian bloc grows, the West—led by the U.S. and its European allies—finds itself once again in a values-based confrontation. Russia’s invasion of Ukraine, China’s assertive stance in the Indo-Pacific, and Russia’s close ties with Iran and North Korea all signal a growing challenge to the liberal order that has largely guided global affairs since World War II.

At the same time, countries across Africa, Latin America, and Asia are choosing to stay out of the U.S.-China rivalry, much like the Non-Aligned Movement of the 1950s. For instance, many nations, representing nearly half of the global economy, chose not to condemn Russia’s invasion of Ukraine, showing that the world isn’t easily divided into two camps anymore. These countries are using their independence to negotiate better terms with both the U.S. and China, avoiding being caught in the middle of great-power politics.

This fragmentation isn’t only about changing diplomatic alliances—it’s also creating economic blocs. China is redrawing global trade routes, forming supply chains that fall increasingly under Chinese influence. Meanwhile, the U.S. and its allies are working to build their own alternative supply chains to reduce dependence on China. This trend is leading to a world where global trade, technology, and even finance are becoming more regional and fragmented.

Political scientists like Hal Brands and historians like Niall Ferguson have raised concerns about where this fragmentation could lead. They warn it could trigger a series of interconnected global conflicts. We’re already seeing wars in Europe and the Middle East, with rising tensions in East Asia, especially around Taiwan, that could easily escalate. If conflict were to break out in multiple regions, we could be looking at a new kind of global war—not as coordinated as World War II, but just as devastating in impact.

In this fragmented world, control over chokepoints becomes an even more powerful tool. Whether it’s the Strait of Hormuz, the Taiwan Strait, or financial systems like SWIFT, nations are likely to seek control over these key points. As supply chains grow more regional and less global, countries may feel freer to weaponize these chokepoints, knowing their actions will hurt their rivals more than the global economy.

What does all this mean for the world we live in?

We’ve explored how chokepoints and weaponized interdependence allow crucial locations and resources to be turned into tools of control. As the world splits into distinct blocs, this growing fragmentation raises the likelihood of countries weaponizing their control over resources, trade routes, and financial systems. With less global cooperation, nations may increasingly use chokepoints as leverage.

Conflicts in Europe, the Middle East, or East Asia might seem distant, but they are deeply connected through networks of trade, technology, and energy. Each conflict would add pressure on the others, creating a domino effect that destabilizes not only individual countries but entire regions, potentially leading to an uncoordinated global crisis.

So, what’s the takeaway? The modern world is a delicate web of interdependence, and as that web fractures, tools for economic coercion become sharper and more frequently used. Control over chokepoints—whether they are physical locations, industries, or financial systems—can be wielded as a weapon, making international relations even more precarious.

We are now living in a time where global connections are both a source of strength and a vulnerability.

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The Daily Brief by Zerodha

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