Why Everyone Is Talking About Chokepoints

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Host Introduction

0:30Hi, I'm Ravi Agrawal, Foreign Policy's Editor-in-Chief. This is FP Live.

0:40The word choke point is increasingly becoming common when we discuss world affairs. Think of the Strait of Hormuz. It's a type of geographic choke point because so many commodities pass through it. So when Iran chose to shut it down, it had a massive global effect. But there are also economic choke points, such as access to the dollar banking system, or material choke points, such as China's monopoly over rare earths. The control of, or the ability to, attack these pressure points is the most important new arena

Guest Introduction

1:16of conflict today. This week, I'm joined by Eddie Fishman, the author of the book, Choke Points. That is coming up. There's one more vulnerability that's been on my mind this week, and this one affects every single one of us. America's big bet on AI. We've talked about this before on the show, but that focused on whether we are in a bubble. There's another angle to this. A growing fear that Beijing's open source AI models are undermining Washington's closed models, which cost a lot more money to develop.

1:49Here's my read on things. You'll remember the headlines around DeepSeek last year. That was the Chinese startup that dropped an open source AI model that rivaled cutting-edge offerings from open AI. It stunned the United States. Something similar happened last month when Moonshot AI, another Chinese AI company, released Kimi K3, and claimed that it outperformed most other models on the market. Kimi was immediately hailed as a new DeepSeek moment.

2:22Here's why this is particularly worrying for the United States. China is not spending untold sums of money on AI or data centers. It doesn't even have access to the very highest-end chips. The United States, on the other hand, is pouring everything into AI. Estimates vary, but anywhere from a third to half of all of U.S. GDP growth can now be attributed to AI-related expenditure. That means a disproportionate amount of business investment in the United States is on AI.

2:5740% of the stock market is now AI-related. More than 80% of the gains in stocks this year come from AI stocks. The U.S. economy is becoming one big bet on AI. You and I, all of us, are invested in this whether we know it or not. As the political scientist Graham Allison pointed out in FP this week, all of this investment would be one thing if the United States were miles ahead. But the release of models like Kimi is a reminder that instead of being a year ahead,

3:29the United States may just be weeks ahead. And the amount of spending to maintain even this small lead is crushing. A lot of U.S. spending on AI today is based on debt. The spending is often justified as necessary to be the first to reach so-called AGI, or Artificial General Intelligence. But as Graham points out, shouldn't U.S. policymakers stop to wonder why China's model is so radically different? A good way to think about this is how we see Apple and Android, the smartphone operating systems.

4:05Apple is closed, Android is open source, and others can add on to it with their own apps. No surprise, most of the world chooses to use Android. It's cheaper. It's more convenient. What if the AI race plays out similarly, with China's open-weight models gaining more prominence, even if the U.S. ones are slightly better or a few weeks ahead of the curve? If this was just a car race, perhaps none of this would matter. But one reason why stock markets have seemed nervous of late

4:36is that this is now a race in which the leader, the United States, is borrowing money like there's no tomorrow and betting the house on winning. At the very least, it's worth a bigger national discussion about whether it's the right bet or even the right race.

Featured Interview

4:53OK, on to this week's featured interview. The biggest stories of the last few years, whether it's COVID, Russia's war on Ukraine, U.S.-China trade tensions, or the current Iran war, all have at least one key element in common. Countries are looking to exploit each other's economic weaknesses and safeguard their own interests. Well, my guest today has written a terrific book about this. Edward Fishman is the author of Choke Points, American Power in the Age of Economic Warfare.

5:27He's a senior fellow at the Council on Foreign Relations. He's also served in a variety of roles, including building some of the sanctions we'll talk about today at the State Department, the Pentagon, and the Treasury Department. Let's dive in. Eddie, welcome to FP Live. Ravi, thanks so much for having me. I'm a fan of the show, so it's good to be on it. It's our pleasure. So I'm going to make us start with something very, very simple. What is a choke point? So choke points are parts of the global economy

5:58where one country or a coalition of close allies has a dominant position, and there are few, if any, substitutes. Sort of throughout history, most of the prominent choke points have been geographic, like the Strait of Hormuz or the Strait of Malacca or the Bosphorus and the Dardanelles, which connect the Black Sea to the Mediterranean. And it's quite obvious that, you know, cutting off another country's access to these trade routes can inflict significant economic harm on them. The more novel form of choke points, which really is, you know, a child of the hyper-globalization period

6:29of the 1990s, are these economic choke points that involve financial systems, you know, the dollar can be used as a choke point, rare earth minerals and magnets, which is a Chinese choke point. These are, you know, parts of the global economy that can be weaponized for geopolitical gain. And there are also parts of the economy where if you're a company that is sitting on one of these choke points can be incredibly strategically valuable and lucrative. That's a great definition. And, you know, choke points aren't new, as you've been describing here, and as you've described in your book as well.

7:00What exactly is new here? So there's obviously globalization. We're more interconnected than ever before. And that makes all of these choke points more powerful than before. Is that right? That's right. And I think it's also really about choke points not existing in geographic space, but existing in financial systems and trade networks. So I'll give maybe an example to make this visceral. So go back to the 1990s. The canonical case of economic sanctions in the 1990s was the UN embargo against Saddam Hussein's Iraq.

7:32Went into effect in August of 1990, right after Iraq invaded and annexed Kuwait, and it stayed in place for 13 years, all the way up until George W. Bush launched the war against Iraq in 2003. The main goal of that embargo, Ravi, was to stop Iraq from selling oil on the global marketplace. The way that we went about implementing that was through a multinational naval blockade. So for that entire 13-year period, you had ships from over 20 countries commanded by an American admiral patrolling the Persian Gulf 24-7,

8:03interdicting every ship that they thought might be carrying Iraqi oil. Fast forward to the 2010s, when the U.S. decides to impose a similar level of oil sanctions on Iran, and the U.S. didn't have to use any naval power at all. All it took was threatening the buyers of Iranian oil, like oil refineries in China and India, oil traders in Switzerland and Dubai, threatening them to be cut off from the dollar unless they stopped buying oil from Iran. So you went from a situation in the 90s when hard-hitting economic pressure on another country

8:34required the use of military force, you know, sieges and blockades, to one today where all it takes is a signature by Donald Trump or Xi Jinping to impose devastating economic harm on virtually any other country in the world. That's fascinating to imagine how these choke points have evolved over time. Just to bring us up to the current day today, if you had to rank, I don't know, the top five global choke points today, what would they be? Sure. So it's not super easy to compare geographic choke points and economic choke points,

9:05but I'll do my best. I think still the most potent and important choke point in the global economy is the U.S. dollar. It's involved in 90% of all foreign exchange transactions. It's effectively impossible to do global business as a multinational bank or company without access to the dollar. The other thing that makes the dollar such a valuable choke point, again, is that the U.S. can cut off other countries from it without the use of military force, just by sort of the stroke of a pen. I'd say the second most potent choke point, and I'd kind of class a couple of them in here,

9:37are choke points that exist in the supply chains for advanced semiconductors. And the reason being, we're obviously right now in a fierce race for supremacy and artificial intelligence. So much of that race depends on access to cutting edge chips. And in order to make best in class chips, you need chip designs from companies like NVIDIA, you need chip manufacturing equipment from companies like ASML in the Netherlands, and you need fabs, you know, the actual chip plants in Taiwan. And so I've sort of grouped those as probably the second most potent.

10:08Third, I would put China's rare earth minerals and magnets, which is a really fascinating one because if you just look at the numbers, it doesn't seem that impressive. In 2024, so two years ago, China's total export earnings from rare earth minerals and magnets were $3.5 billion. It's effectively nothing when you think about it. And yet, the thing that's remarkable is there are estimates by the International Energy Agency that a significant supply disruption to rare earth minerals

10:38could cost the global economy almost $7 trillion. And the U.S. government has said that a cutoff could cost the U.S. alone more than half a trillion dollars. So it's really the asymmetry that gives that choke point its power. Probably fourth in line, I would put the Strait of Hormones. Well, it's sort of the most important geographic choke point, but I would put a notch below those other three. And then probably fifth, and this is, you know, maybe debatable because this isn't one that's been weaponized yet, but it's one that I think Europe increasingly is worried about

11:10is probably cloud services, where, you know, U.S. companies like Amazon, Microsoft, Google, and Oracle control about 75% of the global market share. So I think those are probably the five most potent choke points, four of which are these economic choke points, kind of the newer style ones that come out of the 1990s. And one of which is this old school choke point, the Strait of Hormones, which is bedeviling us on a daily basis for the last six months or so. This is fascinating. So I wasn't expecting it to take, you know, three other points

11:41before you got to the first geographic one in the Strait of Hormones, which I guess tells us how much has changed in the last two or three decades. I want to get to all of them in turn, but let's just start with the Strait of Hormones. So you were working in government, working on the Iran file at one point. And I'm just curious, in all the scenario planning that teams you were with did, did anyone expect our current moment to actually happen?

12:11So in other words, an aerial attack on Iran, and then Tehran shuts down the Strait, and then you have all these global ripple effects from it. Yeah. Look, the answer is both yes and no, and I'll explain. So yes, in that really any, you know, tabletop exercise involving a regime change war against Iran, which is very clearly what was launched, given that on the very first day of the war in February, an Israeli strike eliminated the supreme leader of Iran. In any of those scenarios, you would have seen Iran

12:42closing the Strait of Hormones. So the answer is for sure this in some ways was foreseen. I think the thing that was not foreseen and wound up being really the critical differentiator, it's not that Iran closed the Strait of Hormones, it's how Iran closed the Strait of Hormones. So in all of these sort of models of closure of the Strait of Hormones, the idea was that Iran would do so using sea mines. So Iran's got about 5,000 sea mines, and all it would take is a couple hundred of them to render it effectively impossible

13:13to sail through the Strait of Hormones. Sea mines, of course, were also used in the 1980s during the Iran-Iraq war when the U.S. last had to come in and try to reopen the strait. The problem with sea mines, though, Rebbe, is that they are a very blunt weapon and they don't discriminate. So if you've got hundreds of sea mines in the Strait of Hormones, they're not going to discriminate between a tanker carrying Saudi oil and a tanker carrying Iranian oil. So I think the thought was, while Iran could do this, it would be economically suicidal for them because it would stop Iran

13:43from selling any oil and it would stop Iran from importing anything from the Strait of Hormones as well. So what Iran did that was novel was in the first couple weeks of the war in March of this year. They struck a small handful, about a dozen or so, of commercial vessels with drones and missiles and very precision strikes. And that was enough to change the risk calculus of the entire shipping industry. The reason this distinction between the sea mines and kind of drones is so important is that with sea mines, once they're there, they're a dumb weapon, they're not going to discriminate.

14:14With the drones, it gives Iran this psychological power that they can basically say, your ship gets through, yours doesn't. Or for the first six or seven weeks of this war, which feels like ancient history, Iran's closure of the Strait of Hormuz skyrocketed oil prices over $100 a barrel. And Iran was benefiting from that because they were still able to sell their oil because the U.S. did not have a naval blockade in place. And so it's really that selective closure that turned the Strait of Hormuz from something that looked more like a suicide bomb into something that looks like a choke point, a real asymmetric weapon

14:45that Iran can use to inflict asymmetric harm on other countries. There's another element to this asymmetry. So, I mean, we're talking about states here, a state like Iran. But on the other side of the Arabian Peninsula is another strait, the Bab al-Mandeb. And it's interesting how you have a non-state actor like the Houthis who are also now leveraging that as a choke point. Except, of course, they never formally had control over it. They're just disrupting it. Yeah. Although in some ways

15:16the Houthis should have been, you know, the harbinger of this because their successful weaponization of the Bab al-Mandeb over the last five years or so, including extracting significant concessions out of Saudi Arabia, in many ways was like the model that Iran wound up using with the Strait of Hormuz, right? And the way that the Houthis have disrupted the Bab was not through sea mines, really. It was through anti-ship missiles. And so the Houthis in some ways are the ones who pioneered this model that the Iranians are now using. I think that the thing about the Bab

15:47that makes it somewhat less concerning than the Strait of Hormuz is that, you know, the Bab al-Mandeb, if you have ships in the Red Sea, so Saudi, for instance, piping oil across this east-west pipeline to the Red Sea, the most efficient and lucrative route is to go south through the Bab and onward toward Asia. But let's say the Houthis are disrupting the Bab al-Mandeb, they can always sail north through the Suez Canal and to the Mediterranean and probably to Europe, which is a less lucrative market. But even if they really want to, they could go all the way around

16:18the Cape of Good Hope in Africa, right? So that's something that they could always do. But that, of course, raises the cost for everyone. Exactly. Yeah. So it's not the most economically rational thing for them to do, but they still could do it. So what that means is that the Bab is not quite as potent as the Strait of Hormuz, where there's really only one way out of the Persian Gulf, right? The only way out is to go through the Strait of Hormuz and otherwise you're stuck in there, which is what happened

16:49to 20,000 vessels or so from the start of the war. Let's go to the choke point

US Dollar Choke Point

16:56that you see as the most potent, so the U.S. dollar. And you've worked on its powerful effects directly in many instances, but I'll cite one when Russia launched its full-scale attack on Ukraine in 2022, and then the United States had some very cleverly targeted sanctions on Russia. There was the price cap, there were other forms of preventing Russians

17:26from accessing money they held abroad and so much else. Talk to us a little bit about the trade-off of using sanctions in the way that the United States has, which then ends up eroding some of the power of the dollar as a choke point as you've been describing it. Yeah. So there is a phenomenon that we see both with economic and geographic choke points that once they're weaponized, states that feel vulnerable take steps to insulate themselves. So going back to 2014

17:58when I was working on the original sanctions against Russia after the annexation of Crimea, it was actually then that Russia decided that they were going to create an alternative payment system called SPFS, an alternative credit card payment rails called Mir, so that they weren't dependent on the U.S. for finance. But the thing that's almost more interesting is it wasn't just Russia who made that call. In 2014, the Chinese government, seeing what happened to Russia, said to themselves, if this could happen to Russia, it could happen to us too.

18:29So it was also in 2014 that China decided to launch the cross-border interbank payment system or SIPs, which is their alternative payment system to SWIFT and CHIPS, the ones that the U.S. and Western banks rely upon. And so this phenomenon in many ways is well known. I think we're now seeing it in sort of a hyperdrive right now because of this economic arms race. When you see Iran weaponizing the Strait of Hormuz, you're now going to see significant new investments in pipeline capacity to try to circumvent the Strait

18:59so that there are other ways out of the Persian Gulf. When you see China weaponizing rare earth minerals, we've seen just in the last year or so billions of dollars of investment in the United States to try to build out our domestic capacity to produce and refine rare earth minerals and magnets. So there is sort of this action-reaction function. And it also, I think, says that if you push the envelope too far, if you are seen to be arbitrarily weaponizing the choke point, you may be actually putting sort of a limit on how long

19:30that choke point actually is valuable to you. You have this great statistic in the book, every U.S. president this century has imposed twice as many sanctions as their predecessor. Yeah. And I think what that tells you, Ravi, is that there's got to be a structural underpinning to this. You know, and I'm someone who studied history. I tend to view world affairs through, you know, individuals and their role in sort of making decisions because I do think people matter and decisions matter. At the same time, it can't be the case that Barack Obama

20:01and Donald Trump disagree on everything except for the fact that economic warfare is great. I think there has to be a structural underpinning. And the way that I would kind of, you know, summarize it is that the world economy we have today was built for the benign geopolitical environment of the 1990s, but we're living in a period of increasing geopolitical tension. And I think that mismatch between a global economy that just doesn't make sense in today's geopolitical reality is what's leading to the proliferation of sanctions, tariffs, export controls, you know, these offensive measures

20:32of economic warfare, as well as the defensive measures like industrial policy, which, you know, countries are using to try to insulate themselves from other countries' choke points.

20:43Just to expand on that a little bit, so when you say that the economic system as we know it isn't up to scratch to deal with these new realities that you're describing, what should we do about it? How do you change that? I think inevitably you're going to have less economic interdependence, right? I think that's, you know, sort of the most obvious takeaway that the types of dependencies the United States has on China, for instance, for active pharmaceutical ingredients doesn't seem

21:13all that rational in a world where it's very possible that the U.S. and China could have an escalating economic war. In fact, we had one last year that led to the closure of certain factories in the Midwest because they couldn't produce automobiles. It led to Raytheon having to scour the globe for alternative supplies of rare earths to use in their Tomahawk cruise missiles. So I do think we are necessarily going to have to have less economic integration. I think the call to action that I'm trying to put out there is if we do this in an every nation for itself scramble

21:44in which every single country is making their own individual decisions about sanctions and export controls and tariffs and industrial policy, you are going to have a suboptimal outcome. You're going to have a system where countries are sleepwalking into a form of quasi-autarky where they try to do everything themselves. What I prefer, Ravi, is for the United States and its allies to put forward a new vision for a global economic system that might actually involve even deeper integration between the U.S. and allied countries

22:14like Canada and Europe and Japan with progressively less integration with geopolitical rivals like Russia and China and less dependence on choke points that adversaries can control like the Strait of Hormuz. But I think in order to do that, the U.S. is going to have to restrain itself. It can't build that type of new global economic order while simultaneously hitting its allies like Canada and Europe and Japan with tariffs. That's not something that's possible. So I think that we can't really have archaic Anita 2 unfortunately in this way.

22:45I like where you're going with that, Eddie because it also solves for the issue that the autarky just doesn't work for every country, right? I mean, size matters. If you are any number of smaller countries around the world both in Europe but also the global south you simply don't have the ability to manufacture everything for yourself. you don't have the ability to cut yourself off from other countries. Self-reliance is a luxury in many ways and so you need some form of

23:16economic interdependence or at least some countries will seek that out. The only caveat to that and to the proposal you're putting forward, Eddie, is that would we not then enter a world of polls where you have the United States and its purported allies trying to form some sort of an alliance of economic interdependence but then China would do the same and so you end up then with a new Cold War of sorts. Yeah. I do think that the sort of inevitable outcome

23:47of this would be something that resembles a block-based global economy. I think though there's a question of how fluid is it, right? Is it such an ironclad block that we won't even buy televisions or furniture from China? I think in that world that's significantly problematic because it's almost like Cold War 2.0. I think if it's one where we can be disciplined about what are the choke points, what are the potential levers of economic warfare that make us uncomfortably vulnerable and in those areas

24:17we do make a strict sort of rule that we are only going to rely on ourselves and our allies for those, I think that's actually not a bad outcome. In fact, the world might be more stable. I mean, part of what makes these economic choke points so potent is that they can be weaponized in peacetime, right? They give the U.S. and China these peacetime cudgels that they can wield against each other. I think if it were the case that, you know, China didn't feel so vulnerable to the U.S. dollar and the U.S. didn't feel so vulnerable to China's rare earth minerals, it's possible there might be

24:47a certain level of stability that would be injected into the U.S.-China relationship. Of course, we don't know for sure, right? I mean, there's another school of thought that says that actually that's a good thing that we have that sort of mutual dependence because it prevents an escalation of military conflict. But my own view is that there probably is a happy medium where we can each grant each other a level of economic security without torching the entire bilateral relationship. And we'll be back in a minute with more of Foreign Policy Live.

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27:29Let's talk more directly

China's Rare Earths

27:31about China. I'm struck by how as you were listing out the most important choke points, the chip kind of supply chains leading to AI, of course, was high up there, number two on your list. And part of the sort of the building blocks of what goes into any high-end semiconductor or so much of advanced manufacturing is critical minerals and rare earths. And last year, when China retaliated to U.S. export controls

28:02by limiting its own rare earth choke point, it really feels to me that that has changed the U.S.-China relationship. Talk a little bit about that as we build towards a point that you can use a choke point and then it changes the nature of what that choke point actually is. Yeah, I would completely endorse the way that you characterize that. I think the single biggest geo-economic story of 2025 was not Trump's

28:33Liberation Day tariffs. It was actually the Chinese export controls on rare earth minerals and magnets. So I think that the mentality of the Trump administration, and by the way, you don't need to read their minds for this. You just look at their public statements at the beginning of 2025, was that they could always win any trade war with China because we import so much more from China than China imports from us. So we could always impose more tariffs on China than China can impose on us. In fact, Treasury Secretary Scott Besson in the wake of Liberation Day said that publicly where he said,

29:03you know, we have escalation dominance over China. They're playing with a pair of twos, I think is the way that he characterized it at the time. I think what that revealed was that they really thought that this was just kind of a trade war where we were going to do tariffs, China was going to do tariffs. What China showed was that they also have choke points they can weaponize the same way the U.S. can use the dollar as a cudgel. And when China retaliated asymmetrically on April 4th, so two days after Liberation Day, and then within weeks you had Ford idle its factory

29:34for the Explorer SUV, it sent shockwaves across Washington. It's been reported now