Did you know that the U.S. government has the power to monitor international financial transactions and information?

Business transactions and information between nations almost always pass through the United States or through institutions where the U.S. exercises at least some control. The U.S. government has the power to keep nations and companies from doing business with each other.

Paul Krugman did an essay review on this subject in the January/February 2024 Foreign Affairs entitled “The American Way of Economic War”. Let’s find out how the U.S. government accomplishes this control and how other nations are reacting to this power.

The U.S. dollar is the world’s reserve currency. This gives our government power since most of the world’s trade is conducted in dollars. Our currency is one of the few currencies that most major banks honor. In order to conduct international trade, countries must convert their currency into dollars first. The rules for these transactions come from the U.S. financial system.

Most of the world’s fiber optic cables travel through the United States, and most of the world’s data flows through those cables. Washington D.C. can and does monitor (spy on) these transactions whether they emanate from a business or a country. If the U.S. government feels threatened, it can and does impose sanctions.

This surveillance came into being after the Sept. 11, 2001 attack. Had the U.S. government been tracking Osama bin Laden’s financial activities, the attack could have been prevented. International banks must stay in the good graces of U.S. officials, lest they be cut off. It is now being used to constrain the actions of Russia and China. While these and other countries may not like it, it’s very difficult to escape it.

“To protect America, Washington has slowly but surely turned thriving economic networks into tools of domination….” Doing so has wreaked tremendous damage. Like with any power, if it is overused, other countries might attempt to find workarounds.

The U.S. may push China to shut itself off from the system, which will restrict and slow global growth. It’s possible the U.S. government may use its economic might to punish nations who are innocent of wrongdoing.

The U.S. is not the first to use this power. In the late 19th and the early 20th century, the British Empire used the British pound to control much of the global telegraph cables which passed through London.

But we are now living in 2024. There is a lot more global trade which Krugman labels as “hyperglobalization” in his review. No other nation in the world has ever had this much power. The benefits may not be financial for the U.S. since many of these cables pass through tax havens like Ireland. “But the U.S. control of the world economy’s chokepoints does give Washington new ways to project political influence—and it has seized on them.”

In 2012 the Obama administration co-opted SWIFT (Society for Worldwide Interbank Financial Telecommunications) based in Belgium, to cut off Iran from the world’s financial system, causing a 40% inflation rate in that country. The Iranian government had to cut back on its nuclear development and sign an agreement with U.S. and European countries to reduce its uranium processing.

The U.S. government used its economic power to humble the Chinese tech firm Huawei in 2019-2020 — by pressuring the Taiwan Semiconductor Manufacturing Company to refuse to sell high-end semiconductors. This greatly weakened Huawei and China in their development of 5G technology — at least in the short-term.

The Biden administration has successfully used SWIFT to limit Russia after Putin’s invasion of Ukraine. This has forced Russia to find ways to end-run the sanctions.

The threat is that angry countries might bind themselves together to subvert U.S. economic power, but that has not yet occurred.

It could cause China to wage war to take Taiwan with its semiconductor capabilities. Although, if an invasion occurs, it’s likely the U.S. would destroy the factory.

Krugman concludes that the U.S. has abused its power and may be guilty of economic overreach. Regulations must be developed to moderate U.S. actions, otherwise the U.S. will suffer a backlash.

As with all ability to control others: “Power corrupts, and absolute power corrupts absolutely.” The U.S. government can be corrupted by its economic might.