Edward Fishman: Weaponizing Finance and What It Means for Portfolios

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What if the most powerful weapon of the 21st century isn't a missile, but a few entries in a computer? Hi everyone, I'm Steve Sandusky for Barron's Advisor, The Way Forward Podcast. In the first episode of the Geopolitical Edge miniseries, Robert Kaplan reminded us that understanding the past is what gives us a chance to see the future more clearly. And today we're gonna push that forward with Edward Fishman. He's the author of a new book called Chokepoints: American Power in the Age of Economic Warfare. And he's an expert on how the US turned the global financial system into a new kind of warfare. We're gonna connect the dots from President Nixon's shock decision to abandon the gold standard in 1971 to today's age of sanctions export controls, tech wars, and digital currencies. If you are advising clients with global exposure, supply chain risk, or dollar-based portfolios, this conversation is your blueprint for spotting how economic statecraft moves markets, often before headlines do. With that, please enjoy my conversation with Edward Fishman. Let's start with What are chokepoints? And give me a little bit of a history of how they came into play and why they are relevant today.

Sure. So historically speaking, chokepoints are geographic features like the Strait of Hormuz, which has been in the news in recent months because 20% of global oil flows go through a narrow strait. And throughout history, controlling these geographic chokepoints has given countries and empires before that really immense power to modulate the flow of trade that goes through them. What happened in the wake of the 1990s, in the wake of hyperglobalization, when countries like China and Russia and the former Soviet states entered the global economy, into the dollar-based financial system, into global supply chains, we saw the creation of what I call invisible chokepoints, like the dollar-based financial system, which are parts of the global economy where one country has a dominant position and there are few, if any, substitutes. And so when you think about something like the dollar or advanced semiconductor technology, where the US government really can control other countries' access to it, we actually have similar economic power that empires of old had by controlling these geographic chokepoints, but just by controlling these key elements of the globalized economy. And it's what's given the US government in particular really significant power to impose really devastating economic harm on foreign countries. What I would note though, Steve, is that other countries do control some choke points. China, as we've seen in recent months with rare earth minerals, also has this power. But really, in recent years, it has been the US that has really pioneered this new style of economic warfare.

I want to go back a little farther in history than the 1990s. I want to go back to August 15th, 1971, the Nixon shock, when he basically said, we're no longer going to allow central banks to convert their dollars into gold. It blew up the Bretton Woods system. So would you say that was really the beginning of the dollar-based economy and sort of the beginning of the United States having the ability to control the whole financialization of the world and create that big choke point?

Yes, it is. And I talk about this in the book Choke Points, because if you go back to the end of World War II and Bretton Woods Conference in 1944, The dollar is really enshrined then as the dominant currency in the global economy. It's the currency at which all other currencies are valued against, right? It's the dollar is pegged to gold and every other currency is pegged to the dollar. But what I'll say is that even though the dollar had this privileged position during the Bretton Woods system between 1944 and 1971, because of this sort of fixed exchange rate regime, you didn't actually have that financialized of a global economy. You also had capital controls that were very prevalent up until the 1970s. And so what really changes after the Nixon shock, after removing the dollar from the gold standard, as well as allowing the euro-dollar market to grow, was that we get this hyper-financialized world economy. And then the big change that occurs in the 1990s is that the countries who had been outside of the Bretton Woods system almost from the very start, like the former Soviet Union, like China, start coming into this order. So you do build a financialized system amongst advanced industrialized economies within the '70s and the '80s, but then it's in the '90s when that system really starts to go global.

And would you consider that Nixon shock to be a geopolitical event?

It's a major geopolitical event because I think it's a paradigm shift in terms of also what the US economy is focused on, right? In many ways, when you have a fixed exchange rate regime, which is really what we had under the Bretton Woods system, there's only so far that finance can go, right? You're really focusing on trade. You're focusing on currency stability over the ability to allow finance to be the dominant part of the US economy as well as the global economy. But it is a geopolitical shift because it's a kind of a signal. And you almost look at in history how the US goes from being a trade and manufacturing power to more of a financial powerhouse that we know of it today.

I want to spend a few minutes talking about this because most financial advisors don't really pay too much attention to, quote, geopolitical events, because historically the markets have always hit all-time highs. They seem to dismiss after some short period of time any war that goes on or any other kind of shock that goes on. But I think this one back in 1971, and probably very few, if anybody listening to this, was a financial advisor back in 1971 when this happened. But just think about the impact of that change. So gold was convertible at $35 an ounce prior to that day. Afterwards, it free-floated. Well, $35 an ounce in 1971 for gold to today, it recently hit $3,500, right? So that's a 100x. And so I just did a little bit of math here recently, and I said, okay, what's the compound annual growth rate of gold from August 1971 through the $3,500 here in 2025? Turns out it's roughly about 9%.

Okay.

And then I say, okay, what did the S&P 500 index do from August of '71 through today? And if you include reinvesting dividends, it's about 9.5%. And so my point is simply that a lot of people dismiss gold, and I'm not here to say everybody needs to own gold, but I want people to realize that geopolitical events can have a huge impact on how you think about client portfolios. And even though people are dismissing gold, if you go back to '71 to today, it just about performed as well as the S&P 500, including reinvesting dividends. And so I want people to realize that geopolitical events can have a big impact. And if we think about that big impact, my question to you, Eddie, is there anything that you can see on the horizon today from a geopolitical standpoint that could possibly have anywhere near the impact that the Nixon shock had in 1971 on financial markets?

[Speaker] I think there are, and maybe one other thing I'll just add to your historical comparison. If you go back to 1971 and you look at the size of foreign exchange markets at the time, they're effectively de minimis in the hundreds of millions of dollars annually, right? Now you've got something like $7 trillion in foreign exchange transactions happening every single day. The biggest financial market of them all, which is foreign exchange, basically didn't exist in the early 1970s. And today you get $7 trillion in turnover every single day. I think in terms of the types of black swans or major shifts that we could start seeing geopolitically, I do think one of the reactions to the age of economic warfare that I talk about in my book, the rise of sanctions, tariffs, export controls, is that different countries around the world are trying to find alternatives to the dollar. And you could consider the run-up in gold that you just talked about right now as a direct consequence of central banks around the world in places like China and Russia feeling nervous about holding significant quantities of dollars and euros and preferring to allocate to gold as a geopolitical hedge. The thing that I view as a potential, like I said, black swan is the rise of central bank digital currencies and stablecoins is what you're seeing right now, because the key choke point that the US uses for economic warfare, it's really the dollar's role as a medium of exchange more than the dollar's role as a store of value. Because as I talk about in the book, even when two countries are trading with each other like India and Saudi Arabia, where there's no obvious US nexus in that transaction, it is going to cross through the US financial system because the dollar is involved in 90% of all foreign exchange transactions. Currency conversions ultimately are going to use the dollar as a way station. Right now you've got China with its digital RMB. You've got proposing a project called EMBRIDGE where they have their central bank with the Saudi Central Bank and the UAE and Thailand moving toward finding ways to clear cross-border payments with central bank digital currencies. And then in the US, the stablecoin legislation, which could basically create an entire alternative banking system that doesn't rely on any of the same sort of correspondent account network that we have here in New York City, you could have a really substantial change just in terms of how financial flows happen. And if financial flows are operating in a different way than they did between 1971 and the 2020s, you can be sure that it will have effects on different asset prices. It's hard for me to tell you right now what they'll be, but just the way that we talked about this, the Nixon shock, when Richard Nixon on August 15th, 1971, made this unilateral decision It's opened up all these financial markets that we didn't even think about. That's what I think could happen if you do have this paradigm shift happening and how cross-border payments work.

Yeah. And this idea of de-dollarization, I think obviously we're definitely seeing that because some people think that the US is abusing its privilege here of the dollar. And back on June 17th, I was watching Bloomberg and they were interviewing Nassim Taleb and He was talking about how the Biden administration had frozen the assets of some of Putin's close allies when Putin invaded Ukraine. And he said that also led to a lot of those people saying, hey, if they can freeze my dollars, I gotta figure out how can I get outta dollars? And so Taleb said, quote, gold is effectively now the reserve currency, end quote. Now I think that's probably a pretty bold statement. It's not the reserve currency at this point, but to your point, we're definitely seeing people move to gold. And I've not yet mentioned the B word, which is Bitcoin. So you talk about stablecoins, we've got that, we've got Bitcoin, we've got gold. So from your standpoint, do you see a significant movement to those types of assets as people are trying to diversify away from the dollar? And do you think it's a realistic idea that the US dollar would lose its reserve currency status at any time in the future?

Yeah. So look, when we talk about the dollar as the global reserve currency, it's important for us to break down what we actually mean, right? Because at face value, you say it's a global reserve currency, say, okay, 60% of all central bank holdings are in dollars, right? But when we're talking about that, it's just about the dollar's role really as a store of value, right? It's about where if you're generating income as a company, or if you have assets as a fund, or if you have reserves as a central bank, where are you putting those funds? But there are other roles that a currency plays. Medium of exchange, which is payment currency, or unit of account, which is invoicing currency, right? The dollar is the dominant currency because it dominates all three of those metrics, right? It is the preeminent store of value. It's preeminent unit of account. Something like 80% of all trade finance is invoiced in dollars., and it is by far the dominant medium of exchange. If you look at payments, the vast majority of cross-border payments are done in dollars. I think when it comes to gold and Bitcoin, I do believe that they are challengers when it comes to store of value, right? They are very clearly, we all would've done quite well had we invested in both gold and Bitcoin a decade ago, right? I don't have the numbers in front of me, but I think that would've been probably a smart, a wise decision. And it does seem both of them are going to become credible alternatives to various dollar assets. Do I think they could get as large as dollar assets? No, I don't. There are just obviously too many other things you would want to invest in dollars. I think the challenge that Bitcoin and gold have is that they cannot compete with the dollar as a medium of exchange. Gold obviously is a physical commodity, so using it as a payment currency is a bit cumbersome, and that Bitcoin value just fluctuates too much, right? If you have a currency that doesn't have a particularly stable value, it's hard to actually do cross-border payments in that currency. The reason I think stablecoin and central bank digital currencies in the grand scheme of things have a much bigger chance of potentially upturning the current order is that they could theoretically challenge the dollar as a medium of exchange. And I think if you start challenging the dollar as a medium of exchange, it really opens up a lot of different possibilities for different types of investments that one might not even consider today.

[Speaker] Now, the Trump administration has been a huge fan of crypto and a huge fan of stablecoins. So are they possibly shooting themselves in the foot if, say, stablecoins, for example, start replacing some of the dollar's ability to be a choke point? Or are they thinking, hey, we're gonna be dominant in stablecoins just like we're dominant in the dollar, so we're gonna be able to use stablecoins as a choke point, and we want to make sure we control that and not some other country.

Yes, I think it's the latter. I think it's— and by the way, I think there's some accuracy to that assessment where I believe we are on the precipice of a significant technological shift in terms of how payments work. And the reason I think this is, I don't know if anyone of your listeners do cross-border payments or have ever wired money to a foreign country, but using the current correspondent banking system, which will potentially involve multiple foreign exchange transactions, different bank accounts, moving money, it can take up to a week or more to settle a cross-border payment using a stablecoin or a central bank digital currency. These transactions happen in seconds, right? You're going from one digital wallet to another. And when you think about payments, ultimately it's an infrastructural function. As a business, you don't really want to think about it. You just want something that's reliable, that works, right? So if you could build a stablecoin or central bank digital currency-based cross-border payment system, that could clear transactions in seconds instead of a week, it's just better and more efficient. And the technological challenge is not so insurmountable that it can't be accomplished. So I do believe that will happen in the next 5 to 10 years. And I think that it's a good bet if you're the US government that you should want this to be led by US firms. You want this to happen on American soil instead of China. One of the potential challenges that Trump faces, though, is that the Trump administration has put all of their eggs in the basket of privately issued stablecoins. And we're really the only major economy that's doing this right. China has a central bank digital currency that they issued in 2020. The European Union, so Christine Lagarde and the European Central Bank are issuing a digital euro, right? There's a digital pound, right? All the other major central banks are putting forward, at the very least, wholesale central bank digital currencies. Trump on day one of his second term made it illegal for the Fed to ever issue a digital dollar. And so I think the gamble that Trump is making is that privately issued American stablecoins could win basically this race for the future without having a public option, a Federal Reserve-backed digital dollar. And I think that's a risk because if you're a privately issued stablecoin, it's the same as any other bank where you're susceptible to runs. Do you actually believe that this is going to hold its value? Whereas obviously, if you have a Federal Reserve-issued wholesale central bank digital currency, it's backed by the full faith and credit of the United States government.

As Joe Guevara said, it's déjà vu all over again. Go back to the 1800s, and we had, like, privately issued currencies. Different states or different banks were issuing them, and of course, that created all kinds of problems in the second half of the 1800s. So is there a potential issue that if we have privately issued stablecoins, and we've got the digital euro, and we've got— China's got their central bank digital currency— are like, are all these things going to talk to each other, or is the US going to be like the global clearinghouse to connect everything, and then we can control that choke point?

I think that's the ideal scenario in the US, right, is that we're the clearinghouse, because that's the role we play in the current system, to be clear, right? Yep. We are, like I said, 90% of all foreign exchange transactions involve the dollar. And that's because to jump from one currency to another, you usually have to jump from your currency to the dollar and then from the dollar to the other currency. With stablecoins, you don't necessarily need to do that. But what could be the choke point? Perhaps it's the cloud infrastructure, right? What computers are these stablecoins living on? Is it AWS and Azure and Google Cloud systems? If so, maybe the US still possesses a choke point. But instead of being correspondent bank accounts at Citibank or JPMorgan, its cloud servers. And by the way, the Department of the Treasury has already issued fines against companies for violating sanctions just by virtue of their transactions touching US cloud servers. So there is a legal precedent to do that as well.

Now, this may be straying too far from the topic at hand, but if we're talking about stablecoins and we're talking about Bitcoin, of course, a lot of that is underpinned through blockchain technology. And so now we're talking about tokenizing everything, tokenizing securities and tokenizing all kinds of assets. So how do you think about tokenization? How does that play into this idea of chokepoints? And if everything does get tokenized on a blockchain, does that give the US more power or less power to control these chokepoints, or yet to be determined?

[Speaker] Yeah, I think it's yet to be determined. And I think that a lot of the people who are proponents of tokenization and proponents of blockchains One of the reasons they like them is they think that it actually reduces government power, right? And that you can have these peer-to-peer transactions without any intermediaries, right? It makes it more efficient. It makes it more direct. Maybe what I'd say is two potential caveats to give to that perspective are that blockchains are these immutable ledgers, right? So even if you have an anonymized wallet or something like that, can the US government figure out who you are? And if so, they have that right in front of you. They don't have to decode anything to really figure out how assets are moving. It's all publicly available ledger. And secondarily, like I said earlier, because so much web traffic and so much data flows through US cloud service providers and US digital infrastructure, there is a potential other US nexus that ultimately the US government could use to claim jurisdiction. And I think one of the really important lessons from my book Chokepoints is it's true for any form of economic statecraft. The US government puts out policies, but they don't implement policies, right? It's businesses that do. The reason US sanctions have become so impactful over the past 20 years— you need the dollar to be important, but you also, just as importantly, need banks to actually comply with American sanctions. And the reason that banks comply is that the US claimed jurisdiction over even banks that are headquartered abroad, like BNP Paribas and HSBC, both of which have been fined multiple billions of dollars for violating US sanctions. And effectively got them to pay those fines for sanctions violations because they threatened their access to the US banking system. They threatened their access to clear US dollars. With Bitcoin or any sort of crypto exchange, the US could similarly threaten your, you know, a foreign company's access to anything in the United States, be it the dollar system or even cloud infrastructure. And I thought it was interesting that the biggest fine that the US government has issued for sanctions violations in recent years was actually against Binance, the crypto company that is not based in the United States, was fined something like $4 billion, I want to say, in 2023, and their CEO was put in jail. So I think that the US government, you should never underestimate its ability to use various choke points at its disposal if it so chooses.

And do you see stablecoins and Bitcoin and tokenization, do you see that as the next iteration of sanctions, or do you see that sanctions are going to continue to be a very important tool in the US government's arsenal? Are they going to both peacefully coexist, or how do you think about the two of them working together or not working together?

You oftentimes hear people say that, oh, as we move everything to the blockchain, or as we move off the dollar, if you want, if some people think we're moving to a multipolar currency order, which I think is very possible, Oh, US sanctions are going to lose their bite or lose their efficacy. What I would say is, yes, the current model for US sanctions, which is threatening to cut off foreign actors from the dollar-based system as a source of leverage, perhaps that will lose its efficacy. Right. But just as certain choke points may lose potency over time, others will emerge. Right. That's just what happens. And it's actually not typically the US government that creates choke points. It's the private sector that does., and then it's the US government that claims authority over them and basically regulates who can and cannot access them. And so my own bet is that economic warfare is going to continue to grow exponentially, just as it has in the last 20, 25 years for structural reasons that we can discuss if you're so interested, but that we may just find other choke points to weaponize.

You briefly mentioned this a little bit earlier in the conversation. But right now the US has been the behemoth here in using these sanctions. But then we've also got other countries who have their choke points. You mentioned China's got the rare earth minerals. Do you see, as the US gets more aggressive in its tariff policy and trying to get other countries to bend to its will, do you see other countries at some point starting to stand up and say, we've got some choke points too? Or is it just ultimately it's all going to be negotiated away and everyone's going to be happy in the end?

I think you're touching on something really important, which is that we have an economic arms race going on right now. If you go back to 2018, during Trump's first term, when he launches his first trade war against China and actually starts what becomes the US-China tech war by imposing export controls on the telecommunications equipment maker ZTE, which is the second best telecommunications equipment maker in China after Huawei, China is totally unprepared for both of those actions. They don't really know how to respond. They didn't expect that to happen. But 7 years have passed since then, and the Chinese government have actually created a full suite of economic weapons. They've taken the legal structures that the US uses to impose sanctions and export controls and ported them over to their system. They built bureaucracies, they built offices that track assets, that track different resources, and then they can impose sanctions on foreign companies. And in the last year alone, China has deployed a number of different economic weapons against the United States that have had significant impacts. So just to list a few, a couple months ago, China imposed sanctions on Skydio, which is the largest drone company in the United States. Because of those sanctions that were imposed on Skydio, which is making drones for industrial use cases, for, they're even making drones that Ukraine was using to document war crimes and surveil Russian positions in Ukraine. Skydio had to ration batteries and tell each customer that they could only have one battery per drone because they were reliant on Chinese batteries. That's a major impact on a significant US company because China decided to impose sanctions. More recently, in April, when the US and China got in their rapidly escalating tit-for-tat trade war, where both of us for a time had over 100% tariffs on each other. The reason the US ultimately backed down, the reason Scott Bessant went to Switzerland and cut a deal that ultimately restored the status quo ante was because China imposed export controls on certain rare earth minerals that made it impossible for US companies that needed high-performance magnets for everything from automobile manufacturing to other industrial use cases. And even though rare earth minerals, if you look at it as a market size, it's a tiny market. China controls 99% of the supply of some of these absolutely critical rare earth minerals. So that's almost the definition of a choke point, right? It's a resource where one country has a dominant position, completely dominant in the case of rare earths, and there are no substitutes in that situation. And that was ultimately what got the US to back down. And we are seeing China very aggressively deploy economic weapons, but it's also not just China. The European Union has deployed sanctions and tariffs and export controls exponentially more in recent years. Japan actually now has a full cabinet minister for economic security. So they've created a whole new government agency that's devoted to this topic. It's a trend around the world. And I think the risk I see today is that we tend to think that we're in the driver's seat and that we, as in the United States, is the only one determining what are the tariffs or sanctions going to be.. But we now live in something that's much more multipolar where there's a reaction function.

And as a result, miscalculation, escalation, those are real concerns that we should have today. You mentioned multipolar. So obviously for many decades, it's been a unipolar world where the US has been the hegemon here. That's been able to call the shots in many cases. Do you see us really moving to a multipolar world? I know some people talk about spheres of influence and the US might carve out the North America area, in Russia, in the European area, in China, in the southwestern Pacific there. So how do you think about this idea of multipolar, and who do you think is, let's call it, the biggest competitor to the United States that from a financial standpoint we really need to keep our eyes on? Is it China? Is it Europe?

Russia? What should we be looking at here? Yeah, we already live in a multipolar world. Yes. In terms of finance, the US is completely dominant. We're still in a unipolar world. Right. But if you look at manufacturing, if you— if that's all you were looking at, we actually live in a unipolar Chinese-dominated world. They have multiple times the amount of manufacturing than we do annually. It really just depends on the metric you look at when it comes to military power. Yes, the US is still by far the strongest military in the world, but China is currently engaged in the largest military buildup we've seen a country do since World War II. They also have the ability to produce weapons and ships and other things that you need for warfare at a much greater rate and capacity than the United States does. So really, no matter how you slice it, we already live in a multipolar world. I think when it comes to the global economy, this is something I talk about in the book Chokepoints. I do believe that we are moving toward an economy that will have less economic interdependence. And because I put forward this concept in the book, which I called the Geoeconomic Impossible Trinity, where you have economic security, economic interdependence, and geopolitical competition. These three factors where you can only have two at the same time, but not all three. And right now we have geopolitical competition and we clearly still have economic interdependence. And so as a result, we feel like we do not have a sense of economic security here in the US or in China, really any country, all the countries, major countries in the world feel like they don't have this economic security. And so as a result, we're all engaged in some level of investing in domestic self-sufficiency, putting up capital controls, trade restrictions. It's why this is happening across the world. I think there's this structural driver. I think in terms of where we end up, the best-case scenario I see is one where the United States winds up leading a big bloc of like-minded countries. The US plus Europe plus democracies in the Indo-Pacific, like Japan and Korea, Australia, our North American allies, like Canada and Mexico, And then there's an alternative Chinese bloc. It's a mirror image of the Cold War order where the US had a big bloc of, of allies and the Soviet Union was a different bloc. And we didn't really have any economic interdependence with them. But I do worry that because of the current approach of the Trump administration, where there's really everyone has been victimized by American economic warfare, right? We've seen tariffs and sanctions not just against the Chinas and Russias of the world, but also Canada, Mexico, the European Union, that you could wind up sleepwalking into something that looks a lot more like autarky in the United States. And I think if we're going in that direction, I worry about it from the standpoint of economic growth. But even more acutely, I worry that what history shows is that when states can't acquire markets and resources through open trade, when you don't feel like you can get minerals from a place like Greenland just by buying them or for a free trade agreement with Denmark, you're tempted into things like imperialism and conquest. And so what I worry is that If we do move towards something that looks more like autarky, you could wind up having more military conflict as well over time.

I'm glad you brought that up because I think that's a very important point that I want to get across in this series of episodes that I'm doing with people like you and Robert D. Kaplan. And I said this in a preface to the episode I did with Robert Kaplan, which is that going back to August 15th, 1971 really set the stage for a lot of things that we see in the world today. We had a terrible 1970s in terms of the economy. We had the oil embargo, we had the Iranian Revolution, and so it was a terrible time to be in the markets. But then we come to August 1982, we've got the Reagan revolution, we've got the stock market that month began what I would argue is the greatest bull market of all time. And we had all kinds of favorable winds at our back. We had globalization, we had the rise of China, we had low inflation, we had— interest rates going from 15%, 18% all the way down to nearly zero, which was favorable for financial markets. So, you mentioned that we may be deglobalizing, right? We're putting up these tariffs and trade barriers and everything, and we want to try and be more self-sufficient. Do you have an opinion on, is that going to reverse many of the favorable factors that we've had over the past 40, 50 years in terms of what globalization brought. And I clearly understand globalization was not a panacea for everything. There are a lot of negative things that that brought too. So I want to be clear there. But how do you think the financial impact or economic impact will be if we sort of reverse some of the favorable winds that we had over the past 40 to 50 years?

Yeah, I think if we have a haphazard, chaotic retreat from globalization where we really are driven towards something like autarky, even if we can't fully accomplish it—

well, define autarky.

Just—

I'm going to make sure we're on the same page.

Yeah, that would be that we are trying to make everything ourselves. And you hear some of this in Trump's rhetoric, and a lot of people don't take it seriously just because it's so far from what we have today. But Trump says we don't want to buy components for automobiles from Canada and Mexico. We want to have Ford produce vehicles with every single thing from the steel to the components itself made in the United States, which of course is a dramatic shift from our economic model that we've had for many decades. What I worry about is if you have just complete uncertainty in the markets about are there going to be 10% tariffs on Canada or 30% or 20% on Mexico or 50% on the EU, and there's basically no certainty, there are no stable trading order, there are no basically guardrails to economic warfare. As a business, your only logical decision over time will be to onshore as much production as you possibly can. Even if it's very expensive. Maybe certain companies that can't do that will go out of business, but then you'll have new market entrants that figure out how to do this stuff more efficiently domestically, maybe using robotics and artificial intelligence and other tools. That is what autarky is, the belief that you can't even rely on like-minded countries for anything. What I'm positing is the goal that we should have today is that we should retain economic interdependence, but with only countries that we have trust in. Personally, if we were reliant on Canada for certain active pharmaceutical ingredients, that wouldn't worry me because I'm not worried about a rogue Canadian government saying we're going to cut off America's supply to these pharmaceuticals. But right now, relying on China for a huge share of the active pharmaceutical ingredients that we use, even for generic drugs that we import from places like India, that seems like a really substantial threat. It's about only having economic dependencies on countries that you trust and that you view as reliable geopolitical allies. I think if we can get to that world, a world that actually does look quite a bit more like the US economy did during the Cold War, where you had deep economic interdependence amongst the OECD, the US, and other advanced industrial democracies, I think that could be a very good world and one where we still have many of the benefits that we enjoyed because of economic interdependence. The thing I worry about when you think about like very macro factors, if we are moving toward autarky, that'll be very bad. Factor for really growth in all different key American assets. Are there mitigants? Maybe artificial intelligence, right, is like the Hail Mary where if you can just bring labor costs down to zero because you're automating everything, maybe more onshoring actually winds up making sense. But it's— I struggle to see how we could get to the level of complete autarky and onshoring that some in the Trump coalition want without suffering significant economic pain.

Do you see any disconnect between the financial markets, which, as we're talking here today, are like hitting all-time highs, and the challenges that you've just pointed out there? What do you think the market is seeing? Is it looking past the current challenges and saying, hey, it's all going to work out in the end, so I'm going to be looking 6 months, 6 years down the road that it's all going to work out, so we're just going to keep buying stocks for the long run?

Yeah, look, Steve, you probably have a better sense of this than I do. Many of your audience who are wealth managers. My own view, having spoken to many in the financial markets over recent months about my book and related topics, is I do think that the market does not take seriously the risk of a significant global economic war that is protracted. There seems to be this view in the markets now that we're past peak tariff, that Trump basically experimented with these wild tariffs in the first few months of his presidency. He realized they weren't feasible, and so we're just That's all behind us. And this is where the acronym TACO, Trump Always Chickens Out, comes from, which I think is a great way to— if you want stocks to go up, it's a good thing for the market, which is ironic, of course, because Trump likes a good stock market, but he doesn't want to be viewed as somebody who chickens out. My own view is that Trump is never going to fall out of love with tariffs. And no matter what, even if you didn't have Trump as president, you're going to have more and more capital controls and trade restrictions because we have the reality of geopolitical competition. We don't feel comfortable relying on China, Russia, other countries that we may consider as adversaries for important goods and services. So I think you are going to have a secular trend that continues toward more decoupling. I think during Trump's own administration, you're never going to hit some level of stability with tariffs. They're always going to fluctuate up and down. And then based on what we talked about a few moments ago, the markets, I think, do not appreciate at all this reaction function element where you have China and the EU and other countries that could retaliate. And once you're in a sort of tit-for-tat retaliatory cycle, sometimes you wind up escalating well beyond what you might really want. And so I think that is not taken seriously by the markets. I think on the flip side, there seems to be a lot of optimism about what AI, and particularly if we are getting toward artificial and general intelligence, will do overall for productivity and economic growth. And I have no reason to dispute that. But look, I think if AI proves to be a disappointment, if we hit some sort of a plateau with how good large language models get, similar to, by the way, how we hit something of a plateau with respect to autonomous vehicles, in which were in some ways like the first big test case of can AI work at scale, I could see a big retreat in the marketplace. Because right now it seems like the markets are saying AI trumps tariffs because the tariff story is over and AI is this secular shift that's going to be incredible. But I think it's also possible that the tariff madness doesn't fully go away and that AI maybe is not delivering the gains that we hope it will as soon as we want it to.

Yeah. And AI is, that's a whole nother conversation. And of course we've known that over the course of history, technology has always been over time, a benefit to the economy. And here we are today with all the technology we have and we have unemployment at what, maybe 4% or so. But then the question is, is AI a different animal? Because we have a lot of large companies today that are saying, first thing is, can AI do this? And if so, we don't want to hire somebody. And we see a lot of companies saying we're laying people off because now AI is doing this. So there's always a period in there where employment is adjusting to the new technology. So maybe we're just in that adjustment period and ultimately AI is going to lead to more employment. Not less employment? We'll have to see. The jury's certainly still out on that. But as we get ready to wrap up here, I do want to ask you to put your sort of futuristic hat on here, meaning if I'm a financial professional or if I'm just a business person, are there some signs we should be watching out for that might say, hey, the future's going to be a lot different than the past and I got to get ready for that?

Well, one thing that I'm looking at, because I think there are certain metrics that when I was researching my book, they just stood out to me as really remarkable because they tell you more about the world than you might fully appreciate. China is the world's biggest exporter by far. And so you would think if you're selling the most stuff, you could tell the people who are buying your stuff how to pay you. You could say, if I'm selling you this, you have to pay me in RMB. As of the present, China only invoices 30% of its own trade in RMB, and the rest of it is all dollars, which I think is in some ways one of the more remarkable stats out there, right? Where the biggest exporter by far is still relying on the dollar for 70% of its cross-border payments. A few years ago, that was 15%. So it is growing very quickly, but it's still low. So this is a metric I would look at. Could in the next 2 to 4 years China get to 50%? Or 60% or 70% or 80%? Given just the sheer size of China's exports, that would be a significant shift, right? That would really start introducing the RMB as a significant challenger to the dollar. The other thing I'm looking at, just because I think it's underappreciated, is Europe. In the US, I think we oftentimes view Europe as almost more of a museum. It's like the past as opposed to the future. The eurozone has had a lot of trouble in recent years, but look, The Europeans right now seem like they're about to have a major rearmament where they're going to spend a lot more money on defense, which is going to lead to much more fiscal expansion potentially in Europe. At the same time, the euro is a convertible currency, right? It's the closest analog we have currently to the dollar. And if foreign countries, central banks are viewing the dollar as geopolitically risky because Trump is weaponizing the American economy unilaterally, not moving alongside allies, but just saying you're cut off from the US, there's a significant incentive to hedge toward the euro as a foreign central bank because you also may trust that the Europeans are not going to act arbitrarily and capriciously. In some ways, the difficulty of getting things done within the EU, you needing unanimity of 27 different member states, may actually help you as a trusted infrastructure provider because it's hard to get 27 different countries to act in an arbitrary in a capricious manner all at the same time. So I think looking at Europe as well and the digital euro coming out later this year, where are we going to be 2, 3, 4 years from now in terms of the euro? It's been very stable at 20% of central bank reserves pretty much since the inauguration of the euro at the beginning of the 21st century. But what if we get to 30% of euro allocation or 35%? That's going to have significant impacts on really all assets across Europe. I think that is another piece if I were investing in the markets that I'd be looking at right now.

I'm with you 100% on Europe. I think that's a contrarian take in that a lot of people say they're not high on Europe, but I would take just the opposite like you're saying there because of the rearmament, because of the fiscal expansion, as you mentioned there. I think there's lots of opportunities for Europe to grow. I would not be sleeping on Europe from that standpoint. One other quick thing too is when we talk about the dollar and things to be watching out for is people are always saying, are foreign countries continuing to buy US Treasury securities? And one of the stats that gets thrown out there is they say, oh, the amount of US Treasuries that foreign countries own is like at an all-time high. So people say, oh, don't worry, foreign countries are still buying US Treasuries. But what they fail to also mention in the same breath is The percentage ownership of US Treasury securities by foreign countries has dropped dramatically. Just a few years ago, it was close to half of our Treasury securities were owned by foreign countries. Now it's closer to just one-third. And so even though the dollar amount may be near a record, the percent of our outstanding debt that they own has dropped dramatically because our debt has expanded much faster than they've been able to buy. So I think it's things like that to keep an eye on in terms of what's that going to do to interest rates if more of the demand for securities has to come from internal in the US. I don't know if you have any comment on that or not.

I do. Yeah. I think that this is another piece that we haven't talked about yet, where the exorbitant privilege, if you will, of the dollar, there are a variety of ways you can interpret it. I think probably the best though is that we have just assumed that there's effectively unlimited demand for US debt, that the US government, no matter how much debt it issues, it can still issue it no matter what the interest rate is. Someone's going to buy it. What we've seen in the last few months, as there have been signs of de-dollarization moving toward currencies like the euro, gold, potentially the RMB, is that interest rates have gone up. And it could be that the US dollar just kind of wind up being like any other foreign currency or any other form of sovereign debt where investors are going to look at what yield are they getting from this. And that will have ultimately the effect of pushing up American interest rates over time. The other thing to note is that if truly we do not actually get our fiscal house in order, which it doesn't seem like we're anywhere close to doing given the one big beautiful bill right now, which will add a lot to the deficit, are investors just going to balk at all about lending money to the US government? And at that point, you could get a significant restructuring where you have much less spending in the US or much higher taxation. And so I do think that these are, again, black swan events, nothing that you necessarily see coming. But I do think if the dollar loses that exorbitant privilege and the US becomes just like any other country in the financial system, we will feel it as everyday Americans, as well as definitely if you're allocating assets.

Eddie, this has been fantastic. I appreciate it. Your new book, Choke Points: American Power in the Age of Economic Warfare, is a great read. I've read it and I can highly recommend it. Obviously they'll know where to get the book, but if people want to stay in touch with all the work that you're doing, what's the best place that you would send them to?

Sure, you're welcome to follow me on X @EdwardFishman or on LinkedIn. Or if you read my book and wanted to send me feedback, you can look up my email address on the Columbia University website and shoot me a note anytime.

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