Weaponizing Interdependence 

China’s stunning rise, and its global lead in manufacturing, have raised questions about both the nature of economic power and the United States’ continued economic preeminence. In one sense, there is not much reason for debate: the U.S. share of global output has been remarkably constant over the last forty years. China’s rise, though extraordinary, has statistically come at the expense of the other Group of Seven (G7) countries. And U.S. financial markets, or at least its equity market, account for a larger share of any global stock index than at any point in the last fifty years.

But that misses enormous changes in how sources of economic leverage are conceived and defined. Ten years ago, conventional wisdom held that economic power flowed from creating rules and influencing global institutions. The central argument, at least in Washington, was that the United States could leverage its 20 percent share of the world economy to write nearly 100 percent of global economic rules and simultaneously maintain controlling stakes in the key international financial institutions.

But China had no intention of playing by rules it did not write. Beijing, therefore, ignored the rules and played by its own, achieving significant industrial and technological successes. An outstanding example is its creation of a world-leading electric vehicle industry, shielded by a tariff wall and nourished by large state subsidies. Even in the United States, political support for many of the established rules has been weakened by the sense that they were written primarily to benefit a narrow slice of the U.S. population.

The old thesis of sources of economic power has lost intellectual dominance. Now, economic power is instead largely conceptualized through the logic of weaponized interdependence. There have been lively debates over when interdependence becomes dependence, when dependence needs to be reduced or simply managed, and whether states can deter other states from weaponizing their economic chokepoints.

As those debates played out, President Donald Trump started his second term by weaponizing access to the U.S. consumer market. Traditional trade deals—where both parties reduced barriers—were shunned, and the constraints of legacy trade agreements were cast aside. The goal of Trump’s second-term tariffs was not to negotiate new global rules for trade, but to compel U.S. trading partners to accept unequal terms. The United States raised tariffs, and other countries agreed, albeit reluctantly, not only to refrain from raising their own tariffs in retaliation but also to reduce their own tariffs. The European Union, though, argues it did so because of its dependence on the United States for security, rather than its dependence on the U.S. market.

The most important development of 2025, though, was that China did not accept a deal akin to the one the United States hashed out with the EU in Turnberry, Scotland, where the Trump administration forced Europe to accept high tariffs in exchange for access to the U.S. market. Beijing pushed back forcefully against Washington’s demands and ultimately was able to convince the administration both to roll back its tariffs and to narrow certain proposed export restrictions. China did so by walling off its market to U.S. goods, counting on pressure from the farm states that rely on the Chinese export market to moderate U.S. demands (its playbook from Trump’s first term). It also weaponized its dominance of the supply chains needed to produce rare earths and other critical minerals, laying out comprehensive export controls that threatened to shut down the U.S. auto industry and complicate military production. This Chinese action established a precedent that in many ways is more important than the Trump administration’s decision to disregard the United States’ WTO tariff commitments and raise tariffs to levels not seen since the 1930s.

It is worth noting that China’s response to U.S. tariff threats came through its control of key supply chains, not through its weaponizing of U.S. bond holdings. That fact alone suggests that transforming finance into leverage to achieve strategic goals is harder than often assumed. Further evidence can be seen in the great difficulty that China has had in converting its Belt and Road lending into enduring influence. Ecuador, for example, took a great deal of Belt and Road money to build hydroelectric dams without ending up permanently in China’s orbit. And when Zambia defaulted on loans from China’s Export-Import Bank and other state banks, it ended up reducing China’s leverage over the country, rather than increasing it.

The relative weakness of finance as leverage could also be seen following the financial sanctions that G7 countries imposed on Russia after its 2022 invasion of Ukraine. Even though those were among the strongest possible financial sanctions, they did not hinder Moscow’s ability to fight. Rather, its aggression against Ukraine continues four years after its reserves were frozen and its access to new international lending entirely cut off.

The reality is that most countries do not depend on either U.S. financial markets or the U.S. government for funding. Instead, the global flow of capital is overwhelmingly into the United States, not from the United States to the rest of the world. Wall Street’s core work is mobilizing global funds to invest in the U.S. economy, not mobilizing U.S. funds to invest globally. Countries that fund the United States aren’t necessarily going to be deterred by the prospect that they cannot raise funds in the United States, and the United States has been less willing to impose sanctions limiting new inflows into the U.S. bond market than to try to raise a toll for access to the U.S. consumer market.

One reason Russia survived heavy Western sanctions is that it did not need access to either its accumulated foreign currency reserves or new U.S. or European financing to prosecute its war against Ukraine. So long as there were buyers for Russian oil exports, the Kremlin would be fine. China is in a similar position; its industrial, technological, and strategic goals can be financed entirely out of the country’s large domestic savings. Its state banks fund the rest of the world out of domestic savings, not the other way around.

The United States still has unrivalled influence over the global economy. But U.S. leverage is not unlimited. The United States faces a determined rival with many cards of its own to play. It isn’t in a position to use its economic leverage to impose any vision of a global economic order on China, let alone use its economic pull to integrate China into a strategic order. Nor have the consequences of a world where the two leading economic powers have weaponized supply (as China has) and demand (as the United States has) been fully digested by the rest of the global economy. The old global economic order is dying; a new one has yet to be born.