China’s High-Tech Ambitions: Industrial Policy, Innovation Ecosystems, and the Semiconductor Challenge

In conversation with Professors Chih-shian Liou and Chung-min Tsai

By Sarah Cao

On Monday 11 May 2026, the Oxford Taiwan Studies Programme hosted Professors Chih-shian Liou and Chung-min Tsai of National Chengchi University at the Kin-ku Cheng Lecture Theatre, China Centre, for a seminar on the political economy of Chinese high-tech development under intensifying US–China competition. Taken together, the two presentations offered contrasting verdicts on what state-led technological advancement can, and cannot, deliver in contemporary China.

Professor Liou’s talk, “Leapfrogging through Innovation Ecosystems: China’s Industrial Policy Regime and the Rise of Private High-Technology Companies,” examined how Beijing has moved beyond top-down subsidies toward a regime that integrates private firms into a state-led innovation ecosystem. Professor Tsai’s talk, “China’s Semiconductor Dilemma: Administrative Guidance or Market Orientation?,” asked why, despite vast funding and political attention, China’s semiconductor industry has so far failed to deliver the breakthroughs Beijing seeks. The juxtaposition was instructive in itself: where one panelist saw bifurcation and leapfrogging, the other saw structural collision and stagnation.

Innovation Ecosystems and the Rise of Private High-Tech Champions

Liou opened with an anecdote describing a BYD electric vehicle parked near the Eiffel Tower not long after pandemic-era travel restrictions were lifted. Both BYD and DJI, the drone manufacturer, are privately owned and have achieved global dominance in their respective sectors. Their rise, she argued, exposes a foundational puzzle for the political economy of Chinese state capitalism: how does a system widely understood to favor state-owned enterprises (SOEs) deliver leapfrog development through private firms that, by every conventional account, should sit at the periphery of industrial policy?

The puzzle also reveals a weakness in the existing literature. Conventional treatments emphasize SOE-led “national champions” backed by generous subsidies, with mixed results, and largely accord no role to private firms. Drawing on Dani Rodrik’s definition of industrial policy as “targeted and selective government policies that stimulate specific economic activities and promote structural change,” and on the policy-regime concept developed by Stephen Krasner and Barry Naughton, Liou proposed a reframing: in response to Sino–US strategic competition, China has incorporated private high-tech firms into a deliberately constructed innovation ecosystem, with a division of labor between SOEs and private firms that is now the engine of leapfrog development.

Two pieces of evidence anchored the argument. The 2020 Programme of New Infrastructure Construction (NIC) identified seven priority sectors, four of which are dominated by private companies; and among China’s major AI computing power centers, only Inspur is an SOE. Borrowing from Granstrand and Holgersson, Liou defined an innovation ecosystem as “the evolving set of actors, activities, and artifacts, and the institutions and relations, including complementary and substitute relations, that are important for the innovation performance of an actor or population of actors,” with institutions as “the rules of the game.”

Why test the argument on AI? Liou pointed to a dual crisis. The external pressure of US export controls intersected with the internal bottleneck of older, inefficient industrial policies, opening space for the Chinese state to select more capable actors by changing the rules governing resource allocation. The shift, she argued, has been from ownership-based to mission-based allocation, in ways “we’ve never seen before.”

Two flagship instruments illustrate the new approach. Government Guidance Funds (GGFs) operate under dual mandates: producing financial returns and achieving the state’s industrial policy goals via venture-capital-style decision-making. They function as patient capital for early-stage firms in emerging technologies and aim to crowd in 70 to 80 per cent of funding from “social capital,” signaling priority sectors to private investors. The National Venture Capital Guidance Fund (2025) and the National Integrated Circuit Industry Investment Fund (the “Big Fund”) are leading examples. Overlap between competing GGFs has produced inefficiency, but the model itself marks a real departure from older subsidy logic.

Challenge-based selection mechanisms, which Liou rendered as 揭榜挂帅 or “championing a task through open competition,” form the second pillar. A six-step procedure invites firms to bid for designated technical missions in order to overcome industry bottlenecks. The “Little Giants” programme, running across six batches from 2019 to 2025, has recruited more than ten thousand small and medium firms into a system of financial assistance, public-listing support, and R&D resources. Most are privately owned, including some Taiwanese companies. The sectoral distribution skews heavily toward manufacturing, with provincial variants such as the agricultural Little Giants of Fujian and Hebei.

Liou closed by arguing that private high-tech firms are now better equipped than SOEs for frontier innovation, and that an innovation ecosystem incorporating them is what now drives leapfrog development. The result, in her phrasing, is a “bifurcated industrial policy regime” in which the state has redefined the roles of public and private actors to suit different technological objectives.

The Semiconductor Dilemma: Why Money Has Not Bought Breakthroughs

Tsai opened with the question framing his current research: do US sanctions on China’s high-tech sector hinder semiconductor development, or accelerate self-reliance? His short answer was no. External pressure has not produced the breakthroughs Beijing intends; rather, US-led tech sanctions have exacerbated internal contradictions between the Chinese government and the industry.

“Made in China 2025” called for domestic semiconductor capacity of 40 per cent by 2020 and 70 per cent by 2025. By the end of 2023, the figure stood at 23 per cent. The deeper question, he argued, is why preventative measures are so difficult to implement when a socialist system is forced to exit a capitalist-constructed international division of labor. His analytical frame paired techno-nationalism against global interdependence.

After post-1980s expansion built on foreign technology and investment, China’s semiconductor industry remained concentrated in low- and mid-end segments and reliant on imports. The “Big Fund” era opened in 2014 with the National IC Industry Development Guidelines, mobilizing 138 billion RMB in national funding alongside a further 140 billion RMB in local funds, with the stated ambition of supporting the entire chain: design, manufacturing, packaging, and testing. Internal contradictions, he argued, have hindered effective upgrading.

The dilemma, in his account, is fundamentally political-economic. Administrative guidance, which Tsai glossed as “your boss is telling you what to do,” collides with corporate realities in which enterprises focus on profitability and market share that diverge from state strategic goals. The disconnect means incentives fail to drive innovation, producing technological stagnation and continued reliance on foreign technology. Projecting a chart of global wafer fabrication capacity by technology and region for 2022 to 2032, he noted that despite techno-globalism’s promise of a shared supply chain, “everyone feels insecure.” South Korea, the United States, Taiwan, and China each pursue self-sufficiency, even though, as he put it, “there is no way to build up a complete supply chain at home, as it is already shared by the entire world.”

Here Tsai diverged from Liou. Because so many SOEs sit at the center of the semiconductor sector, he argued, it is difficult for companies to innovate. The result is a self-fulfilling prophecy: the more state-led the sector becomes, the more it fails to ignite market-driven innovation. Subsidies expand market share rather than fund R&D, producing technological stagnation that in turn leaves the industry more vulnerable to external sanctions. Two cases illustrated the execution gap, the “Golden Card” episode and the 2006 Hanxin scandal, both involving state-owned firms, which exposed an incentive system rewarding visible expansion over genuine capability. His conclusion was a systemic collision: US sanctions will not produce Chinese self-sufficiency.

Q&A: A Bifurcated Regime, or a Two-Speed Economy?

The Q&A surfaced the productive tension between the two arguments. If Liou is right that ownership has been deprioritized in favor of mission-based allocation, how can Tsai’s account, in which money flowing to SOEs in semiconductors produces stagnation, also be correct? Tsai’s response emphasized the peculiarity of semiconductors as a hardware- and equipment-intensive sector: China lacks the necessary equipment, cannot easily import it, and finds it extremely hard to make on its own. Managers facing three-to-five-year promotion cycles cannot credibly run long-horizon R&D, and short-term incentives stifle the very innovation Beijing wants.

Audience members pressed on how far the bifurcation should be extended. DeepSeek and Huawei occupy ambiguous space in any private/state classification, and DeepSeek is reportedly now training models on Huawei chips, implying a build-up of technical capacity worth investigating. Liou pointed to Anhui province, where a fusion project promoted by the provincial government and anchored at the University of Science and Technology of China draws on small private companies as collaborators, as a site where the public-private boundary blurs in instructive ways.

Tsai observed that the United States remains the largest importer of mature chips from China, with active competition concentrated at the advanced end. China continues to acquire pre-owned manufacturing equipment, but that supply is finite. The strategic significance of the sector, particularly for military applications such as PLA fighter aircraft, explains why Beijing continues to invest disproportionately in SOEs even when the returns disappoint.

On the GGF mechanism, Liou clarified that the funds function differently from straightforward subsidies. They take equity stakes in private firms, are reviewed periodically by the fund’s performers, and reallocate capital from underperforming to winning investments. Even in provincial cases such as Anhui, where the fund is government-backed, a board still makes investment decisions, leaving some space for market discipline. On civilian-to-PLA technology transfer, she acknowledged the existence of mechanisms that are “not very transparent.”

On NVIDIA’s H200 chips, which Commerce Secretary Lutnick has indicated are not yet sold to China, and Jensen Huang’s reported push to expand sales there, Liou observed that China uses the power of its market in bargaining, creating a “shameful” position for Beijing as Huang prepares to join a US delegation to China this week. Western imaginings of AI innovation, she added, remain anchored in American and Western European models, in which a “mission-oriented economy” trickles down into a Silicon Valley ecosystem; in China, the role of leading universities such as Tsinghua reflects an architecture of its own.

Turning to the recent Cheng Li-wun visit to Beijing and the upcoming Trump–Xi summit, the panel suggested that the visit’s impact on Taiwan’s local elections would be limited, since those are dominated by domestic issues, and that the absence of a consistent voice from within the KMT had made Cheng’s trip salient in the media. China remains relatively stable on Taiwan, while Trump is “so unstable,” so continued volatility from Washington should not be ruled out. Liou added that Cheng’s trip seemed primarily aimed at consolidating power inside her party while drawing on outside authority for legitimacy. A telling aside from the audience captured the broader mood: although surveys have suggested that 70 per cent of young Taiwanese would fight for their country, in a recent classroom of two hundred students, none raised their hands.

Concluding Reflections

Taken together, Liou and Tsai met at a crucial analytic seam. Both accept that US–China competition is the catalyst reshaping Chinese industrial policy, and both treat the state, the market, and ownership as central variables. They part company, however, on whether Beijing has cracked the code. Liou sees a sophisticated bifurcated regime that has begun to deliver leapfrog gains in AI through private firms operating inside a state-built ecosystem. Tsai sees, in semiconductors, a sector so structurally bound to long horizons, equipment scarcity, and SOE-dominated incentives that even unprecedented resources have produced only modest technological progress.

The juxtaposition is the point. The question, the two talks suggest, is not whether the Chinese state can mobilize capital and political will at scale, which it manifestly can, but whether the design of its industrial policy regime suits the specific demands of a given technology. AI rewards agility, fast iteration, and a private-sector R&D culture; semiconductors reward decade-long investments, deep equipment ecosystems, and patient capital, none of which fit comfortably inside the incentive structures of Chinese state capitalism as currently configured. There will not be one Chinese high-tech story, but many, each shaped by the fit between the policy instrument and the technology it is meant to advance.

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The seminar was hosted by Dr Bo-jiun Jing, Senior Research Fellow and Programme Manager in Taiwan Studies at the Oxford School of Global and Area Studies. It forms part of the Oxford Taiwan Studies Seminar Series, and this recap was produced in partnership between the Oxford Taiwan Studies Programme and St Antony’s International Review (STAIR).

Screening Invisible Nation with Director Vanessa Hope

By Senkai Hsia

On a warm and sunny Monday 25th May, the Oxford Taiwan Studies Programme hosted a screening of Invisible Nation at the Investcorp Auditorium, St Antony’s College. The screening was followed by a discussion with the film’s director, Vanessa Hope, moderated by Issy Wells. The event highlighted Taiwan’s unique geopolitical status through a documentary capturing Taiwan’s historical journey from martial law to democracy and its contemporary struggle for international recognition.

First released in 2023, Invisible Nation is an award-winning documentary which focuses on the presidency of Tsai Ing-wen, Taiwan’s first female president. With unprecedented access to Tsai herself, the film provides a behind-the-scenes look into her eight-year leadership of Taiwan in the face of increasing tensions with Beijing. While the portrait of Tsai is central, the documentary also explores a much broader story of Taiwan’s colonial history, its democratic transition and the ups and downs of the island’s relationship with mainland China. In doing so, it provides a rich and compelling account of Taiwan’s place in the world highlighting its internal struggle towards democracy, competing visions for engagement with the mainland, and the personal impacts of Beijing’s pressure on Taiwan’s status and identity.

Drawing upon interviews with Taiwanese political leaders, civil society activists, and geopolitical analysts alongside archival and contemporary footage of the island’s landscapes and people, Invisible Nation seeks to inform a global audience about why Taiwan’s plight should matter to everyone. The core tension of the film is to highlight Taiwan’s status as a de facto country that is denied equal diplomatic recognition. By capturing Taiwan’s exclusion from “international society”, including international organizations, its representation as “Chinese Taipei” at global sporting events and even in internet dropdown menus, the documentary frames Taiwan’s “reduction of international personality” as an issue of dignity, freedom and universal human rights for the people of Taiwan.

As Taiwan is shunned on the international stage, the film provides an up-close portrait of President Tsai Ing-wen leading a vibrant democracy. The documentary opens with Tsai speaking to high school students asking them what “they hoped the country would do for [them]”. As the students take turns expressing their aspirations, Tsai dutifully takes careful notes. The film charts Tsai’s own evolution as a leader through interviews in official and non-official settings over the course of the documentary. From a stinging 2012 election loss to being cheered by an exuberant crowd waving “We are Taiwanese” banners upon ascending to the presidency in 2016 and her declaration of Taiwan as “already a functionally independent country” to global audiences, Tsai is portrayed as quiet yet determined, with a measured and resolute approach towards defending Taiwan’s democracy. And through its unique access to Tsai, the documentary provides a window into her as a person––highlighting her serving coffee to guests and Tsai’s cat taking an unintended starring role in one of her interviews. While not explicitly a biopic of Tsai, her leadership provides a grounding anchor for the film’s narrative by lending a personal and authoritative voice to the island’s struggle for self-determination.

In contrast to Tsai and Taiwan’s journey towards democracy, the film depicts Beijing moving towards authoritarianism and adopting an increasingly coercive approach to the island. Scenes of Taiwan’s beautiful scenery, Taipei’s skyline and the vibrancy of Taiwanese society are held against the spectre of Chinese military parades and President Xi Jinping reserving the use of force to resolve the “Taiwan question” as part of the inevitable “great rejuvenation of the Chinese nation”. Visceral footage of Beijing’s crackdown on pro-democracy protests in Hong Kong cautions against acquiescing to Beijing’s demands and serves as a reminder of the threats against Taiwan’s freedom. And to underscore the risks to the wider world, the film features commentary from analysts like former U.S. Deputy National Security Advisor Matt Pottinger who warns that capturing Taiwan is merely the first step to China undermining democracies across the “first island chain”.

The starkness of that contrast between the aspirations of the Taiwanese people to Beijing’s imposing statements makes for at times moving viewing. Yet, given that Taiwan’s status remains a deeply complex issue––with many views even within Taiwan itself––such a binary contrast could risk oversimplifying the challenges to cross-strait peace and stability. To the documentary’s credit, alternative perspectives are provided in the form of interviews with Tsai’s predecessor, Ma Ying-jeou, who pursued greater engagement with Beijing. And the film quickly moves far beyond a simply reductive or emotional frame by giving voice to Taiwan’s leaders and telling its story of democratization through artists, civil society activists and its unique history. The documentary itself provides a valuable contribution in explaining why Taiwan’s future matters to audiences across the world.

 The Q&A with Vanessa Hope provided a full auditorium with insight into the years-long process of making the documentary, including the at times nerve-wracking journey of obtaining Tsai’s permission and building trust with her and her staff. Hope explained that her team’s approach in avoiding outside narration was to “listen to people and let them speak” to tell Taiwan’s story, since they wanted to avoid Taiwan being “seen as a chess piece in a larger game”. Audience questions focused on the experience of working with Tsai, the choice of anchoring the story around Tsai’s presidency and on the personal costs of filming given the risks of backlash from Beijing. Hope reflected on the challenges in producing the film and striving for a balance between highlighting Tsai’s story and the wider narrative of the Taiwanese people’s aspirations. Notably, for the many in the audience who self-described as not being familiar with Taiwan, Hope expressed a desire that the film would be a voice for Taiwan and that its ongoing struggle to preserve its democracy would resonate for global audiences.

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The screening was opened by Dr Jing Bo-jiun, Senior Research Fellow and Programme Manager in Taiwan Studies at the Oxford School of Global and Area Studies, and the Q&A was chaired by Ms Issy Wells, MSc candidate in Contemporary Chinese Studies and former reporter at TaiwanPlus and Radio Taiwan International. This recap was produced in partnership between the Oxford Taiwan Studies Programme and St Antony’s International Review (STAIR).

Cycle of Hatred: Gundam’s Warning on Japan–China Deterrence and Escalation - Meng Kit Tang

Mandate, Shock, and Structural Risk

On 8 February 2026, Japan delivered a decisive political signal. A snap election handed Prime Minister Sanae Takaichi, and the Liberal Democratic Party, a commanding 316 seats in the 465-member Lower House. Within weeks, the Diet passed a record ¥122.3 trillion budget, including ¥9.04 trillion for defence. The significance lies less in the number itself than in what it unlocks: sustained procurement, doctrinal adaptation, and the political confidence to act without coalition hesitation. The timing sharpened the message. Back in November 2025, Takaichi publicly linked Japan’s security to stability in the Taiwan Strait. Beijing objected; Tokyo never walked the remarks back. China’s response has been calibrated but unmistakable: increased maritime and air activity around the Senkaku/Diaoyu Islands, regulatory pressure on selected Japanese sectors, and persistent signalling through state and military channels.

This moment crystallizes a deeper pattern. Japan’s strategic shift is, in Tokyo’s view, a long-delayed correction to a worsening security environment. In Beijing, the same measures appear as incremental remilitarization under legal cover. The result is a perceptual convergence of offense and defence: steps taken to deter are interpreted as preparation to strike.The danger lies not in a single decision but in accumulation. Like the moment in Mobile Suit Gundam: Char’s Counterattack, when Char Aznable sets the asteroid Axis on a collision course with Earth, escalation here does not require irrational actors. It emerges from coherent strategies that cannot be reconciled once set in motion. Yet once events begin moving, intent matters less than momentum. That is the uncomfortable parallel now emerging in East Asia.

The Gravity of History

In Char’s Counterattack, Char does not act out of chaos. He articulates a logic: only a shock of sufficient magnitude can force humanity to confront its own destructive tendencies. Opposing him is Amuro Ray, who seeks to prevent catastrophe through superior capability and resolve. Both men think they are preventing disaster and neither can convince the other. This is not moral equivalence; it is structural resemblance. One side frames escalation as justice, the other as necessity. Each interprets the other’s restraint as weakness and the other’s preparation as threat.

For Beijing, history is more than a background but an infrastructure. The memory of the Nanjing Massacre,and the atrocities associated with Unit 731, are embedded in education, media, and political discourse. These memories are institutionalized rather than episodic. Within that framework, Japanese military normalization cannot be viewed in isolation from the past. Even technical adjustments acquire symbolic weight.

Japan’s self-understanding diverges sharply. Postwar pacifism, constitutional constraints, and decades of limited military posture are taken as evidence of transformation. From Tokyo’s perspective, current reforms correct an imbalance rather than revive militarism.The problem is not simply disagreement over facts, but disagreement over meaning.

The director Yoshiyuki Tomino, shaped by wartime displacement, captured this condition with unusual clarity. In his work, technology does not resolve conflict; it amplifies human contradiction. Char’s escalation is not only strategic but psychological, it is a demand for recognition, even at catastrophic cost. Amuro’s response, however advanced, cannot compensate for misaligned intent.

East Asia faces a similar dilemma today. Strategic choices are pulled by historical gravity. Leaders may genuinely seek deterrence rather than war, however, history narrows the space in which deterrence can be interpreted as defensive.

Japan’s Strategic Shift: Capability and Ambiguity

Japan’s defence transformation is no longer rhetorical. It is material, operational, and increasingly visible. The commitment to spending near 2 percent of GDP underwrites a series of concrete changes: acquisition of U.S.-made Tomahawk cruise missiles, upgrades to the domestically produced Type 12 anti-ship missile to extend range beyond 1,000 km, and investments in standoff capabilities designed to hold adversary assets at risk. Across the Nansei island chain stretching from Kyushu to Yonaguni, Tokyo has accelerated fortificationefforts, including mobile anti-ship and surface-to-air missile deployments.

Doctrine is shifting as well. Japan now embraces a limited counterstrike capability framework that would allow attacks on adversary launch sites under certain conditions. At the same time, coordination with the United States has deepened through intelligence sharing, surveillance integration, and joint operational planning. U.S. bases in Okinawa remain central to this deterrence architecture. From Tokyo’s perspective, these steps are defensive and necessary. China’s expanding naval presence, frequent incursions near the Senkaku Islands, and growing missile capabilities create a security environment in which passivity carries risk. Denial, not dominance, is the objective.

Still, perception complicates everything. Capabilities designed for deterrence can also look like preparation for attack. Long-range missiles and counterstrike doctrines blur distinctions between defence and offense, especially when viewed through the lens of history. Beijing pays less attention to legal framing than to operational potential. That ambiguity matters because strategy is rarely judged by intent alone. Japan responds to what it sees as an increasingly coercive security environment. China responds to what it perceives as a transformation in Japan’s strategic identity. Each side believes it is reacting. Each side also appears threatening to the other.

China’s Response: Shaping the Escalation Ladder

China’s response has been systematic and carefully calibrated. China Coast Guard vessels have maintained near-continuous presence in contested waters around the Senkaku/Diaoyu Islands, with patrols recorded on 357 days in 2025 alone. This is a record high for the fourth consecutive year. Air activity near Japan’s Air Defence Identification Zone has also intensified, testing response times and operational patterns. These actions operate below the threshold of armed conflict but steadily reshape the operational environment.

Beijing complements these measures with economic and regulatory tools. Selective restrictions, inspections, and signalling through state-linked channels remind Tokyo of interdependence. These are not blunt instruments. They are calibrated to impose cost without triggering escalation. From Beijing’s perspective, such actions reinforce sovereignty claims and demonstrate resolve. They also establish precedents like patterns of behaviour that, over time, normalize China’s position. This is not merely reactive policy; it is active shaping of the escalation ladder.

Tokyo interprets the same actions as coercion. The ambiguity is strategic. It allows China to apply pressure incrementally while avoiding thresholds that would justify a decisive military response. Each step is small. The cumulative effect is not. The resemblance to Char’s logic in Gundam is striking. Escalation is framed not as recklessness, but as necessity. Every calibrated action seeks recognition without immediate catastrophe. The danger, however, is that calibration depends on shared assumptions about thresholds and restraint. Where those assumptions diverge, even controlled pressure can spiral unpredictably.

Military & Strategic Realities

The operational balance between Japan and China is defined less by parity than by asymmetry. China leverages scale and integration: a vast missile arsenal under the PLA Rocket Force, rapid naval expansionand layered anti-access/area denial (A2/AD) systems designed to constrain adversary manoeuvre. Japan’s strengths are different in kind: advanced intelligence, surveillance, and reconnaissance (ISR), high-end maritime and air platforms, and a geographic advantage along the Ryukyu/Nansei island chain, which allows monitoring, complicates adversary operations, and supports denial if needed.

These capabilities produce divergent strategic logics. Beijing interprets A2/AD as credible deterrence against encirclement, shaping the battlespace, raising intervention costs, and forcing conflict, if it occurs, onto favourable terms. Tokyo sees the same environment as a mandate for credible denial: standoff missiles, dispersed basing, and resilient ISR are necessary to prevent coercion in peacetime and inferiority in crisis. The divergence is not factual but interpretive.

Neither side is invulnerable. In a short, high-intensity scenario, China’s mass and missile reach could inflict immediate damage on forward bases, logistics hubs, and critical infrastructure. In a protracted campaign, Japan’s alliance integration, maritime resilience, and technological edge combined with U.S. support could complicate Chinese operations and stretch lines of effort. One side optimizes for rapid dominance; the other side for denial and endurance. Misjudgement lies in the narrow margin between these logics.

The costs of conflict extend beyond the military domain. Economic interdependence means disruption would ripple through supply chains, financial systems, and industrial production. Critical infrastructure including ports, energy grids, digital networks would be vulnerable, making even limited escalation systemically consequential.

Here again, Char’s Counterattack offers a useful warning. Technology amplifies human flaws rather than resolving them. The pursuit of deterrence compresses decision-making time while increasing the political cost of restraint. Historical trauma ensures that even defensive deployments can appear offensive in the eyes of the other side.

The risks unfold across several levels. Near-term dangers include grey-zone incidents such as maritime collisions or dangerous air intercepts. Medium-term risks involve symbolic triggers: high-level visits, doctrinal changes, or new deployments. Over the longer term, the normalization of coercion steadily erodes restraint itself.

Exit ramps exist but are narrow: crisis hotlines, limited confidence-building measures, operational deconfliction, and issue-specific dialogues can reduce uncertainty, but all rely on political will constrained by nationalism and historical memory. As Yoshiyuki Tomino’s wartime-shaped vision suggests, the deeper barrier is human. Modernization enhances deterrence while increasing crisis instability. Like the anime, the asteroid is already falling.

As the military and strategic realities make clear, capability alone cannot resolve the deeper forces at work. To fully understand the risks facing Japan and China, we must return to Gundam’s most enduring warning.

Core Lessons Mapped to the Conflict

In Char’s Counterattack, Char Aznable’s attempt to drop Axis onto Earth emerges from accumulated resentment, frustration, and the belief that existing institutions are incapable of reform. Amuro Ray’s desperate defence is equally rational from his own perspective. Yet every move each man makes reinforces the fears of the other.

A similar dynamic exists today between Japan and China. Tokyo sees rearmament as a necessary response to growing pressure around the Senkaku Islands and a worsening regional security environment. Beijing sees the same policies through the lens of history, especially the memory of the Nanjing Massacre and Unit 731.

China’s own actions follow the same pattern. Maritime patrols, economic pressure, and grey-zone operations are viewed in Beijing as legitimate ways to defend sovereignty and discourage closer Japan–U.S. alignment. In Tokyo, however, those actions strengthen support for military expansion and tighter alliance coordination. The result is a cycle in which each side’s defensive measures appear threatening to the other. Action creates suspicion, and suspicion justifies further action. Over time, the cycle becomes harder to slow.

Breaking that pattern requires more than military deterrence. It also requires both sides to recognize that the other’s fears are genuine, even when they appear exaggerated or politically convenient. That is extremely difficult. Historical memory, nationalism, and domestic politics push both governments toward hardened positions instead. Yoshiyuki Tomino understood this tragedy well. Influenced by his childhood during World War II, he repeatedly warned that war is never glorious and that societies often drift toward conflict while believing they are acting rationally.

That is the deeper warning of Gundam. Catastrophe rarely comes from a single reckless act. More often, it grows from many decisions that seem reasonable at the time. Only rare moments of restraint and mutual understanding can interrupt that momentum—and such moments are politically fragile. In the end, the cycle persists because both sides believe they are defending themselves. That is what makes it so difficult to escape.

Coexistence or Collision

Japan seeks security through credible deterrence. China seeks security through control and demonstrated resolve. These objectives are internally coherent. They are also mutually reinforcing in ways that increase risk. The core problem is not intent but interpretation. Each side views its actions as stabilizing and the other’s as destabilizing. Each prepares for a different version of conflict. Under these conditions, even correct decisions can produce undesirable outcomes.

Yoshiyuki Tomino offered a bleak but enduring insight: conflict persists not because its costs are unknown, but because they are accepted as necessary within competing visions of justice and survival. The tragedy is not ignorance. It is conviction. The asteroid is already moving. Not because Tokyo or Beijing actively seek catastrophe, but because each side continues to make choices that, while rational in isolation, collectively narrow the space for restraint. That may be Gundam’s most enduring warning for East Asia: two sides can act logically, defensively, and even cautiously—yet still drift toward the very collision both hope to avoid.

 In a November 7, 2025 Diet session, Prime Minister Sanae Takaichi stated that a Chinese military action against Taiwan, including a blockade, could constitute a situation threatening Japan’s survival. It potentially allows limited collective self-defense with U.S. forces. Tokyo described it as realistic threat assessment; Beijing demanded retraction and viewed it as a serious provocation. The remarks were not withdrawn despite Chinese pressure.

The EU-Mercosur Trade Deal: New(ish) Directions for Global Trade and Investment - Charles Petrik

By Charles Petrik

On May 1st, the long-awaited trade agreement between Mercosur and the European Union was provisionally applied as part of a broader framework covering trade, political cooperation, and development. Argentina, Brazil, Paraguay, and Uruguay are the only members party to the deal, although Mercosur collectively represents the world's 5thlargest economy. Held up for 25 years by impasses on climate and competition, this agreement aggregates a market of over 700 million people, building on existing trade flows of €55 billion in goods and €29 billion in services.

The Interim Trade Agreement (iTA), advanced under EU-exclusive competence by the European Commission, has faced opposition from states with climate-conscious groups and agricultural industries, especially France, with President Emmanuel Macron publicly expressing his disapproval. The iTA now awaits approval by the EU Parliament by a qualified majority. A broader Partnership Agreement (EMPA), including provisions on political cooperation, was separated to secure progress on the iTA, but will require unanimous ratification by all EU member states. Additionally, a pending review by the European Court of Justice regarding separation of powers, existing trade alignment and compliance with environmental standards could also delay the deal for up to two years by which the short-term effects of the agreement will be revealed.

Ultimately, the deal’s significance for the EU lies in its normative ambition, pending its survival in the EUCJ. It simultaneously supports Mercosur’s efforts to attract diverse investment while enabling the EU to project a rules-based, open trade model. However, there is inevitable tension around environmental sustainability commitments. While the iTA succeeds in supporting the idea of an increasingly multi-polar international market, it will struggle to upend major investment and trade dominance and embeddedness by China. Even so, if realised, the agreement offers a framework for inter-regional cooperation for the long-term, valuable in its own right .

The application of the agreement would remove duties and tariffs on 91% of the EU’s goods exports to Mercosur, most prominently clothing, pharmaceuticals, chemicals (fertilisers), machinery, spirits and car parts. In exchange, 92% of export restrictions on Mercosur’s exports to the EU would be progressively eliminated, including agricultural products, and critical minerals such as titanium, lithium, and Brazil’s niobium. This deal also seeks to open more opportunities for EU firms to service and procurement markets and further private investment.  

Environmental and social commitments are central, similarly to EU FTAs with the UK and New Zealand. Environmental and social provisions – deforestation, the Paris Agreement, labour rights, animal welfare and food standards – are formally binding, with the possibility of suspension for non-compliance, though enforcement remains contested. Forecasts that envision a future with further market integration have predicted bilateral and intraregional trade increases by up to 70% and 38%, respectively. More realistically, EU GDP is expected to rise by around 0.1% by 2032, with Mercosur seeing up to 0.3% growth.

Otherwise, reactions to the deal have been varied. Trade unions in both European and Mercosur countries warn of labour impacts due to increasing market liberalisation, while European agricultural protectionism has been led by French president Emmanuel Macron. Potential beef and poultry import increases are estimated to be modest at best (1-2% of EU consumption). Responses from Mercosur have been more cautious, pending regulatory clarity. Despite this, the application of the agreement signals a shared effort to resist economic nationalism and advance greater “strategic autonomy” in global trade.

The Normative Power of the Agreement

Considering the United States’ turn toward trade protectionism under President Trump’s administration, the iTA itself, and broader agreement, serve an overwhelmingly normative purpose for the EU, demonstrating it can overcome gridlock and disunity in the face of international pressure. Through the deal, the EU’s ability to balance promoting sustainable development and remaining an attractive trade partner to increasingly influential blocs like Mercosur is being tested. By developing deeper ties, Mercosur receives marginally more strategic market diversity for its imports and exports, while the EU is allowed to project its values of pragmatism, honesty, predictability and openness in contrast to the increasingly coercive and/or unilateral trade tactics of major powers like the US and China.

Despite being one of the EU’s largest trade deals to date, domestic strife and protectionism are strong in Member States, contrasting with larger support for the deal within Mercosur. Promises of immediate economic impacts have been scarce. Thus, passage of the deal demonstrates a new primacy of norms in facilitating some form of international trade cooperation. The EU’s contemporary, free-market vision is also expanding to a new Indian trade deal, which has been on the back burner until recently, and builds upon other recent agreements with Mexico and Indonesia. This is Mercosur’s first major transregional trade deal. Overall, embracing diverse, strategic dependency, even in the face of a “good-enough” agreement, is a step forward for both blocs.

Balanced Multipolarity and Critical Raw Minerals

I would like to say that this agreement offers less than hoped for reframing existing trade and manufacturing relationships with China. However, in a South American era of balanced multipolarity and non-alliance, it provides Mercosur some leverage in mediating previously extractive relationships, as expressed in the critical raw minerals industries, even as the prospect for value-added infrastructure isn’t a likely future. Just as China’s soft power and influence in the bloc may be loosened by alternative trade routes for machinery and chemicals, the real value for Mercosur states will be the increased market leverage to push back against extraterritorial, dual-use regulations from China and the legal framework the agreement provides.  

This agreement strengthens Mercosur’s positioning, but value-added industries remain a major issue for the bloc, as many of their resources will continue to be appropriated for the “green transition” in both Europe and China, while lacking domestic manufacturing of final goods. The iTA represents a step toward diversifying trade and promoting democratic and competitive markets, but it will require concrete commitments to value-added industrial development to appeal to the rapidly expanding industries of Mercosur. If their partnerships are not leveraged against each other, the critical mineral industries themselves will remain unchanged in their extractive and environmentally deleterious nature.

While the agreement introduces greater plurality, EU firms will face stringent competition when it comes to investment in and increasing procurement of minerals. China’s Greenfield FDI in, and trade with, Mercosur is substantial, targeting strategic industries like critical minerals. Propelled by the 2024 Critical Raw Materials Act (CRMA), the EU has made a concerted effort to diversify its raw mineral suppliers and increase its strategic autonomy in recent years. However, the ability for the EU to displace Chinese investment and institutional embeddedness, which trades credit for immense control over services and extraction, and enforce environmental standards at the same time, remains uncertain.[GW10] 

Even with preferential access and investment rights, EU investment will start from behind. High credit and low regulatory investments have characterized the Chinese relationship with Mercosur’s critical minerals sectors, fostering an embeddedness that presents a significant challenge to major shifts in export destinations. Chinese companies currently have major investments in lithium, niobium and critical mineral rights in Brazil and Argentina, and other infrastructural developments in Paraguay and Uruguay, which scaffold mineral markets for the long-term. With less stringent environmental and social protection regulations, Chinese investment and extraction of minerals in South America will be tough to upend, remaining profitable from critical minerals even on another continent.

In a best-case scenario, Mercosur can push Chinese investors to adapt to EU regulations within participating countries, as a new market offers them strategic leverage at the negotiating table. As it stands, providing moderate diversification of markets and a legal framework for trade, the deal only partially mitigates Chinese market dominance and entrenchment, providing only the basis for an alternative framework for development and trade.

Environmental, Indigenous and Workers’ Protections

Environmental regulations are central to the agreement, aligning with the Paris Climate Agreement. The perceived inability to meet environmental protection standards delayed its signing, particularly under Jair Bolsonaro, whose administration saw deforestation in the Amazon surge by 39%. Now grounded in the principle of common but differentiated responsibilities (CBDR-RC), the “Trade and Sustainable Development” chapter sets high environmental and social standards for promoting resilient networks, a climate-conscious trade model and technical assistance to support both of the aforementioned. However, as a “test case” for climate diplomacy through FTAs, the agreement faces challenges of enforcement and risks an environmental fortressing agenda by the EU.

Critics of the deal have argued the EU is “ask(ing) more while offering less,” imposing strict sustainability standards while advancing its own market expansion under relaxed restrictions for critical minerals exports. While the agreement binds parties to Paris commitments, it reduces or eliminates export taxes on key raw materials, while severely limiting agricultural exports which are one of the biggest markets for the Mercosur bloc. For South American exporters, especially in the Amazon, strict EU regulations may act as de facto trade barriers, especially for goods such as soy and beef, changing little in this environmentally deleterious industry. The agreement also risks limiting Mercosur’s collective policy space to green their economies, while the EU ostensibly does so itself through the usage of Mercosur’s goods to expand their green energy initiatives. Some models suggest deforestation was slated to decline regardless of the deal, highlighting a potential structural imbalance in which the EU will remain a consumer on their own terms and Mercosur bears “displaced” environmental costs under the pressures of production.

 A lack of enforcement mechanisms further weakens these commitments. Monitoring relies on periodic reportingevery six months, where either side can request a consultation, but lacks binding sanctions and relies on information provided by Mercosur states. Although suspension is possible in cases of non-compliance, this is politically costly and technically complex, making enforcement uncertain. In this case, climate provisions function as deterrents. Critics have pointed to Argentina’s early withdrawal from COP 29 in 2024 as a potential violation of the “good faith implementation of the Paris Agreement”, questioning the capability and true intentions to balance sustainable development in the long-term, which has played out in EU tensions around the agreement.

Similar limitations apply to labour, gender, and indigenous rights, falling under the same dispute settlement mechanism as the climate clauses. Support for these groups, particularly indigenous communities, remains vague. Not only is dedicated support for SME’s a loose commitment for indigenous organisations, but a lack of formal marketplace participation and inevitable increases in investment and production will disproportionately impact their territories and livelihoods.

The EU’s Global Gateway initiative may offer partial mitigation, with €1.8 billion allocated to support sustainable development and vulnerable groups, but its success in doing so is likely to be small relative to the deleterious effects of the trade agreement on economically marginalised communities. Still, the agreement reveals the omnipotent tension between sustainability and market expansion and risks reinforcing boundaries between the “traditional” market and that of indigenous peoples and smallholder farmers. While the iTA promotes high environmental standards, its structure risks reinforcing extractive dynamics by expanding choice markets and marginalising smaller, yet important, actors within the Mercosur economic ecosystem. 

Conclusion

Beyond preeminent concerns about strategic positioning and environmental cost, the EU-Mercosur trade agreement is a step in the right direction. If only normatively, the agreement demonstrates marginal steps towards sustainability commitments and rules-based trade. Weaponised interdependence also gives the Mercosur countries in the bloc a greater role on the world stage and marginal strategic leverage. The agreement also provides the EU with a much-needed normative win and facilitates access to Latin markets to European companies. While it may not be a total multi-polar reorientation, calls for “predictability” tied to environmental and social conditions seem to be a palatable alternative to great powers’ trade dominance and predatory FDI, all while acting as an apt rhetorical alternative to US protectionism. Provided the iTA and EMPA can weather the legal challenges ahead, the EU would be provided with a degree of credibility it has previously found fleeting, and Mercosur would gain a degree of flexibility with its exports and development agenda. While expectations for a full multipolar reorientation and strict environmental compliance resulting from this deal should be tempered, the framework of this hard-fought agreement is replicable and represents a step toward greater independent authority for both sides.

Taiwan and the Status Quo in Interesting Times: Reflections from Ambassador John T. Hennessey-Niland

By Sarah Cao

In the opening seminar of Trinity Term 2026, the Oxford Taiwan Studies Programme welcomed Ambassador John T. Hennessey-Niland, Director of the Scowcroft Institute of International Affairs at Texas A&M University, to the China Centre's Ho Tim Seminar Room. Drawing on a 35-year career with the U.S. government and a particular focus on the Indo-Pacific region, Ambassador Hennessey-Niland offered what he called "brief observations" on four contemporary developments shaping the cross-Strait status quo: the Iran war, opposition leader Cheng Li-wun's recent visit to Beijing, President Lai Ching-te's Africa trip culminating in Eswatini, and the upcoming U.S.–PRC summit. As a recently retired career diplomat, the ambassador prefaced his remarks by noting that the views expressed were his own and did not represent those of the U.S. government.

AMB Hennessey-Niland's engagement with Taiwan is deeply rooted in his diplomatic experience. His 2021 official visit to Taiwan, which followed the contentious Anchorage Summit and a period of heightened U.S.–PRC tensions, marked the beginning of a sustained interest in cross-Strait dynamics that has shaped his subsequent analytical work.

The Iran War as an "Action-Forcing Event"

AMB Hennessey-Niland opened his analysis with the Iran war, characterising it as an "action-forcing event" that has compelled difficult choices in Beijing and Washington. Of particular concern, he noted, is the role of PLA/PRC-supplied Iranian defence systems, whose performance in active conflict has provided observable data points with implications for future iterations of PLA military capabilities. The conflict has, in this sense, served as a stress test for Chinese defence exports and a window into the trajectory of Chinese military planning.

Hennessey-Niland described the cross-Strait implications as a "mixed bag." On one hand, U.S. willingness to act unilaterally and decisively in the Middle East may reinforce credibility in Asia. On the other, the protracted demand for American focus and resources in CENTCOM continues a familiar pattern. This recurring pull complicates Washington's capacity to maintain sustained attention on Taiwan, an asymmetry from which the PRC stands to benefit.

He further argued that diminished U.S. focus on Taiwan would not be a strictly bilateral matter. "U.S. doesn't just mean the U.S.," he observed; American attentiveness to Taiwan often shapes whether and how third countries choose to engage with Taipei. Conversely, PRC silence on Iran, and the conspicuous absence of active support during the conflict, may give pause to other states, particularly hedging actors and PRC client states weighing the reliability of Beijing as a partner under stress.

Cheng Li-wun's Visit to Beijing and the Domestic Political Backdrop

Turning to Cheng Li-wun's visit to Beijing, situated the trip within the broader evolution of cross-Strait relations and the internal dynamics of the Kuomintang. Public opinion polling, he reminded the audience, continues to show a strong Taiwanese preference for the status quo, even as President Lai Ching-te governs with a minority position in the legislature. The combination of a divided domestic political environment and unsettled cross-Strait expectations means that opposition outreach to Beijing carries weight beyond its immediate symbolism.

Echoing a theme that ran through the seminar, AMB Hennessey-Niland urged analysts to focus not on the most likely scenarios but on the "least likely, more dangerous" ones. Stability, he suggested, can lull observers into underestimating the structural fragility of arrangements that depend on continued goodwill among multiple actors with diverging long-term aims.

President Lai's Africa Trip and the "Salami Slicing" of Diplomatic Space

The third development the ambassador examined was President Lai's once-cancelled but ultimately successful Africa trip, including the visit to Eswatini, one of Taiwan's few remaining formal diplomatic allies. The episode, he argued, illustrated the increasing fragility of Taiwan's access to the world. Initial difficulties produced what he described as a Ministry of Foreign Affairs embarrassment before MOFA recovered to deliver a successful trip.

More striking, however, was the new tactic adopted by Beijing: pressure on neighbouring countries to prohibit overland flight access, thereby constraining Taiwan's high-level travel routes without directly confronting the destination state. Hennessey-Niland likened this approach to "salami slicing": incremental, low-cost actions aimed at narrowing Taiwan's international space without provoking a coordinated response. The inducements or coercion applied to the three implicated countries remain opaque, but the precedent itself is significant: a "newsworthy [development] with potential long-term impact." It suggests Beijing is willing to instrumentalise third parties to shape Taiwan's diplomatic geography, a pattern with strategic implications well beyond a single trip.

The Upcoming U.S.–PRC Summit

AMB Hennessey-Niland devoted particular attention to the upcoming summit between Presidents Trump and Xi in Beijing, an event surrounded, in his words, by uncertainty even with only a week to go. He described informal "plane spotting" as one indicator of summit readiness, and noted that cancellation could not be ruled out.

Two anxieties dominate the view from Taipei. The first is the prospect of the Taiwan issue being "parked" at the summit, neither addressed nor resolved, leaving cross-Strait questions hostage to the broader trajectory of U.S.–PRC bargaining. The second, more acute concern is that President Trump's well-known preference for deal-making could turn Taiwan into "a chip in a grand bargain," particularly in a context where the PRC may use its "good offices" to influence Iran in ways advantageous to Washington. The ambassador framed this not as a prediction but as a structural risk that Taipei must take seriously.

He also observed that perceptions of Trump in Beijing remain somewhat confused (an observation, he noted, that is shared in many capitals), and that this confusion may yield a more cautious summit than headlines suggest. At the same time, Beijing's increasingly assertive "we're number one" narrative carries its own risks, raising expectations that may prove difficult to manage.

Q&A: A Wider Aperture on Indo-Pacific Strategy

The discussion that followed expanded the seminar's geographic and thematic scope considerably. Several participants raised the question of the PRC's apparent restraint vis-à-vis Iran, which the ambassador suggested was unsurprising and broadly consistent with Beijing's similarly measured posture toward Russia in Ukraine. Interagency dynamics within the PRC, including the weight of financial ties and the value Beijing places on stable economic relationships, help explain this reticence.

A substantial portion of the discussion turned to China's engagement in the Pacific Islands, an area in which the ambassador has clear expertise. He described China–Taiwan competition in the Pacific Islands Forum and in Palau; the capture and entanglement of local officials; and the use of "wolf-warrior" diplomacy alongside economic coercion, particularly through travel and tourism leverage. He also discussed cybercrime networks engaged in what he called "business process offshoring" targeting PRC citizens, the role of criminal triads across the Indo-Pacific, and the pattern recognition emerging from PRC–U.S. interactions through private sector and economic instruments in the region.

The conversation also touched on potential collaboration between the pan-blue camp and the U.S. government, with the ambassador emphasising that any such engagement must be premised on respect for democratic outcomes "whatever they may be." He further highlighted the recent Bush–NTU programme, anchored in the southwestern United States, which seeks to develop Taiwan expertise as a field meriting particular focus rather than a subset of China studies; a signed agreement and a conference in November are expected to deepen this initiative. He also noted the texture of Texas–Taiwan relations, including a Texas representative in Taipei and the regularity of high-level transits through Texas.

Concluding Reflections

Taken together, the four developments surveyed by Ambassador Hennessey-Niland point to a status quo that is durable in name but increasingly stretched in practice. The Iran war reshapes calculations about Chinese military capability and American attention; opposition diplomacy and minority government in Taipei complicate the domestic backdrop; novel pressure tactics in third countries narrow Taiwan's international corridor; and a Trump–Xi summit promises either consequential bargaining or, perhaps more worryingly, the deferral of the cross-Strait question altogether.

The ambassador's analysis suggests that the cross-Strait status quo is best understood not as a fixed equilibrium but as the cumulative product of many smaller decisions across many capitals. Maintaining it will require sustained attention from Washington, vigilance in Taipei, and a willingness among partners and hedging states to weigh the costs of closer alignment with Beijing. In a season of summits, wars, and salami slices, the "interesting times" of the seminar's title may be less a passing moment than a description of the operating environment for the foreseeable future.

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The seminar was hosted by Dr. Bo-jiun Jing, Senior Research Fellow and Programme Manager in Taiwan Studies at the Oxford School of Global and Area Studies. It forms part of the Oxford Taiwan Studies Seminar Series and this recap was produced in partnership between the Oxford Taiwan Studies Programme and St Antony’s International Review (STAIR).

Is Geopolitics ending the IMF’s role as Lender of Last Resort? - By Talal Rafi

By Talal Rafi

The article argues that rising geopolitical tensions and the shift in global economic power are challenging the International Monetary Fund’s role as a neutral and universally trusted lender of last resort. As China expands its influence as a major bilateral lender and questions Western dominance in global financial institutions, the IMF is increasingly perceived as politically influenced by the interests of the United States and its allies. To remain credible and effective, the IMF must strengthen institutional neutrality, reform voting structures to reflect modern economic realities, and develop clearer multilateral debt restructuring frameworks.

The International Monetary Fund (IMF) has been seen and used by Washington as a soft power tool in global politics. The organisation has a vastly important role as the lender of last resort and is called on by nations around the world when countries face a balance of payments crisis or a debt crisis. It is one of the most powerful institutions in the world, shaping economic policy in most of the developing world. The United States has the most influence in the IMF as the largest shareholder. In the second half of the 20th century, the United States was able to use this soft power tool as it did not have a serious economic rival. But in the 2020s, the world has changed. China is now the second largest economy in the world in GDP terms, the largest bilateral lender in the world and the largest creditor to developing nations, surpassing the World Bank, IMF and Paris Club countries. How will this new dynamic play out going forward? What is the future of the International Monetary Fund?

Soft Power and International Financial Institutions

The concept of “soft power” was coined by Joseph Nye, defined as a country’s ability to influence other nations without resorting to coercive pressure. Where hard power uses coercion to get other nations to do what the United States wants, soft power is where other governments are made to want what the United States would want them to want, without using coercion.[GW1] 

Since the end of the Second World War, two multilateral institutions, the World Bank and the IMF, have had global influence in shaping the economic narrative, especially in the developing world. The World Bank is the largest multilateral development bank in the world, and the IMF is the global lender of last resort. Though both institutions have shareholders across the world, including China, they are both dominated by the United States and its allies in terms of voting share. The IMF  is the most influential financial institution in the world, as a last resort for countries in a balance of payments crisis or a debt crisis. The dominant economic thinking in the US has been seen to be pushed by the IMF globally. A good example is that in the 1980s, the IMF’s technical thinking, along with that of the World Bank Group, was referred to as part of the “Washington Consensus”. The IMF has been a hallmark of American soft power in economic terms around the world since the Second World War.

The IMF’s American Foundations and Global Debt Landscape

The IMF was a product of the Bretton Woods Conference in 1944, attended by 44 nations, which sought to build a framework for international economic cooperation. The IMF’s objectives are to promote monetary cooperation and financial stability. Since the organisation was created under the leadership of the United States, they remain the largest shareholder with 16.49% of voting power, followed by Japan (6.14%), China (6.08%) and Germany (5.31%). Though this may seem like the US only has around one-sixth of the voting share, it is all the US needs. Major decisions at the IMF require 85% of the votes, and as the US has 16.49% of the voting share, the United States holds a veto power on any major decisions at the IMF.

The second half of the 20th century was a period when sovereign debt of developing nations was dominated by the Paris Club members (the US and its allies), multilaterals such as the World Bank and the IMF (dominated by the US) and private creditors (mostly based out of the West and lent under New York and London laws). But the 21st century has changed this. Today, China is the largest bilateral lender for most countries, where China alone has lent more than all the Paris Club members combined.

China’s Belt and Road Initiative has resulted in countries across the developing world opting for bilateral credit from China, which has higher interest costs when compared to multilateral debt. Private creditor lending has also grown, as an UNCTAD report shows that the percentage of private creditors in the debt composition for developing nations in 2013 was 52%, but by 2023, had risen to 60%.

Three scenarios where the IMF was perceived as an American-influenced organisation

Sri Lanka’s debt restructuring

The clearest point of geopolitical tensions between the United States and China with regard to the IMF was in the case of Sri Lanka. In 2022, Sri Lanka defaulted on its external debt as it was unsustainable. The largest bilateral creditor to Sri Lanka was China, followed by Japan and India. But over half of Sri Lanka’s bilateral debt was held by China. Multilateral debt was largely owed by Sri Lanka to the Asian Development Bank and the World Bank. Sri Lanka had requested an IMF program, but the IMF could not proceed as Sri Lanka’s debt was deemed unsustainable, so in order for the IMF to proceed, it needed financing assurances from Sri Lanka’s creditors. That is, for bilateral nations to give an assurance to the IMF that debt relief and/or financing to restore debt sustainability will be given to the debtor nation.

India was the first nation to give financial assurance to Sri Lanka. But China delayed giving financing assurance to the IMF, arguing that multilateral debt should also be restructured. As a principle, multilateral debt (World Bank, ADB, IMF) is not restructured as they have preferred creditor status,which helps them have an AAA Credit rating so that they can borrow at low interest costs. Multilaterals need to borrow at cheaper interest rates as they lend to some of the poorest nations in the world, with the World Bank’s IDA even giving grants to lower-middle-income countries. IMF debt, in particular, cannot be restructured as it is the lender of last resort,  lending to countries that are in severe financial crisis. If IMF debt were to be restructured, it would not be able to borrow at low interest rates, and the IMF itself may factor in credit ratings before helping debt-stressed nations.

But in Sri Lanka’s case, China still insisted that multilateral debt should also be restructured, with the United States pushing back, saying multilateral debt was not for restructuring. Finally, China gave in[GW2] , but this caused a delay in Sri Lanka starting its IMF program, which resulted in uncertainty and further economic pressure in a country that had just defaulted.

But China’s making the case, where it saw the IMF as an American-led organisation, shows that the showdown seen between the two superpowers in the case of Sri Lanka is not going to be the last. Especially, when the UN says 54 countries are under debt stress and debt levels are at a record high across the world. China’s increasing economic clout may make it come back later with a stronger case against the IMF or find a way around it.

Russia-Ukraine Conflict

The Russia-Ukraine war, where the US Dollar was weaponised against Russia, led the world to question the US Dollar’s status as a reserve currency. It was considered a reserve currency because of the trust it had, and when the US used it as a weapon against Russia, the rest of the world took note and looked at diversifying away from the US dollar. The US Dollar remains supreme as it has no strong alternative yet.

In the same way, the IMF has shown itself to be an instrument against Russia. In 2024, the IMF, under pressure from allies of Ukraine, scrapped its mission to Moscow, which is a routine mission to assess Russia’s economic situation. Though this will not have a major impact on the Russian economy, it does send a symbolic message to the world that the West will use the IMF as a tool against anti-Western nations. It hits at the core of the IMF, exposing to the world that it may not be a neutral organisation. This is at a time when the IMF is lending to Ukraine, with the IMF announcing a new $8.1 billionprogram in November 2025.

In a world where bilateral debt is increasingly being dominated by China, the globally accepted lender of last resort doing the bidding of the West does not give a good impression on the IMF, which was to have been a neutral institution.

The IMF Program in Argentina

The IMF has also been influenced by geopolitics in geopolitically important nations like Egypt, Argentina and Pakistan. Argentina is the largest borrower from the IMF at USD 57 billion, and it accounts for one-third of all IMF lending.

Political influence was seen when the Argentine President Javier Milei objected to Rodrigo Valdez, who was the Director of the IMF’s Western Hemisphere Department, which led to him recusing himself from the Argentine negotiations. The Argentine President states that he could not work with Valdez due to the policies Valdez implemented when he was the finance minister of Chile.

But in the case of Argentina, there was also politics involved. According to Bloomberg, about half of the 25 executive board chairs of the IMF had serious concerns about the $20 billion IMF loan to Argentina. The deal was also seen to be muscled through management, with some viewing[GW3]  it as being driven more by politics than policy. Argentine President Milei is a strong ally of US President Trump,  who has even referred to Milei as his “Favourite president”. It was considered, by some, that Argentina was getting special treatment as the Argentine President even announced the details of the IMF program hours before it was officially approved by the board.

This applies to other countries also, which have been on the good side of Washington, most notably Egypt, Pakistan and Ukraine. After Argentina, the three largest borrowers from the IMF have been Ukraine, Egypt and Pakistan, and all three of them are geopolitically critical nations, which is a point to be noted.

The reason IMF deals are pushed through faster, like in the example of Argentina in 2024 and other geopolitically strategic nations, is also the fact that the world has changed. If the US-influenced IMF does not step in, these desperate nations will knock on the doors of Beijing. Pakistan is a case in point for this as the US tries to maintain influence in this critical nation.

Why is the rise of China a challenge to the IMF’s role as a lender of last resort?

Though the IMF has been used by the United States in certain cases to help countries that it favours in the second half of the 20th century, the key difference is that the US did not have a serious economic superpower to rival it. Today, China is emerging as a formidable rival. In a world where China is already the largest bilateral lender in the world, and with a trade surplus of over $1 trillion, it will become increasingly easier for it to establish another organisation to rival the IMF. It must be noted that China is still a member of the IMF and abides by its rules.

But in a world that is seeing increasing rivalry between the two dominant superpowers, where one superpower has dominant voting rights in an institution which was supposed to be managed neutrally, but is being used geopolitically in certain cases, it is a matter of time before China questions this more strongly.

China has already been advocating to increase its voting share in the IMF, and its shares were increased to 6.08% in 2016, slightly below Japan. But China has been adding pressure to increase its voting share further. China’s economy is more than 4 times larger than Japan’s economy, but its voting share is smaller than Japan’s. But the biggest stumbling block would be the United States, which may not like to have its voting share dip below 15%, removing its veto power in the IMF. An agreement to reduce US voting shares will need to be ratified by the US Congress, which means it would need strong political support to go ahead, making it unlikely. But it appears that China is not going to relent, so the IMF voting share may be an area for a geopolitical showdown in the coming years.

But China is playing a role bilaterally in rescuing debt-ridden nations, where in 2021 its bailout of other nations amounted to $40 billion. Chinese rescue lending has been more than 40% of IMF lending in the three years leading up to 2021. China is slowly rising as an alternative to the IMF as a lender of last resort. What China is doing today is similar to what the United States did in the 1930s and post World War 2, where it used the US Federal Reserve, US Ex-Im Bank and the US Exchange Stabilisation Fund to provide rescue funds to other nations, bolstering its financial clout.

With China's increasing economic clout on the world stage, its rescue lending will only increase. China’s emerging as a rescue lender is also a reason the US wants IMF programs to be fast-tracked for countries which are geopolitically strategic.

The Way Forward for the IMF

Firstly, key IMF decisions, such as stepping in to rescue a country from a debt crisis or a balance of payments crisis, should be made in an independent manner. Clear and transparent frameworks for decision-making ensure the IMF  is perceived as a neutral and credible institution. Argentina's case in 2025, where management viewed the deal as driven more by politics than policy, and Ukraine's case in 2023, where the IMF reformed its rule of not lending to countries with unsustainable debt to allow lending as long as creditors gave financing assurances, are both signs that the IMF can be swayed by its most powerful shareholders. Independent decision-making at the IMF is essential as it is not only the lender of last resort, but its assessments of countries are seen to bring credibility to bilaterals, private creditors and other multilaterals.

Secondly, adjusting the voting shares at the IMF to a fairer level would help its global credibility and make it a global institution. China, whose economy is more than 4 times the size of the Japanese economy, still has a slightly smaller voting share than Japan, which would seem unfair to China. The United States, holding onto 16.49%, giving it veto power, could also be negotiated. Reducing below 15% would remove America’s veto-like power, but  I would suggest that, if this continues, an economically powerful nation like China may start working towards an alternative institution to the IMF, and in that case, America’s control over the IMF would anyway become less useful for global influence. Even if it reduces its vote share below 15%, the combined voting share of its allies together will still make the US highly influential in the IMF.

Lastly, to prevent geopolitical flashpoints from occurring during times of debt restructuring, which exacerbate tensions, a debt restructuring framework should be agreed to, especially with agreement from the United States and China. There is precedent for this, as creditors, including China, came to an agreement known as the G20 Common Framework in 2020 to help low-income countries to restructure their debt in an orderly way, with the requirement for comparability of treatment for all creditors, and the requirement of an IMF program. An agreement at the G20 level addressing key issues such as debt restructuring mechanisms, the question of multilateral debt restructuring and transparency among creditors, can greatly assist the IMF in making clearer decisions.

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Talal Rafi is a Sri Lanka-based economist, currently serving as Policy Advisor to Sri Lanka's opposition leader, a regular columnist for the International Monetary Fund and an expert member of the World Economic Forum, while also holding appointments as a Visiting Fellow at the Centre for Poverty Analysis and as a consultant to the European Commission. He has extensive experience in development policy and public finance, with prior experience as a consultant to the Asian Development Bank, a Director at Ernst & Young Sri Lanka, and having served on the Board of Sri Lanka's government foreign policy think tank. His work has been published by the World Bank, the International Monetary Fund, the Asian Development Bank, the World Economic Forum, Johns Hopkins University's SAIS Review, and the London School of Economics.

Trump, Davos and the History of Political Economy - By James Cullis

By James Cullis

Donald Trump’s Davos speech earlier this year generated significant interest and debate. It was analytically notable for the way it challenged the conventional historical narrative of political economy.[1] At the heart of his critique, he made plain his objections to liberal capitalism and the international order, stating: “In recent decades, it became conventional wisdom in Washington and European capitals that the only way to grow a modern Western economy was through ever-increasing government spending, unchecked mass migration and endless imports.” (Trump, 2026, Davos) Although often dismissed as national populism, these comments function as an intervention in debates over the historical rise of modern political economy. Trump’s speech directly contested the Smithian‑inspired commercial‑society narrative articulated by István Hont in Jealousy of Trade.[2] The ethos of the speech attacked the idea of open markets and the free exchange of goods and services.

In chapter two of Jealousy of Trade, Hont reconstructs the eighteenth‑century moment in which political economy emerged as a response to the structural limits imposed on sovereign states by commercial society. As global markets expanded and mercantilism waned, states found their capacity to determine their own destinies increasingly constrained by interdependence. Trump’s Davos narrative rejects the merits of this historical settlement by arguing that the shift toward global interdependence fundamentally weakened state sovereignty. “This was the path … [that] Western governments very foolishly followed, turning their backs on everything that makes nations rich and powerful and strong.” (Trump, 2026, Davos) By insisting that the state remains the decisive actor in world markets, Trump rejects the idea that globalisation represents an irreversible structural condition. For him, economic interdependence has been neither historically inevitable nor justified. On Hont’s account, by contrast, globalisation generates structural constraints on the nation‑state.[3]

Trump’s speech embraces a post‑liberal interpretation of globalisation in which the liberal order appears as a force that corrodes the state’s internal harmony. On this view, the post‑war international economic settlement progressively eroded national sovereignty. Davos, therefore becomes, within Trump’s framing, the symbolic culmination of that process: a forum in which the forces of liberal capital and liberal democratic states gather to exchange ideas, thereby institutionalising the pressures he identifies as corrosive. Deep into his speech, Trump stated: “Virtually all of the so‑called experts predicted my plans to end this failed model would trigger a global recession and runaway inflation. But we have proven them wrong. It’s actually just the opposite.” (Trump, 2026, Davos) For Trump, his fiscal programme overturned what he presents as the orthodox liberal vision of political economy.

Such claims also strike directly at the heart of international relations theory since 1945. For G. John Ikenberry, the rules‑based system that emerged in the wake of the Second World War stabilised the international order by embedding states within dense networks of economic interdependence and institutionalised cooperation.[4] Through this architecture, the fortunes of individual nation‑states became mutually bound, and it was this institutionally embedded global capitalism that generated a durable sense of order. Thus, Trump’s  Davos speech signals not only a wholesale rejection of the historical development of the liberal economic order outlined by Hont, but also a withdrawal from—and overturning of—the structure of international relations that has underpinned U.S. growth since 1945

The spectre of Trump’s speech directly challenged the limits that Ikenberry argues were deliberately imposed on U.S. power. For Trump, the leverage supposedly gained by the United States since the Second World War was a myth, and one that had ultimately weakened rather than strengthened American power. As highlighted above, the imposition of constraints not only ensured that the United States did not abandon its responsibilities but also generated significant economic benefits in return. In this sense, Trump’s intervention at Davos sought to overturn that trajectory by redirecting American power away from a liberal internationalist model of global order and toward a more unilateral and sovereignty‑centred strategy. This appeal to unilateralism and sovereign power was framed at one point in cultural terms: “many other Western governments very foolishly followed, turning their backs on everything that makes nations rich and powerful and strong” (Trump, 2026, Davos). Here, the point was to suggest that the liberal internationalist model weakened the internal character of states. Yet its true intended aim was also to offer an alternative vision of political economy.

Seen in this light, Trump’s speech sought to offer an alternative account of post‑1945 international history, one where the rise of globalisation had undermined the ability of states to govern themselves. Here, attention may be turned back to the final part of the quote: “everything that makes nations rich and powerful and strong” (Trump, 2026, Davos). The wording “rich and powerful and strong” is crucial as it suggests that globalisation itself has frustrated the nation’s functioning capabilities. Thus it is with this point that Trump attempted to clip the liberal narrative of global history.

One of the central premises of Trump’s speech was to depict globalisation as a historical error of political economy. Many commentators disputed the factual basis of his claim, yet Trump’s wording identifies the “so‑called experts” as responsible for assuming that the development of globalisation and the international liberal economic order was inevitable. His conflict with them begins at this point of historical interpretation.

A central interlocutor here is Thomas Hobbes and his discussion of sovereign power in Chapter 18 of Leviathan.[5] Hobbes argues that the sovereign cannot be overthrown and that no common sovereign exists between independent states. Read in the context of Trump’s speech, this point clarifies the force of his claim. Trump stated: “We never ask for anything and we never got anything. We probably won't get anything unless I decide to use excessive strength and force, where we would be, frankly, unstoppable.” (Trump, 2026, Davos) Drawing on the Hobbesian premise that, in an anarchic world, states must rely on their own power to secure their interests, Trump frames international politics as governed by force and unilateral action rather than by the cooperative norms of the post‑war commercial order. Hobbes thus provides Trump with an intellectual template that legitimises his voluntarist claim that a state may act decisively — even coercively — when no higher authority exists to restrain it.

Here, Trump’s argument draws on a Hobbesian characterisation of the international state system to challenge Hont’s account of commercial society. In doing so, he revives a pre‑commercial, mercantilist model of sovereignty that he presents as a new economic logic for the twenty‑first century. The seeds of this shift were visible in his inaugural address of January 2017, but the moment at Davos marks its most explicit articulation. Framing his argument around mercantilist assumptions, Trump criticised the principles of free trade and directed his remarks toward the French President, Emmanuel Macron:

…you've been taking advantage of the United States for 30 years... the answer is, you're going to do it. You're going to do it fast. Then if you don't, I'm putting a 25% tariff on everything that you sell into the United States, and a 100% tariff on your wines and champagnes... and you're going to do it. (Trump, 2026, Davos)

Such rhetoric targets the post‑war international commercial order premised on free trade. One indication is Trump’s claim — contrary to the conventional understanding of private enterprise — that the French government enabled its firms to “flood” the American market with French agricultural goods, thereby exploiting the American consumer.[6] This claim is analytically significant: it reframes international exchange not as a spontaneous, market‑driven process but as a field of state‑directed advantage. In doing so, Trump seeks to re‑establish a mercantilist conception of political order in which sovereigns actively manage trade flows and national wealth is tied to strategic control over economic exchange.

This position becomes clearer when attention turns to Greenland and the question of Arctic security. Trump’s assertion of US claims over the territory rests on a logic of resource sovereignty. Greenland contains significant deposits of rare‑earth minerals — notably neodymium and dysprosium — which are critical for high‑performance magnets used in electric motors, advanced computing hardware, and components of artificial‑intelligence infrastructure.[7] One estimate places Greenland’s reserves at roughly 1.5 million tonnes.[8]

Understood in these terms, Trump’s claims align with classic mercantilist understandings of the economy, centred on state‑directed accumulation of wealth through control of trade and resources. In The Wealth of Nations, Adam Smith drew a sharp distinction between productive capacity and the mere possession of resources.[9] That distinction is crucial for interpreting Trump’s actions and for understanding how his voluntarist claims collide with Hont’s structural account of commercial society. Hont treats commercial society as producing structural interdependence that constrains sovereign action; Trump’s voluntarism, grounded in state control of resources and trade, challenges that constraint.

For Trump, possession of raw minerals functions both as an index of economic strength and as the basis for a re‑emergent resource sovereignty capable of re‑territorialising economic power and overturning the logic of commercial society outlined by Hont. Trump’s Davos speech therefore reignites a contest over the history of political economy and forces a reconsideration of the limits of the commercial order.

* 

[1] For an analysis of Trump’s rhetorical technique, see: Raunak M. Pillai, Eunji Kim, and Lisa K. Fazio, “All the President’s Lies: Repeated False Claims and Public Opinion,” Public Opinion Quarterly 87, no. 3 (Fall 2023): 764–7.

[2] István Hont, Jealousy of Trade: International Competition and the Nation‑State in Historical Perspective (Cambridge, MA: Harvard University Press, 2005), 54-88.

[3] For a discussion of this point, see Susan Strange, The Retreat of the State: The Diffusion of Power in the World Economy (Cambridge: Cambridge University Press, 1996), 24-36.

[4] G. John Ikenberry, Liberal Leviathan: The Origins, Crisis, and Transformation of the American World Order (Princeton: Princeton University Press, 2011).

[5] Thomas Hobbes, Leviathan, ed. Noel Malcolm, 3 vols. (Oxford: Clarendon Press, 2012).

[6] On the topic of private enterprise and global markets, see Strange, The Retreat of the State,  24–36.

[7] Julie Michelle Klinger, Rare Earth Frontiers: From Terrestrial Subsoils to Lunar Landscapes (Ithaca: Cornell University Press, 2017), 101–105.

[8] Diogo Rosa, Per Kalvig, Henrik Stendal, and Jakob Kløve Keiding, Review of the Critical Raw Material Resource Potential in Greenland, MiMa Rapport 2023/1 (Copenhagen: Geological Survey of Denmark and Greenland (GEUS), 2023).

[9] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. R. H. Campbell and A. S. Skinner (Indianapolis: Liberty Fund, 1981).

Review of "King Dollar: The Past and Future of the World’s Dominant Currency" - by Michael Wakin

Review - King Dollar: The Past and Future of the World’s Dominant Currency by Paul Blustein. Yale University Press, 2025. 320 pages.

By Michael Wakin

In 1971, following the Nixon administration’s decision to summarily close the gold convertibility window and dismantle the Bretton Woods system of global fixed exchange rates, Charles Kindleberger, the influential economic historian, pronounced: “The dollar is finished as international money.” Decades later, as the financial crisis originating in the U.S. housing market nearly toppled the global economy, former German finance minister Peer Steinbrück proclaimed in 2008: “The United States will lose its superpower status in the world financial system.” After the United States unleashed its unprecedented financial warfare campaign against Russia following its invasion of Ukraine in 2022, a Foreign Affairs article predicted such sanctions would “deprive the United States of the very power that makes sanctions so devastating.” As reconstructed in Paul Blustein’s King Dollar: The Past and Future of the World’s Dominant Currency, the chorus singing the inevitable demise of the dollar as the international currency of choice has proven unfounded. Bluestein concludes that the United States remains the undisputed financial hegemon of the world.

King Dollar argues that the dollar is here to stay as the primary form of global money – i.e., as the leading global reserve currency for central banks, medium of exchange for cross-border trade, and unit of account for invoicing. Dollar supremacy is sustained, first, by structural features of the U.S. economy – most notably its sophisticated, deep, and liquid financial markets – and, second, by a dearth of alternative currencies that can legitimately rival the dollar on the international stage. Blustein contends that it is only the U.S. itself that has the capacity to dethrone the dollar, either through recklessness or zealous unilateralism in wielding the tremendous power that dollar supremacy confers.

Blustein posits that as long as the dollar maintains its preeminence in international trade and finance, the U.S. has an obligation to wield its financial heft with responsibility. For policymakers, this admonition translates into an acknowledgement that extreme dollar weaponization will further incentivize foreign governments to circumvent the dollar system. They must also consider that U.S. financial sanctions can prove destructive for the livelihoods of vulnerable populations in targeted countries, damage diplomatic relations, and engender reciprocal financial consequences. Furthermore, dollar dominance endows the U.S. with the singular capacity to stabilize the global economy amidst crisis, as demonstrated by the Federal Reserve’s extensive campaign to pump dollar liquidity to central banks around the world during both the 2008 Global Financial Crisis and the 2020 COVID-19 pandemic. Shading King Dollar is an underlying belief that “the United States has historically been the closest thing to a benevolent hegemon that the world has,” informing Blustein’s conclusion that, given the lack of current alternatives, the sustainment of dollar hegemony is ultimately desirable. 

King Dollar’s strength lies in its ability to fit decades of political economy history into a readable, coherent narrative that challenges revisionist or apocryphal thinking around dollar dominance. Blustein, who has worked as an economic journalist for the Washington Post and Wall Street Journal, brings accessible prose to oft-tedious topics, such as the intricacies of rolling out central bank digital currencies (CBDCs) to global trade imbalances of the early 2000s. Chapters 2 and 3 offer a brisk jog through U.S. monetary history spanning the late 18th century to the collapse of the Bretton Woods system in 1971, followed by a chronicling of the hurdles and triumphs of dollar dominance in the period that followed. Chapter 4 documents the threats and ultimate failures of four alternative currencies – the Euro, Yen, Special Drawing Rights (SDRs), and Renminbi. Chapters 5 and 6 detail a history of sanctions as a form of economic statecraft and the role of the dollar in financial sanctions, with a particular focus on the post-September 11 environment, which witnessed the rise of the U.S. Department of the Treasury as the primary instrument of the country’s financial weaponization. Chapters 7 and 8 dive into the threat, or lack thereof, posed by digital assets – cryptocurrencies, stablecoins, Facebook’s Libra, and CBDCs – to dollar dominance, most notably assessing the potential internationalization of the e-CNY, China’s central bank digital currency. Chapters 9 and 10 spotlight two recent events that capture both the ubiquity and resilience of the global dollar: the COVID-induced market collapse in 2020, which again required the Federal Reserve to step in as the international lender of last resort (ILOLR), and the unparalleled financial sanctions against Russia in 2022. In particular, the freezing of central bank reserves, which failed to generate initial catastrophic effects on Russia’s economy as predicted by many.

A noteworthy theme that runs throughout King Dollar is the question of whether continued dollar dominance is actually beneficial to the United States. Not everyone agrees it is. Michael Pettis and Matthew Klein in Trade Wars are Class Wars make the case that the dollar’s global status is not an “exorbitant privilege” but an “exorbitant burden.” In short, given the leading role of the dollar, the United States is the endpoint for much of the world’s excess capital and manufacturing goods, which, the authors contend, contributed to the bursting of the housing bubble in 2008 and the hollowing out of the country’s industrial and manufacturing base. Relatedly, former Fed chairman Ben Bernanke has argued that the dollar dominance’s economic benefits for Americans are negligible when observing that the United States’ borrowing costs are no lower than those of other wealthy industrialized economies. While acknowledging these arguments, Blustein emphasizes the scope of the benefits to the United States carries beyond the economic realm and extends to the country’s national security apparatus through the long arm of financial sanctions. Perhaps the better question is not whether dollar dominance is overall beneficial to the United States, but rather to whom such benefits accrue. 

Another consideration brought to the fore by Blustein is the consequences of dollar dominance for the rest of the world. In addition to the continued reality that banks from around the globe must inevitably route their dollar transactions through New York, thus placing them under the jurisdiction of the U.S. government, the implications of dollar hegemony can be acute and at times devastating. Particularly poignant for low-and-middle-income countries, shifts in Fed interest rate policy, which in turn affects the value of the dollar vis-à-vis other currencies, can lead to wide fluctuations in prices for critical imports, which are often priced in dollars, as well as result in surges of servicing costs for sovereign debt borrowed in dollars. More abstractly, as the global financial crises of 2008 and 2020 demonstrated, the Fed serves the function of the final backstop for the world economy. Many countries are thus left with the tenuous prospect that they will likely be reliant on international bailouts amidst the next global crisis from a central bank with no legal mandate to operate beyond U.S. borders.

Finally, while Blustein consciously circumscribes his analysis narrowly, King Dollar risks obscuring the realized and unrealized contributions of Global South countries to past and present global monetary orders. One is reminded of Eric Helleiner’s Forgotten Foundations of Bretton Woods, which uncovers the important, yet often overlooked, history of voices from the Global South in shaping the Bretton Woods negotiations. Delegations from Latin America, in particular, played a prominent role in strengthening the World Bank’s development mandate and pushing the IMF towards more generous relief for commodity-exporting countries. Similarly, Stefan Eich’s The Currency of Politics stresses the deeply political nature of international monetary regimes. One such example was the rise of the New International Economic Order (NIEO) following the collapse of the Bretton Woods system, which consisted of a set of principles advocated by recently decolonized and developing nations that sought to create a more equitable international economic order. Adherents to the NIEO were acutely aware of the disproportionate power that dollar dominance conferred to the United States and “called for a wholesale, democratic reform of the international monetary constitution” (Eich, p. 192). Ultimately, while King Dollar convincingly catalogues the durability of dollar dominance and its likelihood of remaining atop the global monetary hierarchy, the account reveals a more fundamental question that extends beyond Blustein’s scope: who benefits from this arrangement, and at what costs for the rest of the world to bear?