Power and Interdependence in the Trump Era
President Donald Trump's manipulation of America's privileged international system will strengthen other countries' incentives to extricate themselves from US networks of interdependence in the long run. In the meantime, there will be costly damage to the international institutions that limit conflict and create global public goods.
CAMBRIDGE – US President Donald Trump has been accused of weaponizing economic globalization. Sanctions, tariffs, and the restriction of access to dollars have been major instruments of his foreign policy, and he has been unconstrained by allies, institutions, or rules in using them. According to The Economist, America derives its clout not just from troops and aircraft carriers, but from being the central node in the network that underpins globalization. “This mesh of firms, ideas and standards reflects and magnifies American prowess.” But Trump’s approach may “spark a crisis, and it is eroding America’s most valuable asset – its legitimacy.”
Trump is not the first president to manipulate economic interdependence, nor is the United States the only country to do so. For example, in 1973, Arab states used an oil embargo to punish the US for supporting Israel in the Yom Kippur War. Shortly thereafter, Robert O. Keohane and I published Power and Interdependence, a book that explored the variety of ways in which asymmetrical interdependence can be manipulated as a source of power. But we also warned that short-term gains sometimes turn into long-term losses. For example, during that period, President Richard M. Nixon restricted US soybean exports in hopes of dampening inflation. But in the longer term, soybean markets in Brazil expanded rapidly – and competed with American producers.
In 2010, after a collision of Chinese and Japanese ships near the disputed Senkaku/Diaoyu Islands in the East China Sea, China punished Japan by restricting exports of rare-earth metals, which are essential in modern electronics. The result was that Japan lent money to an Australian mining company with a refinery in Malaysia, which today meets nearly one-third of Japanese demand. In addition, the Mountain Pass mine in California, which had shut in the early 2000s, was reopened. China’s share of global rare-earth production has fallen from more than 95% in 2010 to 70% last year. This year, in a not-too-subtle response to Trump’s tariffs, Chinese President Xi Jinping made sure he was photographed visiting a rare-earth production site whose exports are vital to US electronics producers.