DWA 103 · Introduction to Global Political Economy · Week 3 · Tue Sep 8

Political Economy
and Security

Week 2, recalled · Liberalism

Smith established that wealth derived from productive capacity, not precious metals; that the economic effects of trade were positive sum, not zero sum; and that, consequentially, the balance of trade was not usually a crucial determinant of economic well being. Kirshner 2009: 38

Individuals, firms

the state as “the sum of individual interests à la liberalism” (Kirshner 2009: 36)

Positive sum

“economic interdependence would assure peace, as liberals anticipated” (Kirshner 2009: 39)

1969

Kindleberger: “the nation–state is just about through as an economic unit” (Drezner 2010: 10)

The pivot · unit of analysis

When faced with the possibility of cooperating for mutual gain, states that feel insecure must ask how the gain will be divided. They are compelled to ask not ‘Will both of us gain?’ but ‘Who will gain more?’ Kenneth Waltz, Theory of International Politics (1979: 105), quoted in Drezner 2010: 11

Realism · three foundations

Realist political economy rests upon three foundations: the state, pursuing the national interest, in an environment defined by anarchy. Kirshner 2009: 36

State

“neither the sum of individual interests à la liberalism nor the implicit or explicit representative of certain privileged interests within society”

National interest

“distinct from a pluralist vision that derives the national interest from the summation of individual interests”

Anarchy

“the lack of an ultimate international authority, and thus the absence of any guarantee that the nation will not be invaded, overrun, conquered, and pillaged”

Realism · relative gains

In a phrase, “realists aren’t in it for the money.” That is, actors behaving as realists would expect them to … will often, without regret, trade wealth for power (or, when secure, status). Kirshner 2009: 37

[T]he wealth and might of a nation depends “principally on whether its neighbors possess more or less of it. For power and riches have become a relative matter.” P. W. von Hornigk, 1684, quoted in Kirshner 2009: 39

Two lenses · side by side

	Liberalism	Realism
Unit of analysis	“individuals are motivated by desire to maximize their personal wealth; they want more stuff” Kirshner 2009: 37	“an autonomous state … that state pursues the national interest” Kirshner 2009: 36
Role of the state	“market failure often prevents states from reaching mutually beneficial transactions and agreements” Kirshner 2009: 39	“the state was both the subject and the object of mercantilist economic policy” Heckscher 1935: 21, in Kirshner 2009: 38
Nature of gains	“the economic effects of trade were positive sum, not zero sum” Kirshner 2009: 38	“the question was one of the composition of trade and the distribution of the gains” Kirshner 2009: 39
Core question	“Will both of us gain?” Waltz 1979: 105, in Drezner 2010: 11	“Who will gain more?” Waltz 1979: 105, in Drezner 2010: 11
A tariff	“The implicit mercantilist theory that underlies trade negotiations does not make sense on any level … but it nonetheless governs actual policy.” Krugman 1997: 114, in Drezner 2010: 3	“Free trade is the weapon of the strongest nation.” Bismarck, 1879, in CWE p. 62

A note on labels · realism, economic nationalism, neomercantilism

The essence of the mercantilist perspective, whether it is labeled economic nationalism, protectionism, or the doctrine of the German Historical School, is the subservience of the economy to the state and its interests – interests that range from matters of domestic welfare to those of international security. Robert Gilpin (1975: 25), quoted in Drezner 2010: 8

The “neomercantilist” perspective is sometimes referred to as an “economic nationalist” or “realist” one in IPE textbooks. I have discussed elsewhere why I think “neomercantilism” is the more useful label. CWE p. 6, n. 14

Classical mercantilism · neomercantilism

	Classical mercantilism (16th–18th c.)	Neomercantilism (1791–)
Wealth	“to sell more to strangers yearly than we consume of theirs in value” Mun 1664: 7, in Drezner 2010: 3	“the power of producing wealth is … infinitely more important than wealth itself” List 1841, in CWE p. 59
Protection	“prohibitory” trade restrictions List’s term for his predecessors, CWE p. 60	“strategic trade protectionism that was designed to support specific domestic economic sectors, especially industry” CWE p. 56
The pie	“bound up with a static conception of the total economic resources of the world” Heckscher 1935: 25, in Drezner 2010: 4	“twentieth-century realists did not question that international trade would leave both participants wealthier” Kirshner 2009: 39
Relation to Smith	“subject to withering and in many aspects irretrievable criticism in 1776 by Adam Smith” Kirshner 2009: 38	“Realists followed liberals by branching off, not chopping down.” Kirshner 2009: 38

Three realist traditions · the rest of the deck

Building power → Using leverage → Paying for security

1 · Building power — Hamilton 1791, List 1841 · case: US CHIPS Act and IRA, 2022–2026
2 · Using leverage — Hirschman 1945, Farrell & Newman 2019 · case: SWIFT and Russian reserves, 2022–2025; Canada, 2025–26
3 · Paying for security — Gilpin 1975/1981, Kirshner 2009 · case: US–China semiconductors and rare earths, 2022–2026

1 · Building power · Hamilton 1791, List 1841

Not only the wealth but the independence and security of a country appear to be materially connected with the prosperity of manufactures. Every nation, with a view to these great objects, ought to endeavor to possess within itself all the essentials of national supply. Alexander Hamilton, Report on Manufactures (1791), quoted in Drezner 2010: 3

[I]t is a very common device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. Friedrich List, The National System of Political Economy (1841), quoted in CWE p. 59

1 · Building power · List’s conditions

Productive power — derives “from mental and physical powers of the individuals; from their social, municipal, and political conditions and institutions; from the natural resources” p. 59
Moderate, not prohibitory — duties that “entirely cut off foreign competition, injure the country which imposes them … and indolence is fostered” p. 60
Temporary — “until that manufacturing power is strong enough no longer to have any reason to fear foreign competition” p. 60
Manufacturing only — free trade in raw materials and agricultural products; List backed repeal of the Corn Laws p. 60
Nationality — “the intermediate interest between those of individualism and of entire humanity” p. 61

1 · Building power · case: US industrial policy, 2022–2026

Subsidy, 2022–2024

CHIPS and Science Act, Aug 2022: $52.7 bn
Apr 8, 2024: TSMC offered up to $6.6 bn in grants (+ ~$5 bn loans) for a $65 bn, three-fab Phoenix complex
Inflation Reduction Act, 2022: clean-energy tax credits (30D EV credit; 45Y/48E)

Equity and tariff, 2025–2026

Aug 2025: Intel’s $8.9 bn in CHIPS/Secure Enclave grants converted to a 9.9% federal equity stake
Jul 4, 2025: OBBBA ends the 30D EV credit after Sep 30, 2025; wind/solar credits end for facilities placed in service after Dec 31, 2027
Jan 14, 2026: Section 232 proclamation — 25% tariff on certain advanced chips; Sep 2, 2026: “phase two” — zero duty for US-built chips

The present quantities and circumstances of imports of semiconductors, semiconductor manufacturing equipment, and their derivative products pose a threat to the national security and economy. Presidential proclamation, Jan 14, 2026 (via White & Case client alert, Jan 2026)

2 · Using leverage · Hirschman 1945

[T]he power to interrupt commercial or financial relations with any country, considered as an attribute of national sovereignty, is the root cause of the influence or power position which a country acquires in other countries, just as it is the root cause of the “dependence on trade.” Hirschman, National Power and the Structure of Foreign Trade (1980 [1945]: 16)

Supply effect

trade “as a means of increasing the efficiency of the military pressure which one country might bring to bear upon other countries” (p. 14)

Influence effect

Germany’s 1930s trade with Southeastern Europe: “a powerful influence in favor of a ‘friendly’ attitude towards the state to the imports of which they owe their interests” (p. 29, in Kirshner 2009: 37)

2 · Using leverage · Farrell & Newman 2019

Asymmetric network structures create the potential for “weaponized interdependence,” in which some states are able to leverage interdependent relations to coerce others. Farrell & Newman 2019: 45

[T]hey respectively rely on the panopticon and chokepoint effects of networks. In the former, advantaged states use their network position to extract informational advantages vis-à-vis adversaries, whereas in the latter, they can cut adversaries off from network flows. Farrell & Newman 2019: 46

2 · Using leverage · case: Russia’s banks and reserves, 2022–2025

Chokepoint, 2022

Mar 2, 2022: EU removes seven Russian banks from SWIFT (VTB, Otkritie, Novikombank, Promsvyazbank, Rossiya, Sovcombank, VEB); Sberbank and Gazprombank exempted
~$300 bn of Central Bank of Russia reserves immobilised; ~€185 bn held at Euroclear (Belgium)

What happened to the money, 2024–2025

Jun 2024: G7 $50 bn ERA loan to Ukraine, serviced from windfall profits on the assets
Dec 12, 2025: EU prohibits transfers of the immobilised assets back to Russia
Dec 19, 2025: EU leaders drop the €90 bn “reparations loan” drawn on the assets after Belgium objects; fund a €90 bn loan by EU borrowing instead

For me, the reparations loan was not a good idea. We avoided stepping into a precedent that risks undermining legal certainty worldwide. Bart De Wever, Prime Minister of Belgium, Dec 19, 2025 (AP)

2 · Using leverage · the dependent partner: Canada, 2025–26

The decades-long process of an ever-closer economic relationship with the United States is over. Mark Carney, Prime Minister of Canada, Oct 22, 2025 (Global News)

>75%

of Canadian exports went to the US when Carney pledged to double non-US exports within a decade (Oct 2025, AP)

~70%

US share of Canadian exports in 2025, down from 76% a year earlier (Reuters, Jun 9 2026)

+16%

non-US exports in 2025, to C$213.8 bn; trade deal with Indonesia, investment pact with the UAE, a limited deal with China (Reuters, Jun 9 2026)

Reading: Hirschman’s influence effect — exit “more costly for others (given their relative stakes in the relationship)” (Kirshner 2009: 37). Sources: S. Boynton & A. Rabinovitch, Global News, Oct 22 2025; R. Gillies, AP via PBS, “Carney says Canada will aim to double its non-U.S. exports,” Oct 23 2025 (“We have to take care of ourselves because we can’t rely on one foreign partner”); P. Mukherjee, Reuters via BNN Bloomberg, “Mark Carney’s trade push collides with reality of U.S. dependence,” Jun 9 2026.

3 · Paying for security · Carr, Gilpin, Kirshner

Some mutually beneficial transactions might nevertheless leave the state less secure … leading to the expectation that states will make departures from those policies that maximize wealth and short-run economic growth in the name of national security. Kirshner 2009: 36

[A]s the power of a state increases, it seeks to extend … its political influence, and/or its domination of the international economy. Robert Gilpin, War and Change in World Politics (1981: 106), quoted in Kirshner 2009: 45

3 · Paying for security · Kirshner on China, 2009

[T]he United States is increasingly and intimately economically enmeshed with China, the state widely anticipated to assume the mantle of its principal strategic rival – and moreover US policy has evidenced little remorse, or even much wariness, regarding the strategic consequences of its permissive posture in this regard. Kirshner 2009: 40

Wary and pessimistic as they approach the table, and expecting the worst to come from changes in the balance of power, realists nevertheless place hedged bets on engagement. Kirshner 2009: 46

3 · Paying for security · case: US–China chips and rare earths, 2022–2026

US measureChinese measureTruce / summit

61% / 91%

China’s share of mined rare-earth supply / refining, 2024 (IEA, via S&P Global, Jan 27 2026)

25%

of Nvidia H200 China revenue to the US Treasury under the Dec 8, 2025 arrangement (Axios)

3 · Paying for security · the two governments, in their words

Washington

Export controls are a powerful national security tool, and the updates released today build on our ongoing assessment of U.S. national security and foreign policy concerns. Alan Estevez, Under Secretary of Commerce for Industry and Security, Oct 17, 2023

Beijing

In principle, the export of the relevant dual-use items gallium, germanium, antimony, and superhard materials to the United States is not permitted. Ministry of Commerce (MOFCOM), Notice 2024 No. 46, Dec 3, 2024 (CSET translation)

Three traditions, three cases

	1 · Building power	2 · Using leverage	3 · Paying for security
Text	Hamilton 1791; List 1841 CWE pp. 57–61; Drezner 2010: 3	Hirschman 1945; Farrell & Newman 2019 Kirshner 2009: 37; F&N pp. 45–46	Carr 1939; Gilpin 1981; Kirshner 2009 Kirshner 2009: 36, 45–46
Claim	“the power of producing wealth is … infinitely more important than wealth itself” CWE p. 59	“the power to interrupt commercial or financial relations … is the root cause of the influence or power position” Hirschman p. 16	“states will make departures from those policies that maximize wealth … in the name of national security” Kirshner 2009: 36
Instrument	Subsidy → equity stake → tariff (CHIPS 2022; Intel stake Aug 2025; Section 232, Jan 2026)	SWIFT removal (Mar 2022); ~$300 bn reserves immobilised, indefinitely from Dec 2025	Export controls (Oct 2022, Dec 2024) ↔ mineral licensing and bans (Jul 2023, Dec 2024, Apr 2025)
Stated rationale	“pose a threat to the national security and economy” Proclamation, Jan 14 2026	“send yet another very clear signal to Putin and the Kremlin” von der Leyen, Mar 2 2022	“a powerful national security tool” Estevez, Oct 17 2023
Cost borne	Higher import prices, acknowledged by Hamilton CWE p. 58	Belgium’s “legal certainty” objection; €90 bn raised by EU borrowing instead Dec 19 2025	US yttrium imports 333 t → 17 t after Beijing summit TechTimes, May 26 2026

Coda · Helleiner · deep roots

[M]admen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. J. M. Keynes (1936: 383), quoted in CWE p. 2

Coda · Helleiner · many dialects

There was no single figure in the neomercantilist camp who inspired all thinkers in the way that Smith did for classical economic liberals (or Marx did for Marxists …). CWE p. 86

Sun Yat-sen, Kobe, 1924

[L]earn science from Europe for our industrial development and the improvement of our armaments, not, however, with a view to oppressing or destroying other countries and peoples as the Europeans have done, but purely for our self-defense. Quoted in CWE p. 212

Marcus Garvey, UNIA, 1920

We are endeavoring to unite Negros everywhere, and for what? For the purpose of building up a powerful nation on the continent of Africa, a nation in the near future boasting as a first-rate power … We are endeavoring to perform the function of government for our race. Quoted in CWE p. 188

For Thursday · shared doc, before Thu Sep 10, 10:05 am · no class meeting

Connector — Take one passage from Week 2 (CWE chs. 2–3, Aggarwal & Dupont, or Lake) and one from this week (CWE ch. 4, Drezner, or Kirshner) that describe the same thing — a tariff, a trade deficit, a trading partner — and write a question about why they describe it differently. Probe: which passage changes the unit of analysis, and where exactly in the sentence does it happen?
Applier — Find one article from the past month (Oxy’s news subscriptions) in which a government defends an economic measure on security grounds. Name the tradition it fits (building power, using leverage, paying for security) and write a question the article leaves open. Probe: what would the measure have to look like for a liberal to call it shrewd rather than foolish?
Theory Triangulation (optional, in the doc) — Pick one of the three cases from today. In three sentences each, state how a liberal, a neomercantilist, and a Marxist would explain it. Marxism is Week 5 — use CWE ch. 1, pp. 6–8, for the first pass. Post under the Week 3 heading; include the article link if you are the Applier.

This week and next

Thu Sep 10 — no class meeting (instructor at a conference); discussion questions still due in the shared doc
Tue Sep 15 — Week 4, Constructivisms: CWE one chapter from Part 2 (chs. 8–13, your choice); Abdelal 2009; Nelson 2014
Thu Sep 17 — Quiz 1, in class
Thu Sep 17, 12–1 pm — Sergii Glebov (UC Irvine / Odesa National University), “Russia’s War on Ukraine and European (In)Security,” Choi Auditorium — attendance counts

Political Economyand Security

Building power → Using leverage → Paying for security

Political Economy
and Security