Margaret Peters 0:00

Great. Hello. Hello everybody. Thank you so much for coming today, week nine of the quarter. So I know this is hard for our students and for our instructors. It's a hard time. So we're very excited to have Edward Fishman presenting a bit on his book, Choke Points and American Power In the Age of Economic Warfare, Edward or Eddie. Call me Eddie. Eddie has done all sorts of really cool things. Most importantly, I'll highlight what you did at the State Department, which still exists as the moment. I don't know how long that is going to last for, working in policy planning, again, another area that just I'm not sure policy planning. It might exist on paper, but I'm not sure policy planning exists right now. He worked as a senior as a member of the policy planning staff there. He advised Secretary John Kerry on Europe and Eurasia, and led the staff's work on economic sanctions, long range strategic planning and international order and norms, ha ha norms. Those are fun anyway. So he also managed the Foreign Affairs Policy Board and represented the State Department at the National Security led strategic planning small group, an international interagency body that conducted wide range strategic assessment of trends in geopolitics, economics and technology. Before that, he would was the Russia and Europe lead, which you know, who thinks that's important these days, the State Department's Office of Economic sanctions, policy and implementation, where I see much of what comes from the book sort of comes from. And especially he helped, had a central role in designing and negotiating international sanctions in response to Russia's aggression in Ukraine. He also, so who knows where those are going? Served as a member of the Iran sanction team, another area where who knows where that's going these days, he worked at the Pentagon, the Treasury Department. He won many awards, so the superior honors award for the State Department and the Meredith mayor to its honor award for your contributions to policy for Ukraine, Russia and Belarus. And this just goes on and on like you're very impressive person, and I'm very excited to be here talking about your book and to learn more about chokepoints.

Edward Fishman 2:23

Thanks, Maggie and thank you all so much for being here today. This is a great opportunity for me. I live in New York, so be able to get out of New York in March and come to this beautiful place. I may not go back, so I think this might be where the book tour ends. But look, I've also appreciate you guys coming out here middle of the day, and I'd really love to have a conversation most of the time when I'm doing these book talks. You know, it's sort of a one way conversation, but this is a small enough group that I hope it can be a back and forth. So look, the thesis of my book is that we are living in an age of economic warfare, sanctions, tariffs, export controls, they become the primary way that great powers compete with one another, certainly true of the United States, but it's also true of our allies, the European Union, Japan, the Japanese actually recently created a cabinet level Minister for Economic Security issues. Of course, China is increasingly deploying tools like sanctions and export controls. And even today, we saw the Chinese government impose sanctions on 15 American companies. So I think this is going to start becoming a much more two way street of economic warfare, and Russia does it as well. And you know, for a while, I think it's been pretty clear to anyone who is paying attention that we're no longer living in the world economy, or the global order that we had in the 1990s where we saw economic relations between countries as win, win, right? China and Russia were seen more as potential friends to the United States than as ominous rivals. And we haven't yet really defined what comes next. And really what I'm putting forward in this book is this is what comes next, where the integrated global economy, the supply chains, the financial markets that came together in the 1990s instead of being a force for peace, have become one that is actually weaponized increasingly. So that's what the choke points in the title are, and that's maybe the one thing I'll mention before turning it back over to Maggie for some some additional questions. But people ask me, What is a choke point? And I think it's useful to discuss this, because it's what makes the economic warfare that's happening today novel. So anyone who studied history going all the way back to ancient Greece and Thucydides knows that economic warfare is as old as history, right? I mean, there was an Athenian embargo on Megara that happened in 432 BC, right? So what's new? Why is economic warfare today different from everything that's come before it? And the best way I can explain this is, if you go back to the 1990s the most famous sort of sanctions or embargo of the 90s was the sanctions against Saddam Hussein. Iraq, right? Saddam Hussein invaded Kuwait in 1990 the UN responded very quickly with a full scale embargo on Iraq, including on Iraqi oil exports, which is the most significant commodity that Iraq was selling. And this embargo actually stayed in place for 13 years, all the way from 1990 to 2003 And does anyone here know how that embargo was actually implemented, like how we prevented Iraq from selling oil? Anyone want to posit a guess? No, well, it actually required a 24/7 13 year naval blockade of Iraqi ports. So for 13 years straight, American sailors and sailors from 20 other countries literally monitored every monitored every single shipment coming in and out of Iraqs ports, and whenever they got suspicious, if they thought it was Iraqi oil coming out of those ports, they would literally dispatch a helicopter to land on the ship take oil samples from whatever was going whatever the tanker had in it, and send it to a laboratory for testing. So you might imagine, this is a pretty expensive operation. It's burdensome, and also it's really just another form of military force, right? It's being implemented by the Pentagon. These are American naval officers and naval sailors who were actually implementing this. What changed? And the real pivot point at the very beginning of the 21st century was this hyper globalization of the 90s, where you had integrated supply chains and financial markets that created these choke points, which are areas of the world economy where one country has a dominant position and there's very little redundancy. So the classic case of this is the US dollar, where you effectively cannot transact internationally without access to the US dollar. It's impossible. So by virtue of being able to cut off countries from Dollar based transactions, you can impose very significant pain on them. The same is true of advanced semiconductor technologies. Without access to the technologies from some companies in Silicon Valley, you can't make the advanced, most advanced semiconductors, and that gives another choke point that the United States can weaponize. And so what happened is today, just by signing documents in the Oval Office, Donald Trump or any other US president, can impose economic pain on foreign countries an order of magnitude more impactful than that 13 year naval embargo in Iraq in the 1990s and that is a frightening degree of power that has a very low threshold for use, right? I mean, anyone here who served in government, sometimes you can get frustrated where you're just talking to people. And are there ways for us to get leverage? Well, guess what? Now you can sign a document and send any country you want in the world into a significant recession, and it's a really dramatic power, and that's the story that I tell in my book. Choke points.

Margaret Peters 7:49

Great. First, I want to start out with more of a basic question about sanctions, and get your thoughts on how well do sanctions work these days in getting the other side to do what we want them to do, versus how much of this is just a sort of knee jerk reaction, because we don't actually want to put boots on the ground anywhere when we want states to do something.

Edward Fishman 8:14

Sure. Two good questions in there, and I'll answer them both. So oftentimes I'm asked, do sanctions work, right? It's actually like it's, it's a question that's asked so much that it's like, you've probably heard that before, like, do sanctions work? And, you know, and the fight, the thing I find interesting about that question, and I had the good fortune during my years in public service to do a stint at the Pentagon, where I worked for the Chairman of the Joint Chiefs of Staff. And one question I never heard was, does a bomb work? Right? Well, yeah, like, a bomb can blow something up, but it doesn't necessarily get you what you want. And in fact, as we saw in Iraq and Afghanistan, you can blow a heck of a whole lot of stuff up and get very little of what you want for many, many, many, many, many years, I think sanctions, particularly American sanctions, are very similar, because of our control over these choke points in the global economy, we do have the power to impose significant economic harm on any other country, China included. And there's really, you know, if you read things in the news about, oh, well, the Russia sanctions aren't working that well, and they're doing they're doing great. First of all, it's not true, but second of all to the extent they are doing okay, it's because we've basically pulled some punches right and we haven't actually deployed the most aggressive sanctions in our toolkit against Russia. So I'd say, to answer your question in short, is sanctions are very effective American sanctions at sowing economic damage abroad. Much, much harder to translate that damage into the political outcomes we seek, and it's particularly hard when you have a president that wields these tools in an erratic and unilateral manner, the way that we're currently seeing Donald Trump do so in the first month that he's back in the White House. Your second question remind me.

Margaret Peters 9:53

So my second question is, did we turn, especially in the 90s, to sanctions in 2000s because we didn't want to put boots on the ground, and beware.

Edward Fishman 10:01

So great question. And I do think that there's a confluence of factors that leads to the rise in sanctions in American foreign policy. And maybe I'll start with just a data point, because I think it's illustrative. I wrote this book. I don't know if anyone here has read joke points yet, but it is a narrative history based on the individuals who created this era. And the reason is, when I served in government, I came to believe that individuals do matter, right? And whoever is in the Situation Room and who's ever shaping these policies, they're actually the ones who are making history. At the same time, Barack Obama used sanctions twice as much as George W Bush, Donald Trump used sanctions twice as much as Barack Obama and Joe Biden used sanctions twice as much as Donald Trump. So we have exponential growth. So even someone like me, a humanities person who prefers to view history through individuals and contingency, you have to imagine that there's some structural underpinnings going on. I think one of them is this just, I think the key one is the fact that we have a global economy that's designed for the benign geopolitical environment of the 1990s instead of the much more hostile one that we have today. And that mismatch is what's leading to a lot of these sanctions and tariffs and export controls getting imposed, I think, in the US specific context, part of the reason you've seen these tools rise to power is that military force became politically toxic after, really in the mid aughts, right right around when Iran's nuclear program became the top priority for US foreign policy. This was right around 2005 when Ahmed in your job, if you guys remember him, was elected president of Iran. George W Bush was starting his second term. And by then, it was clear that Iraq and Afghanistan, the wars were not going particularly well. It's also clear that Iraq didn't have nuclear weapons, and then at the same time, Iraq's bigger neighbor was developing a serious industrial grade nuclear program. And so there was sort of this necessity as the mother of invention, where, you know, we didn't have the political will to strike Iran and to fight another war in the Middle East, and so we had to kind of figure out what to do. And that was what inspired one of the main characters in my book, Stuart Levy, who was a lawyer at the Treasury Department, to pioneer these uses of financial sanctions. And just pretty quickly, because I think the insight that levy came up with is really important, is if you go back to that period, 2005 2006 when George W Bush is saying, We really need to do something about Iran's nuclear program, but there's really no chance that we're going to fight another war. At the time, there was also skepticism that sanctions would work. And George W Bush himself says, we've already tried to sanction Iran. We can't sanction them anymore. It's literally a quote. And what levy realized was the reason Bush thought this is at the time, the paradigm for strong sanctions was still the UN right. You had to get un backing for a 1990s style embargo like we had on Iraq. And there was no chance of doing that against Iran either, because the Russians and others in the UN Security Council were never going to go for that. And the Iraq sanctions were also seen to be a failure. And so what levy realized, and this was really because of his background as a lawyer and understanding how businesses viewed risk, was that it's actually businesses who are on the front lines of sanctions, right? They're the ones who are deciding whether or not to process transactions. They're the ones who are deciding who to have as clients. We've seen that recently with the crypto industry complaining that banks won't bank them because they view them as risky. Banks make their own risk based decisions. And what levy realized was that he could go directly to the CEOs of Deutsche Bank in Germany or HSBC in London or banks in Singapore Tokyo, bringing them declassified intelligence showing them how their banks were being used to funnel money into Iran's nuclear program, or to Hamas or Hezbollah or any other number of Iranian proxies. And nine times out of 10 the CEOs of these banks would say, Oh, my God, I don't want to be part of this. And if this gets out, it's going to crush my share price, and I'm going to have a whole host of trouble. And so most of them just have their own volition, cut off the Iranians, right? But then you get ones who get in, the stragglers levy could say, well, if you don't do this, I'm going to cut you off from the dollar, right? I could weaponize this choke point we talked about before, and that was really effective. And he basically pioneered this, almost like government to business diplomacy, that has become the linchpin of effective sanctions.

Margaret Peters 14:15

Great and I forgot to mention it up front, because I see the books we have, the books on sale outside, and Eddie will stay afterwards, and they are on sale lower than the sale price you'll get on Amazon, so and you don't have to wait for shipping. So they're just right here. All right, my next question is, so the US has such extraordinary privilege, in many ways, to do this, because we have the US dollar, which no other currency is going to take over the dollar anytime soon. But we also have an enormous banking sector. Our companies are all over the world, so we have the ability to freeze reserve assets all over the place. Now, as Donald Trump says. He wants to take us back away from globalization and make us more self sufficient. Are we actually hurting this tool that we have by pulling back?

Edward Fishman 15:09

So it's very interesting, because I don't know if anyone saw this. Maybe this is only those of us who are condemned to read every single tweet that Trump comes out with, or whatever true social post, but several times, not just once. He's come out and said, the BRICS, so Brazil, Russia, India, China, South Africa, are trying to build their own currency. And if they do this, we're going to impose 100% tariffs on them. Right? He said this like four or five times, which is totally bizarre, because A, the BRICS are not actually building a unified currency. And B like, the idea that you would have 100% tariffs on Brazil, India, Russia, China and South Africa is a bit very unlikely. I would just say it's not, probably not going to happen. So someone's clearly whispering this in his ear. He's very worried about the dollar losing its status as the world's reserve currency. The thing I find very interesting is, and this is one of my favorite anecdotes I tell in choke points. It's a chapter about the creation of the petro dollar, which is basically the idea that oil is priced in dollars everywhere in the world. And the origin of this is really in 1974 when Richard Nixon's treasury secretary. He's a guy named Bill Simon. He's incredibly far right wing guy. He's a bond trader. He had no experience in Washington. He's from New Jersey, a chain smoker. Very tough guy, extremely tough guy. And basically he gets the treasury secretary job in 1974 when Richard Nixon is just totally wallowing from the Watergate crisis. So no one wants to serve in that administration. So it's like, whatever we'll just give this New Jersey bond guy, the Treasury Secretary, job. And he's like, sure, whatever. I'll do it. And the problem that he's facing at the time is that the US is running these giant deficits because of the Vietnam War. And we're like, what do we do about this? Right? How are we going to plug these deficits? You know, are the dollar is going to is going to collapse in value? And so he comes up with this idea where, if I can persuade the Saudis to take all the money that we're paying them for their oil and reinvest them in US Treasuries, basically put them in the in US dollars, we can plug the deficit and enshrine the dollar as kind of the core currency of the oil market. And so literally, in July of 1974 Bill Simon hops on. I guess Air Force Two from from Andrews Air Force Base, and flies to Jeddah, gets it's like, ridiculously drunk on the way over, and like, hobbles off the plane and literally cuts this deal with the Saudi King, in which the US agrees to quietly sell the Saudis military equipment and also allow the Saudis to Buy American debt outside of the normal auctions, in exchange for a commitment from the Saudis to recycle all of their oil money into the US dollar and to continue pricing oil in dollars. A couple years later, by the way, the deal sort of looks like it might come apart, because all these OPEC countries like the Saudis, their whole economies, are run on dollars, and the dollar keeps falling in value throughout the 1970s This is the 70s. This is the stagflation era, right? And so if you think about it, their key commodities being sold in dollars, and the dollar is declining in value. The real value of their oil earnings is falling. And so OPEC comes up this idea during the Carter administration. So it's new president saying, Okay, we're actually going to price oil against a basket of currencies, which kind of makes more sense, right? An average of several other currencies. And so Simon's successor at Treasury, this guy named Michael Blumenthal, then goes back to the Saudis and says, do not do this. And in fact, if you agree to keep pricing oil and dollars, we'll give you more voting rights in the IMF, and the Saudis agree. And so literally, there are these two pivotal historical moments in 1970s where, using carrots, we basically entice the Saudis to continue pricing oil in dollars. We enshrine the dollar as the key pricing system for the oil market, and that's a key part of the dollar system what Trump is doing. And this is ironic, because Trump considers himself a deal maker. He thinks he's transactional. He actually admires the Nixon administration, which is a bit strange, although I guess we're in California, so I don't know who I'm talking to. The thing that's strange is he's not actually doing this. He's not using tarrifs. He's threatening sanctions and tariffs against people who are trying to move away from the dollar. And something remarkable that happened today. There are all these tariffs that just went into effect this morning, right? 25 morning, right? 25% on Canada and Mexico, an additional 10% on China. I don't know if anyone here studied macroeconomics. Typically you put tariffs on like that, the dollar actually strengthens in value. It's kind of a strange mechanism, right? But what we've seen in just the last 24 hours is the dollar slid in value. And I think it's because around the world, people are trying to realize there's political risk in being involved in the dollar, and I don't want Donald Trump to control my reserve currency. And so I do think we're potentially nearing an inflection point where we could see the dollar fall much more precipitously than even the biggest experts out there believe. I. Oh,

Margaret Peters 20:01

Well, that's exciting. So, don't plan any trips abroad. That is what I've just learned right now. Great. So thinking about that carrots, so because we use sanctions so often as a stick, do you see a realm in which we could potentially use or if we had a different let's imagine a different future where we could use some of these choke points or actually release them, thinking about here in the case of Iran, where you could actually release some of these choke points to actually get behavior. And so maybe you can talk a little bit about what your thoughts, especially like in the case of Iran or other states, like if you were designing dealing with the Russia/Ukraine crisis right now, what would you think about doing in terms of sanctions, more sanctions, offering to take them off. Where would you go with that?

Edward Fishman 20:55

Sure. Yeah. So look the Iran nuclear deal, whether or not you think John Kerry negotiated a good deal. I think it's up for debate. It's definitely the biggest case of success of economic warfare in recent history. Because sort of that the way that the sort of mechanism of action I mentioned earlier, where you create economic damage and then you translate that to a political outcome, that's exactly what happened, right? I mean, Iran's economy in 2012 and 2013 fell into a dramatic recession, the worst it's had in modern times. And this coincided, in June of 2013 with the presidential election, an eight candidate field, in which two weeks before the election, this guy named Hassan Rouhani, who no one ever heard of. He was not even considered one of the main candidates of these eight in a live televised debate in front of basically everyone in Iran says, You know what, the biggest mistake we had is prioritizing the nuclear program and not caring about our economic health, and we need to get the sanctions lifted. And in an authoritarian society, when you never hear someone speak the truth, it can be like this cathartic and liberating moment. And two weeks later, Rouhani wins 52% of the vote in an eight person field, I think the second place person got like 16% right. So complete and dramatic landslide for anyone who's an expert in Iranian politics, you know that the President isn't the most powerful guy in the country. You have Ayatollah Khomeini, but if you're ayatomini and you just saw half of your country vote for this guy who no one had ever heard of, just because of one remark he basically makes in a debate. You realize, like, I better take this seriously, or else, you know, we could have another 1979 revolution on our hands. And so I do think that in that case, we really did see the effective leveraging of sanctions relief to get a deal with the Iranians. And I think one of the things that's interesting coming out of the nuclear deal in 2015 the Democrats basically said sanctions were the key to getting a deal right. So sanctions worked. The Republicans said sanctions are working so well that we should kept them on place longer and we'd get even better deal right. So everyone agreed that that sanctions worked right. The thing that was interesting, though, Maggie and in some ways a little tragic, is you go to 2016 so when the sanctions start coming off, and the Iranians are expecting a lot of economic benefits from this deal. And I remember, I was working for John Kerry at the time. He was on speed dial with Javad Zarif, the Iranian foreign minister. And Kerry was not just diplomat, he's a former politician, a presidential candidate. So he was very aware of the political dynamics in Iran, and he thought, which I think was correctly, you know, correctly, that for the deal to be sustainable, it had to be seen as a political win for Rouhani and Zarif, right? Like this was a good idea. And so Kerry was very determined to actually get companies to reinvest in Iran. And he struggled very, very few big multinational companies were excited to go back into Iran because they were worried that the sanctions could get reimposed. And by then, we were already well into the 2016 primary campaign in which not only Donald Trump, but all the Republican candidates said that they would tear up the Iran nuclear deal. And I think those companies were right, because a couple of years later, Trump literally pulls out of the nuclear deal, and for any company that had gone into Iran, it was a big loss that they were taking on their balance sheet. So I think that one of the tragedies of modern American economic warfare is that we are much better at imposing pain than we are delivering economic benefits, and that's one thing I think that hamstrings us, in particular relative to a country like China, where China, in modern times, has been actually more effective at delivering economic assistance through things like the Belt and Road Initiative, which has a lot of problems, but at the same time, it's real development assistance and their actual infrastructure getting built in these foreign countries right. And now China's catching up also on the stick side. You know, they're building their own suite of sanctions and export control tools that I think we're going to start feeling quite viscerally here in the next few weeks.

Margaret Peters 24:51

All right, I'll ask you one more question, and then I'll open it up. Do you think so this sort of gets at how do we play sanctions along with domestic politics. Since we are a democracy and administrations can change very quickly, and as we've seen in the last couple of years, we've been doing a bunch of U turns in terms of policy. But as you mentioned with the Iran deal, it gets played off by the Republicans that we didn't get a good enough deal, and I don't know well enough inside Iranian politics to know if there was any better deal you could have possibly gotten from the Iranians if you had caused even more pain. I mean, there's some odd like, Well, maybe you could have flipped the regime, but you could have just ended up with chaos. Then, who knows? So but we have this domestic audience now that anytime you try to remove a sanction, is going to ask, you know, okay, but did we get what we wanted? Did we get a good enough deal? And so now we've gotten all into this, like art of the deal, like, are we getting good enough deals? So is there a way where you can square this with domestic politics, where you can actually take sanction off. And then on the flip side, when we think about tariffs, in particular, if those are done more for domestic political reasons than foreign policy reasons, because we want to create some sort of industry, can we offer tariffs reliefs or, like we used to offer access to our market, if we're too worried about domestic politics,

Edward Fishman 26:24

Yeah, domestic politics have become a major factor in American economic warfare. I think there's almost this macro irony that cuts across the story that I tell in choke points where we started off by saying how part of the inciting factor for the rise of economic warfare in American foreign policy in the early 21st century was military force becoming politically toxic, the idea that fighting a war, or even doing a limited military campaign, you couldn't get domestic support for it. And this, by the way, was very different from the 90s. I know some people here may not have been around the 90s. I was. America used to use military force a lot, right? Like, there's like, intervention in Kosovo, in Bosnia, in various African countries in Latin America, like it was, like small wars were kind of like the currency of American power, right, which just kind of stopped after Iraq and Afghanistan. One of the macro ironies of this story is that by the time we're using sanctions and tariffs against countries like China and Russia, the potential domestic economic harm that we're doing is so broadly felt right in the Biden administration. A big reason that Biden didn't kind of maximize sanctions on Russia was he was worried about worsening inflation, which is at a four decade high, and spiking oil prices. We've come to the point where the political risks of going ahead with some of these economic wars are just as big, if not more so, than military campaigns. And we'll see in the coming weeks as Ford and GM start cutting back on car production, because all of a sudden, the components that they've been buying from Canada and Mexico are 25% higher. And all of a sudden, when cars being imported from South Korea, made by Honda or from Japan are cheaper than domestically made, American produced cars that are dependent on inputs from Canada and Mexico, we'll see if Trump persists with these tariffs. So I think that there is a really important domestic political angle here, one final point just to make on domestic politics. And I really would love to hear questions, because, look, there's a lot of discussion right now about Russia. And this is, you know, an issue I've been working on since the very beginning of the Russia sanctions program. I was the original Russia and Europe sanctions lead after the Crimea annexation. And, you know, I was part of the team that successfully got Rex Tillerson and Exxon out of the Russian oil sector. They had a big joint venture with Rosneft that they exited in the fall of 2014 and what Putin is trying to do right now, which I find incredibly cynical but well plotted, given the type of people that he's dealing with, with Trump and Steve Wyckoff, is he's basically trying to persuade Trump and his people that lifting sanctions is just good for American companies. Forget about using this as a bargaining chip, and forget about Ukraine. We should just do this, because it'll be good for the US oil sector. You actually saw this former McKinsey consultant who's one of Putin's buddies, come to the talks in Saudi Arabia and say there are $300 billion worth of opportunities in the Russian oil sector for American businesses. The thing that is so messed up and perverse and twisted about this is, let's actually say sanctions are fully lifted on Russian oil. What happens would Exxon go back into the Russian Arctic? I would bet you any amount of money, the answer is no, because those oil projects are incredibly expensive, dealing doing businesses Russia, in Russia is risky for any number of reasons, and they've already lost a huge amount of money, so I don't think they're going to reinvest. So what would happen, right? You'd see Russian oil and gas flood the market customers that the US shale industry has picked up in recent years. Dollars would all of a sudden say, Well, I have cheaper Russian products that I could buy, and it would eviscerate American shale. So the exact oil and gas producers that Trump says he loves, in Louisiana, in Oklahoma, in Texas, in my home state of Pennsylvania, will get crushed. And so hopefully someone in the Trump administration is doing this analysis, but if they're not, I think they have a rude awakening coming for them.

Margaret Peters 30:25

Let's start in the back.

Audience Member 1 30:26

Yeah so continuing with the Iranian situationtwo questions. First of all you refer to Petra dollars in the 70s, I was curious if you think that that move contributed to the fall of the Shah in the late 70s? That's first question. Second question. I have to be fair here, but I see the negotiations for nuclear disarmament of Iran in the in the 2014 as a failure, just because of Zarif and his people are, I think, outsmarted you guys, and they just went all the way to the bank, and they're still going to the bank, because it did not change. It did not end up in a political reorientation or even recalculation by the Iranian government. They continued the repression, and even Gina Amini idea of 2019, with 15 year olds coming into the streets did not change anything so so from a perspective of changing political situations in a country with an 85 million people and an extensive handout to the to in the Middle East with Hamas and Hezbollah, that was an absolute failure, in my opinion. So again, I guess it's a comment, is that excessive negotiations with with smarter people like Zarif and his people, you guys were outsmarted, and that's, I mean, that's mine,

Edward Fishman 32:17

Yeah. And can I ask you just one follow up question? Because I'd love to, I'd love to engage in a dialog. So what would you have had the US do instead of the nuclear deal?

Audience Member 1 32:26

The fact that is that the Iranians have been around for 46 years. They have seen eight US presidents. And just like Putin, who's been around since 2000 and has seen about six US presidents, these people have long term plans, and they do see this special polarization, that one administration comes in and completely changes what the other administration has done. And you guys with high degrees and whatever I mean, you guys are smart people, but I think we don't make policy in Ivy League, we have this tendency that we we do not see the actual outcome. For instance, Europeans continue to do business with Iran. German companies have been there. I spoke to some guy in Iran, like, five years ago. He has 1800 people working in Germany for him, and he was completely part of the regime, connected to these, these guys and so, so there were people skirting the sanctions, and the Iranians are now teaching they They taught Putin past year, how the past two years, how to outdo these sanctions. What I'm saying is that they totally outsmarted you. Sorry what was your question?

Edward Fishman 33:52

Anyway, I'll just answer, because you've been talking for a while, but I appreciate everything you're saying, and I what I did ask you is what you would have had a said otherwise, but you didn't answer, but I'll create some alternative scenarios. So let's take us take the world back to 2013 right? I mentioned earlier that 2012 to 2013 Iran's economy fell off a cliff. We had 6% GDP contraction right? Since the early 90s, even through the 2008 - 2009 financial crisis, Iran's economy grew every single year. So this was huge, right? This was a complete turnaround. It wasn't like Iran's economy was struggling and limping along for decades. They were growing under sanctions, until the pioneering secondary sanctions that were imposed in 2012 and 2013 which did two things. First, they decreased Iran's oil sales by 60% so Iran was selling about two and a half million barrels of oil a day in 2011 by 2013 it was, it was 1 million barrels a day. Second, they prevented Iran from actually using its oil revenues. So some people may remember this is a talking point at the time, which is accurate, we had $100 billion worth of Iranian. Oil money locked up in bank accounts in places like China and India, all because of American sanctions. This is what forced Iran's economy off of a cliff in 2012 and 2013 which had not happened previously. I was part of the team at the time doing the sanctions. I wasn't part of the team that negotiated the nuclear deal. And what did that mean? What does it actually look like to do these types of sanctions? Right? It meant someone like me going to China to talk to banks in China and say, if you repatriate money to Iran, we will sanction your bank. And so as a result, you have to hold all of Iran's oil money in your country. And we would do the same to Reliance a big, giant oil refinery in India. I don't know if any of you guys have done diplomacy. These are really difficult conversations and countries, officials from other countries and business leaders from other countries. They don't like being told what to do by the US government. And the reason why I think many of them complied with us was that we had a international law on our side, because Barack Obama successfully got a UN Security Council resolution in 2010 that explicitly linked Iran's oil sector to its nuclear program and B we had a political objective. We said these sanctions aren't just to beat Iran to death, right? We're using them because we want diplomacy. We want to terminate their nuclear program without going to war. And that ultimately was an argument that carried water in places like Beijing or New Delhi. And as a result, the sanctions worked at the time as someone who was doing this diplomacy, if after you had Rouhani and Zarif come in saying that they want to negotiate away the nuclear program, doing their charm offensive. If I had then gone back to the Chinese and said, actually, you know what, we don't trust these guys. You have to go to zero. You can't buy any Iranian oil, I promise you, they would have said, Screw you. And would have kept buying Iranian oil. And they would have said, Okay, sanction me. And what would we have done? Would we have sanctioned the biggest banks in China? No, Obama didn't do it, Trump didn't do it, Biden didn't do it. And guess what? Donald Trump will not do it again this time, because it's just not worth it. It's gonna it would be inviting a dramatic economic war with China. So I don't see that happening in some ways. These are it's all an elaborate bluff, right? And that you have to persuade the other side that you're willing to pull the trigger on something that you really don't want to pull the trigger on. So my own view is, had we just said, You know what, we're just going to keep sanctions on forever, and hopefully it'll work. Guess what would have happened? Iran's economy would have eventually recovered from that recession in 2013 and we would have missed the diplomatic opportunity, and you would have had a Cuba situation, right? How's that going right 60 years of sanctions and nothing's changed. Sanctions have a terrible track record at creating regime change. I'm having sat in countless meetings in the Situation Room. If someone ever came to me and said, I want to do sanctions on Country X, whether it's Iran or Venezuela, because we want to get rid of the Iranian regime or Maduro, I'd say, good luck. Because to your point, one thing you said that I actually agree with is that there are unintended consequences of sanctions, and one of them is they actually strengthen elites. I think in Iran, one of the perverse consequences is the sanctions have made the IRGC stronger. It's a bad thing, right? I mean, sanctions hurt regular people more than they hurt leaders, right? Putin's not getting impoverished. It's everyday Russians who can't get a home mortgage for anything less than 30% right? I mean, that's the people who are suffering. So you better have a damn good reason for doing this, and if your reason is, oh, well, maybe we'll keep these sanctions in place forever, and maybe all of a sudden there'll be a democratic revolution in Iran. And you know, well, they'll be our liberal friends. I would love that, but it's not, doesn't pass the smell test for someone who sat in the Situation Room.

Audience Member 2 38:46

Yeah. So at the beginning of the talk, you kind of discussed how this era of economic warfare is new, right? And it's not how the global environment has always been. I was born in 2004 Oh, I never really experienced undergrad. This kind of environment is all I've ever experienced. And I guess what I'm wondering is this kind of zero sum, like, where, if they win, we lose, or if you know, like that, that doesn't sound as good as a global system and global economy where everyone views it as everyone benefits, right? And I guess, do you see a way where we could get back to that, where we're we're making our economic global, or economic policy based on, oh, we can strengthen them and be strengthened, and we can, they can benefit, and we can also benefit. I feel like, especially now, that's out the window.

Edward Fishman 39:51

Whats your name? Thank you for being here. By the way, 2004 That's shocking. I remember 2004 vividly. I think I met, I met this guy in 2004 probably. So, yeah, look, I said earlier that, you know, I genuinely believe that individuals make history. But as I did research for this book, I grudgingly came around to seeing that there are structural forces at play. And so after I finished writing this entire book, I thought to myself, I need to come up with some take home value, some framework to explain to people why this is happening. And I came up with what I call the geopolitical or geo economic, impossible Trinity. And what that means, basically, is that there are three factors in which two can exist at any one time, but not all three. And those three factors are economic interdependence, economic security and geopolitical competition. So I'll explain, walk you through this. So during the Cold War, we, of course, had geopolitical competition, right? US and Soviet Union are at loggerheads, right? But we didn't have any economic interdependence. We weren't really trading at all with the Soviet Union, and so we were able to have economic security even as geopolitical competition existed. When the Cold War ends, we no longer have geopolitical competition. We view the Chinese and the Russians as potential friends, as I said earlier, right? And so we're kind of free to embrace economic interdependence the 90s, right? Economic interdependence of the 90s without losing our sense of security. What we have now is we have geopolitical competition that's come back while economic interdependence persists. And so we've lost our sense of economic security. And this is not just a feeling that we have here in the United States. It's a feeling that the Chinese have, which is why Xi Jinping has spent hundreds of billions of dollars in recent years on domestic self sufficiency, basically trying to indigenize every single sector of the Chinese economy. It's why the Europeans are doing the same thing and putting up their own tariffs. That's why Japanese are giving it the Russians. So what is the way out? Because usually economic security is something we really want, right? We don't want to lose economic security. So I think there's really two potential futures I see for the global order, one that gives us some hope and one that gives us a little bit less hope. The One Future is one where we get out of this by creating more interdependence, but only with our allies, only with other fellow democracies, with the Europeans, with the Japanese, with the Australians, with the Canadians, with the Mexicans, and basically de risk or decouple our economies from the Chinese and the Chinese and the Russians and everybody else, and so you basically moved toward an economy that looks a lot like the one we had during the Cold War, where you have two blocks, right? A democratic bloc and an authoritarian bloc. I think that's the direction that Joe Biden was taking us in. And his Treasury Secretary, Janet Yellen, created this term friend shoring, which I think encapsulates it well, which is you're not trying to onshore everything into the US you're just trying to integrate with your friends. And interestingly enough, Robert Lighthizer, who was the Trump administration's trade representative during his first term, someone I interviewed extensively for my book, he actually agrees with his vision, where he kind of thinks we should have a block of democracies with very low tariffs and then high tariffs on everybody else, like China, that's like the hopeful scenario for your generation, the less hopeful scenario. And sadly, I think the one where the current administration is taking us in is one where we don't have two blocks, but we have something that's much more like a chaotic breakdown of the global economy, where sanctions, tariffs, export controls, the whole American economic arsenal is deployed, not just against the Chinese and Russians of the world, but against all of our friends, the Europeans, the Canadians, the Mexicans, the Indians, these are all countries that he's threatened or now imposed tariffs and sanctions on. And what does that mean? What is it? What does that auger for the world economy? If you're a company all of a sudden, and you don't know whether it's you know, Canada is going to be tariff tomorrow, or Mexico or EU or Australia, there's only one logical decision, which is invest in everything in the US, just like onshore everything. So you wind up sort of with autarky by default. Autarky is when you make everything at home incredibly costly, will lead to inflation, will lead to slower economic growth, which is obviously bad for the economy. But the thing that's more worrisome is that, what does this suggest for global order? What history shows is that when states can't secure markets and resources through open trade, they're attempting to seize them by force, to conquer this is what imperialism was, right? It's why you had the 19th century the British just taking territories and extracting resources from them, and when I hear Trump talking about seizing Greenland for its mineral rights, it doesn't give me any joy, but it makes me feel even more confident about my geo economic impossible Trinity and where we're headed.

Audience Member 3 44:49

So right now, I'm taking a course about political violence, and one of the big concepts that we've gone over is kind of the difference between indiscriminate and selective violence and something I. And that you mentioned while you were answering over there's question, was that sanctions much more or much more impactful on the general public than the elites, right? And to me that that I make that connection with indiscriminate violence and how you're not you're attempting to target a group where you're really having a lot broader effects than you really want, is there a version of economic warfare that that could selectively not like, not target the general public and not have such catastrophic effects for normal people?

Edward Fishman 45:39

So there's been this movement in the US, starting actually, with Colin Powell, the Secretary of State in the early 21st century, during Bush's first term for what's called Smart sanctions, the idea that you can impose sanctions on individuals and be very targeted, right? And this is this happens, right? I mean, we have, you know, Putin himself is under sanctions. You know, Putin's cronies are under sanctions, right? His Judo partners from St Petersburg who now run the commanding heights of the Russian economy, like Gennady Timchenko and the Rottenberg brothers, they're under sanctions. So we do do these types of smart sanctions or targeted sanctions, but what does this do to someone like Arkady Rottenberg? Because I was part of the team that sanctioned him in 2014 properly, part of the reason I'm sanctioned now by Russia. But look, what did it do, right? Maybe cut his net worth from a couple billion to a little bit less billion. And then what happened? Putin rewards him with more government contracts and more things that basically compensate him for his losses, right? So I kind of have a sad take on this, which is that targeted sanctions are possible. They do exist, but I don't think they're particularly effective. And so I think a big lesson I have is that if you want to wage an economic war, you have to mean it, and you have to be ready to take it where it leads. You have to do it eyes wide open, knowing that they're going to be collateral damage, same way that you would with a military campaign. And what that means is you have to be more selective when you do it, right? You don't just do it willy nilly the way that we do today. And in fact, I think we'd be well served by removing sanctions on most 90% of the countries that have sanctions on them, right? There are still sanctions programs for that date back to the 90s, on Somalia and the Balkans and all these other countries that I think, if anything, they just hurt regular people because they prevent remittances, for instance, from being sent to them. Do I think that that helps anyone? No, I think we'd be much better off if we had basically a Russia, Iran and a China sanctions program and all the other ones went away.

Margaret Peters 47:39

Yeah, here and then we'll go around.

Audience Member 4 47:41

Right, yeah. I was wondering if you could talk about what you saw when you watched the video of Zaleski and Trump and Vance the Oval Office that we all saw in terms of the age of economic warfare.

Edward Fishman 47:56

Yeah, no, I appreciate you asking that. You know, I think the minerals deal that it seems like Trump is still very interested in, so we'll see whether or not that can be revived. I think was a very smart move by Zelensky to sort of put this on the table, because it's hard for probably those of us in the room to like accept this. But Trump and JD Vance do not care about Ukraine. Like, they actually do not care if Russia just conquers Ukraine, right? Like, for them, like appeals to international order, or the fact that we shouldn't be able to conquer other countries. Like, no, like Trump himself is talking about annexing Greenland and Canada. So I don't think those arguments really go over very well. And I think Zelensky realized this. He's a smart politician, and he couched it in terms of, this is there's a business opportunity for the US. And in fact, you're insulating the US from this choke point that China controls, right? So the US has $1 China has these critical minerals that they dominate. You know, lithium, graphite, things that we require for electric cars, other important things we're making in the US we can't do without access to Chinese critical minerals. And so I think the deal that Zelensky put on the table was cleverly designed. Why did it fall apart? I think there are two reasons. One is, I think Zelensky, despite what Trump says about him being a dictator, is a democratic wartime leader. He depends on the support of his people, and I do not believe that he thought it would be okay for him to sit while the cameras were rolling and listen to Putin's talking points were sighted in his face while he just sort of grins and bears it, whether or not that was a miscalculation, it's not for me to say I'm not a wartime leader and democratically elected leader of Ukraine, but clearly he did not feel like he could allow some of the things that were being said by Trump to just go without any sort of response and any sort of corrective. So I think when he sort of said. Look, you know, with all due respect, Mr. President, we signed a ceasefire deal in February of 2015 we signed one when you were president in 2019 and what did Putin do? He violated it over and over again. And so we can't just go in with another one of these ceasefires that are isn't worth the paper they're written on right. And I think when he said that, JD Vance saw an opportunity to beat his chest a little bit and show to the Maga people that he's really tough, and he leaned in. And I've never seen anything like that in my entire career, anything. Honestly, I've never seen any sort of public spat. And I think that Vance was playing more to a domestic audience than anything else. I thought it was also rich that Vance was saying, Have you said thank you when Vance himself voted against assistance to Ukraine repeatedly while he was in Congress? So I think if I was Lenski, I'd say, well, thank you to the American people and US Congress, but not to you, Vice President, Vance. But look, do I think that all is lost? Maybe, I mean, to be honest, you know, I think that Trump personally hates Zelensky. I don't think that Trump is going to wake up tomorrow and come to the view that conquest is bad. And so I think it's incumbent upon the Europeans to step up. And thankfully, going back to some of our conversation about Central Bank sanctions and reserves, one of the beautiful, actually delicious irony so Trump's erratic moves on sanctions in 2018 including pulling out of the nuclear deal that this gentleman doesn't like, totally respect that led countries around the world to start getting really worried that Trump might come after them next, including Russia. Shockingly, because, you know, Trump's never done anything tough on Russia. And what Elvira nabulina, who is probably the one actually like competent technocrat in the Russian government. She's the chair of the Central Bank of Russia. What she did was, literally, after Trump pulls out of the nuclear deal in April of 2018 she takes all of the dollar reserves that Russia held and moved them into Euros. Because the calculus was, well, the Euro may not be as great of a reserve currency as the dollar, but at least it doesn't have this Trump risk attached to it. And the calculus was also like, Trump may sanction me one day or some future American president, but the Europeans never would. Joe Biden by virtue of building a coalition with the Europeans, and the rest of the g7 proved Putin wrong, and as a result, you hear this number of $300 billion worth of Russian assets that are frozen in bank accounts. 90% of them are in Europe. They're actually in Europe's and so the Europeans are sitting on a gold mine right now. If they were to seize that 250 billion, or whatever it is of Russian assets and European bank accounts. That's twice the value of all US assistance to Ukraine over the last three years. So basically, you give Ukraine at least six or seven more years to fight if they need it. You also potentially give something to the Maga people. Because what does that 250 billion do? If it goes to the Ukrainians, it doesn't sit in Ukrainian bank account. It gets wired into Lockheed Martin and Raytheon's bank account to buy weapons for Ukraine. So this, I think there is some, some level of a win win win between the Ukrainians, the Maga people and the Democrats, that could still happen. But at the same time, you know, I do think we saw some real personal animus on display last week, and as we know that sometimes rationality is outweighed by emotion.

Yes, I mean, I mean, as a simple like, I've been asked this a few times, even on television and things. And look, I'm always reluctant to give a foreign leader advice, right? I mean, this guy has he understands what's in his interest way better than I do. You know. But do I think that doing what it takes to at least ensure that America has some stake in Ukraine's future. I think it is worth it. Do I think that you know a Carthaginian peace, or Carthaginian settlement is going to be imposed on Zelensky by this minerals deal? No? Because I think that the Trump team, if anything is, lacks the competence. Because even if they were to try to extract 50% of their revenues from all Ukrainian natural resource rents into perpetuity, like I would if they could pull that off, you know, I'll, you know, disprove everything I know about the lack of competence of people in the Trump administration.

Margaret Peters 54:35

All right, one last question here.

Audience Question 6 54:39

It's very clear that Trump people have convinced him, or the New World Order, are going to be three entities. So it's going to be China doing whatever they want to do, Russians and Americans. Do you think that this interdependence that we have? I think it's going to go back to how it starts in the beginning. How is that going to work in their vision, with the vision of this, you know, Taiwan, it's just a matter of time for them to be invaded and but this semiconductor business and everything that they have this is huge. So how do you see that shaping up?

Edward Fishman 55:16

Yeah, I don't. I mean, I think where Trump and this sort of ties to the question asked earlier? I think that a block based global order is actually a good outcome for the US, like if we actually could have a democratic block and a China led block, I think that's like maybe the best case scenario we have moving forward. I also, I don't think that I wouldn't treat Russia as a pole in and of itself. I think Russia has basically just become the hinterland of the Chinese Empire. I mean, they're 100% dependent on China for everything. So one market for their gas they've got, they're by far their largest trading partner China. Russia needs China way more than China needs Russia. So I think that Russia looks tough because they've got nuclear weapons and they're very big when you look on a map. But I mean, they're they're effectively a Chinese vassal state right now, so I don't think there's any chance the idea that you could somehow peel the Russians off of the Chinese that's a bet. I would bet any amount of money that that's not possible, having dealt with people like Lavrov myself. He's your comment about these guys being in power for a long time. He was the foreign minister when I was in government 10 years ago. He was also the foreign minister when the Bush people were in government eight years before that. So there's no chance that these guys are getting peeled away from the Chinese. That's where their bread is buttered. I think we're moving towards something that's much more entropic, you know, like chaotic breakdown of the global order an economy where you have every nation for itself, and the US is sort of standing alone, and that's the thing that I I worry about again, not just for what it means for our economic prosperity at home, but long term, what that means for the norm against territorial conquest. And I think in a world like that, I agree with you, I think it's a matter of time before China makes a move on Taiwan. And I think, if anything, if I'm Xi Jinping right now, and I've seen what Trump has done in the last month, where, if anything, he's the people he's imposed pressure on are Zelensky, Justin, Trudeau, Colombia, and he hasn't imposed any pressure on Xi Jinping or Putin. In fact, he actually has violated American law by allowing Tiktok to continue operating in the US. If I'm Xi Jinping, I'm saying, Well, if I take Taiwan, the US isn't doing anything about it. And by the way, I think he's right.

Margaret Peters 57:33

I'm not sure that there was ever a world where we would do much if they actually moved on Taiwan, but maybe.

Edward Fishman 57:39

Well, Joe Biden said multiple times that he would but I don't think the US would respond if China were to invade Taiwan. First of all, I think China would. I think China would blockade I don't think they'd actually do an amphibious invasion. That would be pretty gnarly. I think you'd probably see much more of something like a naval quarantine, in which they effectively, they effectively say, like, you can't get anything in and out of Taiwan. And they inspect all they basically do the 1990 style Iraq sanctions on Taiwan. And then it just becomes whether the US is willing to use things like drones to try to break the blockade. And that's an invitation for a US China war, which I don't think Trump is ready to do.

Margaret Peters 58:23

I guess I'm more hopeful in that. I don't think that Xi actually wants to invade Taiwan. I think it's useful for his domestic politics to constantly have it to be like, we're gonna go do that. But I don't think he actually wants the to go do it. That's, that's my my hopeful sense, like maybe he doesn't want to start world war three. Well, this was really fascinating and somewhat depressing, but that's the realty these days. Sorry. But also, I think just really shows how important in many ways, that the creation actually of the global economic order in the 90s actually has given the US tremendous power over others, and it's maybe a reason why, even though it's had domestic political problems, we shouldn't seem to just blow it up and put tariffs on other countries because we feel like it. So thank you again. So much for coming. You have any last comments? All right? And as a reminder, Eddie's book is out for sale out there, and he said he'd hang out for a little bit if anybody has further questions or just want to talk to him. And we got some very smart undergrads in the room who I'm sure have questions for you.