Is the US in Exorable Decline Due to Humongous Federal Budget Deficit?

choi

(1) Niall Ferguson, Debt Has Always Been the Ruin of Great Powers. Is America Next?  From Habsburg Spain to Trump's America, there’s no escaping the consequences of spending more on interest payments than on defense. Wall Street Journal, Feb 22, 2025, at page C1.
https://www.wsj.com/politics/pol ... e-u-s-next-02f16402

Excerpt in the window of print: America's expensive welfare system will only become more costly as the population ages, making it harder to reduce national debt.

My comment: You need only browse through it quickly, as the essay fails to factor in dollar as world's reserve currency which US may print as much as it wants and whose status America jealously guards. I recalls clearly that when Hilary Clinton became Secretary of State in 2008 in the midst of Great Recession, she talked about China mournfully (as if hat in hand) as America's largest creditor and expected to borrow more. Quickly The US figured out a sleight of hand, a financial engineering, where Department of Treasury printed money and Federal Reserve immediately bought it (to avoid inflation), to fund quantitative easing (QE) 1 and 2, obviating borrowing any money from China or Japan. See next article.

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Yesterday in the posting titled "Is the US in Exorable Decline Due to Humongous Federal Budget Deficit?" I wrote: United States "Department of Treasury printed money and Federal Reserve immediately bought it (to avoid inflation), to fund quantitative easing (QE) 1 and 2."
(a) There were two errors:
(i) In quantitative easing, Federal Reserve (Board) bought treasuries (formally United States Treasury securities or securities issued by United States Treasury (Department), which is a kind of bonds or debts), directly from US Treasury (Department). (Before QE, treasuries would have to be sold to foreign nations which buy much more *to offset trade surpluses) than domestic investors.) See
• quantitative easing
https://en.wikipedia.org/wiki/Quantitative_easing
("Similar to conventional open-market operations used to implement monetary policy"/ section 1 History: Bank of Japan introduced 量的緩和 2001-2006)
• Matthew Johnston, Open Market Operations vs Quantitative Easing. Investopedia, updated July 29, 2023
https://www.investopedia.com/art ... titative-easing.asp

Quote:

"Since its establishment [in 1913], the Fed, as it is often called, has been responsible for a two-part mandate: (1) promote maximum employment and stable prices, and (2) moderate long-term interest rates.

"The Federal Open Market Committee [FOMC; within Federal Reserve] has three main tools that it uses to achieve its two-part mandate. Those actions include open market operations, setting the federal funds rate, and specifying reserve requirements for banks.   [talking about the first action:] For an open market operations strategy, the central bank will create money [in the circulation by the purchase described next; still money injection is an after-thought as the main goal is to reset interest rates, whose ripple effect is money supply in the circulation (this ripple effect inject more money than FOMC's initial injection] and buy short-term Treasury securities from banks, individuals, and institutions in the open market [the key is 'shorty-term' and purchase from other than Department of Treasury].

"A QE strategy is often employed during a crisis and when open market operations have failed. For example, the interest rate may already be at zero, but there is still a slowdown in lending and economic activity. In such situations, the central bank might buy [LARGE amount of] long-term treasuries * * *

(ii) In the 2007-2008 Great Recession, inflation was not a concern at all (in crises, consumers hold on to cash, unwilling to spend. He lesson learned from the Great Depression is that a government needs to pump cash into economy, so that lack of cash in CIRCULATION will not strangle the economy.
(b) 8,540 Series. FRED, undated.
https://fred.stlouisfed.org/tags/series?t=debt
• Federal Debt: Total Public Debt (1966-01-01 to 2024-07-01; Frequency: Quarterly, End of Period), where the shade areas were recessions. Q1 2008 was $9.4 trillion; Q3 2024 was $35.5 trillion.
• Federal Debt Held by Federal Reserve Banks (1970-01-01 to 2024-07-01; Frequency: Quarterly, End of Period). Q1 2008 was $0.59 trillion; Q3 2024 was $4.7 trillion. The difference between these two points in time is $4.1 trillion (a small portion of federal debt, but still an amount that foreign nations could not have swallowed in full.



-------------------------WSJ
Is that the heady scent of hubris, wafting through the winter air of Washington, D.C.? So bold has President Trump been in the first month of his second term that nervous Europeans wonder if the American republic is now unabashedly an empire. Trump renames seas. He reclaims canals. He demands Greenland. He trolls Canada. His proposal for peace in Gaza is wholesale resettlement of its population. His plan for peace in Ukraine begins to look a lot like partition.

In the ancient Hellenic world, hubris was the kind of pride or arrogance that led a mortal to defy the gods. But hard on its heels there usually came Nemesis, the goddess of divine retribution. The historian prefers to exclude deities from his narrative. He discerns the more prosaic operation of budgetary constraints. For it is these, not gods, that set limits on the geopolitical ambitions of republics and empires alike.

What I call Ferguson’s Law states that any great power that spends more on debt service than on defense risks ceasing to be a great power. The insight is not mine but originates with the Scottish political theorist Adam Ferguson, whose “Essay on the History of Civil Society” (1767) brilliantly identified the perils of excessive public debt.

Ferguson understood what modern economists call the “tax-smoothing” properties of public debt: By borrowing to pay for a war or some other emergency, a government can spread the cost over multiple generations of taxpayers. But he also saw the catch. “The growing burden,” he observed, is “gradually laid,” and though a nation may “sink in some future age, every minister hopes it may still keep afloat in his own.” For this reason, public debt is “extremely dangerous…in the hands of a precipitant and ambitious administration.”

His conclusion was prophetic: “An expense, whether sustained at home or abroad, whether a waste of the present, or an anticipation of future, revenue, if it bring no proper return, is to be reckoned among the causes of national ruin.”

Economists have long sought in vain a threshold that defines how much debt is too much. My own formulation of Adam Ferguson’s idea focuses our attention on the crucial historical relationship between debt service (interest plus the repayment of principal) and national security (expenditure on defense, including investment in research and development).

The crucial threshold is the point where debt service exceeds defense spending, after which the centripetal forces of the aggregate debt burden tend to pull apart the geopolitical grip of a great power, leaving it vulnerable to military challenge.

The striking thing is that, for the first time in nearly a century, the U.S. began violating Ferguson’s Law last year. Annual defense spending—to be precise, national defense consumption expenditures and gross investment—was $1.107 trillion in 2024, according to the Bureau of Economic Analysis (BEA), while federal expenditure on interest payments (the government long ago gave up on paying down principal) topped out at $1.124 trillion.

These outlays can also be expressed as percentages of gross domestic product. The Congressional Budget Office (CBO), which uses a narrower definition of defense spending than the BEA, places it at 2.9% of GDP for last year. Net interest payments (adjusting for the interest received by bonds held by government agencies) amounted to 3.1%.

We have seen nothing like this since the era of isolationism. Between 1962 and 1989, U.S. defense spending averaged 6.4% of GDP; debt service was less than a third of that at 1.8%. Even after the end of the Cold War, the federal government was still spending, on average, roughly twice as much on national security as on interest on the debt.

The fact that the U.S. is currently projected to spend a rising share of its GDP on interest payments and a falling share on defense means that American power is much more fiscally constrained than most people realize. By 2049, according to the CBO’s latest long-term budget projection, net interest payments on the federal debt will have risen to 4.9% of GDP. If defense spending maintains its recent share of discretionary spending, it will amount to half that share of GDP.

Nor is there any real possibility that defense spending will increase dramatically. Because such spending is discretionary, it has to be appropriated by Congress every year, unlike spending on entitlement programs (which is mandatory) and interest payments (nonpayment of which would be default). If anything, budgetary constraints are likely to put downward pressure on defense spending in the decades ahead.

Empires Crippled by Debt
Ferguson’s Law—that it is dangerous for a great power to spend more on debt service than on defense—is borne out by history.

In the 16th century, the Habsburg kings of Castile reigned over the first truly global empire. Revenues from American silver mines were crucial to financing Spain’s expansive military endeavors. Charles V and Philip II also enjoyed substantial tax revenues from their Castilian subjects.

But with every passing decade, the Spanish empire relied more on borrowing. It issued juros, long-term bonds held mostly by the Castilian elite. It also raised funds by selling asientos, short-term IOUs, to bankers in Genoa and elsewhere.

The system was stable until 1600, when Spain began to illustrate Adam Ferguson’s point. The total stock of juros grew by a factor of 3.4 between 1594 and 1687, at a time when the revenues of the crown stagnated. Payments on the juros went from absorbing half of Spanish revenue in 1667 to 87% just 20 years later. As Philip IV told the Council of the Indies even earlier, in 1639, “I recognize that the introduction of the juros has caused the enormous ruin we experience.”

Between 1607 and 1662, the Spanish crown defaulted on part of its debt five times. Not coincidentally, the growth in per capita GDP that had characterized the “Golden Age” of the 16th century was followed by contraction in the 17th century. This in turn reduced the crown’s tax revenues.

The geopolitical repercussions were unavoidable. In 1640 Portugal regained its independence after 60 years of dynastic union. The Peace of Westphalia in 1648 marked the formal recognition of Dutch independence and the effective end of Spain’s predominance in Europe. The Treaty of the Pyrenees in 1659 further underscored its diminished status, as Spain ceded territory to France.

Perhaps the most familiar case of a great power succumbing to fiscal constraints is that of Bourbon France in its contest with Hanoverian Britain in the late 18th century. Of all the great powers, France had the greatest difficulty in evolving a stable system of public debt management. There was no central bank that could issue banknotes. There was no liquid bond market where government debt could be bought and sold. The tax system had in large measure been privatized. Instead of selling bonds, the French crown sold offices, creating a bloated public payroll. London, by contrast, established not only a central bank and a relatively efficient tax system but also a thriving bond market.

French intervention in support of the American colonists, culminating at Yorktown in 1781, may have appeared a strategic masterstroke. But the fiscal consequences took Louis XVI’s government far beyond the limits of Ferguson’s Law. In 1780, debt service absorbed two-fifths of total expenditure, the war department just a quarter. By 1788, debt service rose above half of total expenditure.

The history of the 19th century furnishes further examples: the Ottoman Empire, Austria-Hungary, Tsarist Russia. But the best example of all—and the one from which Americans have the most to learn—is that of Great Britain.

The Economics of Appeasement
On three occasions in its history, major wars against continental rivals (first France between 1792 and 1815 and then Germany twice in the 20th century) drove the British national debt above 150% of GDP. At times, despite the breadth and depth of the U.K. bond market, this led to violations of Ferguson’s Law, for example in the 1820s and again in the 1870s.

But the general trend in the 19th century was for the costs of debt service to decline, thanks to the productivity gains of the Industrial Revolution and the peacetime surpluses run by Victorian chancellors of the exchequer. This left room for the rearmament that ensured Britannia ruled the waves, as well as for the largest land empire in history. Unfortunately, because Britain’s army remained small by continental standards, by 1914 London could not prevent Germany from launching its first bid for mastery in Europe.

In the wake of World War I, debt service exceeded military spending every year from 1920 to 1936. It was this breach of Ferguson’s Law, much more than any trust or sympathy toward Adolf Hitler, that inspired the policy of “appeasement.” Of paramount importance to the Treasury was the concern that higher spending on armaments would jeopardize Britain’s precarious recovery from the Great Depression.

In seeking to appease Hitler, British Prime Minister Neville Chamberlain failed, of course, to deter him and his confederates from launching another world war. Despite the fact that U.K. defense spending rose above debt service in 1937, the signal was not sufficiently strong to dissuade Hitler from invading Poland, even when accompanied by an explicit pledge of support for Poland in the event of a threat to its independence. The most that belated rearmament was able to achieve was to ensure that the British military survived the retreat from Dunkirk and won the Battle of Britain.

Another world war left Britain with another mountain of debt. In the decades after 1945, Britain relied much more on unanticipated inflation than on productivity growth to keep the costs of debt service below the costs of defense.

The British case illustrates that defying Ferguson’s Law need not doom a great power to swift decline. Britain crossed the limit in three periods after the mid 19th century, but in each case it was able to cross back. Decline inexorably came, as inflation and low productivity growth forced successive governments to give up colonies and shrink the armed services. Still, the United Kingdom avoided defeat and immediate dissolution—the fate of many another great power.  

Warning Signs for the U.S.
What are the implications for America today? Geopolitically, the U.S. finds itself in a situation comparable with that of Britain in the 1930s. Its military commitments are global, as has been true since 1945, and it confronts a new axis of authoritarian powers.

Yet America’s fiscal position is far more constrained today than ever before. The U.S. government is now in violation of Ferguson’s Law and is likely to move further beyond its crucial limit in the coming decades.

Can the U.S., like Victorian and interwar Britain, find a way back? Can it do even better, successfully deterring its foes—as Britain failed to deter Germany—and averting the possibility of a ruinous World War III? Or is America doomed to follow Habsburg Spain, the Ottoman Empire, Bourbon France and Austria-Hungary down the path of default, depreciation and imperial decline—even revolution?

There are four important differences between Britain in the 1930s and the U.S. in the 2020s, and all of them work to America’s disadvantage. First, the term structure of U.S. debt is shorter, making it more sensitive to changes in interest rates. That makes it inherently harder to “inflate debt away” like the U.K. after World War II. Second, much more of it is in the hands of foreign investors. Third, the trend of real interest rates in the U.S. seems less likely to be downward than it was in 1930s Britain.

Whereas British real interest rates fell in the Depression, in America they are currently projected by the CBO to rise from 1.7% in 2024 to 1.9% in 2026, declining slightly to 1.8% in 2034. The real growth rate of the economy is projected to be almost identical. In this scenario, America’s debt will cost more to service in the period 2025-2035 than it did in 2015-2025, when the average real rate was 0.3%, especially because the stock of debt will continue to grow.

Finally, the U.S. today is encumbered with an expensive welfare system designed for a society with a higher fertility rate and lower life expectancy. Entitlement programs such as Social Security and Medicare are now the biggest items of federal expenditure. They will only become more expensive as the population ages.

History suggests that any sustained period when a great power spends more on interest payments than on military capabilities is likely to see its strategic rivals challenge its position. The tension between “guns and coupons” (as the interest-bearing parts of bonds used to be known) may also undermine its domestic stability, as governments try and fail to meet the competing demands of generals, bondholders, taxpayers and welfare recipients.

In the absence of radical reform of America’s principal entitlement programs—which successive administrations this century have either failed to achieve or ruled out—the only plausible way that the U.S. can come back within the limit of Ferguson’s Law is therefore through a productivity miracle.

Today, it may seem that the world is divided between a mighty American “Trumpire” and the feeble foreign competition. But the real contest of the second quarter of the 21st century may be between the much-vaunted economic promise of artificial intelligence—and history, in the form of Ferguson’s Law.

Niall Ferguson is the Milbank Family Senior Fellow at the Hoover Institution at Stanford University and founder of the advisory firm Greenmantle.

choi

(2) Daniel Yergin, The New Economic Warfare; To halt Tehran's march toward a nuclear bomb, Congress gave the Treasury Department the power to apply sanctions. Wall Street Journal, Feb 22, 2025, at page C7
https://www.wsj.com/arts-culture ... on-defense-08a6c083
(book review on Edward Fishman, Chokepoints, American power in the age of economic warfare. Portfolio, Feb 25, 2025 (which will arrive in 3 days) )

Quote: Fishman "writes: 'Great powers once rose and survived by controlling geographic chokepoints like the Bosphorus [also spelled as Vosporus]. American power in the globalized economy relies on chokepoints of a different kind.' Foremost among them is the primacy of the dollar * * * He cites one other critical chokepoint: 'The intellectual property and technical know-how that underpin a vast array of essential technologies, notably the advanced computer chips at the core of the digital economy.' With its command over these essential chokepoints, the US wields its powerful 'arsenal of economic weapons'—sanctions, export controls and investment restrictions.

Note:
(a) Daniel Yergin
https://en.wikipedia.org/wiki/Daniel_Yergin
(is noted for "books on energy and world economics, including the Pulitzer Prize–winning The Prize: The Epic Quest for Oil, Money, and Power (1991) [which opined that petroleum was everything, when US production of it was dwindling by the year] * * * He received his BA from Yale University in 1968 * * * He received his MA in 1970[19] and his PhD in international history from Cambridge University, where he was a Marshall Scholar")
(b) The quotation above is the takeaway. If you do not have time, you need not read the rest.
--------------------------------
“You f—ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?” So exploded a British banker when warned that the U.S. would be applying sanctions to international banks doing business with Iran. As it turned out, that’s exactly what the Americans did—hitting the defiant banker’s own institution, among others, with hundreds of millions of dollars in fines.

In “Chokepoints: American Power in the Age of Economic Warfare,” Edward Fishman makes clear why this banker so badly underestimated America’s financial power. Deftly written, “Chokepoints” is a compelling and dramatic narrative about the new shape of geopolitics—one in which the U.S. mobilizes its economic and financial pre-eminence for geopolitical objectives, especially in its clashes with China, Iran and Russia. It’s the story of a world economy that has moved from confident globalization to increasing fragmentation and in which economic warfare has become “a baseline feature of our world.”

Mr. Fishman, who has held positions in the State, Defense and Treasury departments and now teaches at Columbia University’s School of International and Public Affairs, has written an engrossing account of contemporary history. He provides a framework for understanding the battles to come as well as the growing challenges and risks facing companies that operate in the global economy.

Of course, there’s nothing new about economic warfare. Athens in the fifth century B.C. deployed its mighty navy to impose a trade embargo on the city-state of Megara. The blockade succeeded but also backfired, helping precipitate a war with Sparta that would shatter Athens’s golden age.

With the establishment of the League of Nations after World War I, Woodrow Wilson prophesied that the organization’s ability to impose economic sanctions on aggressors would be “something more tremendous than war.” As it turned out, sanctions did not impede Japan’s conquest of Manchuria in 1931, Mussolini’s attack on Ethiopia in 1935 nor the advent of World War II.

Mr. Fishman argues that “what makes today’s economic wars novel is the highly interdependent world economy.” He writes: “Great powers once rose and survived by controlling geographic chokepoints like the Bosphorus. American power in the globalized economy relies on chokepoints of a different kind.” Foremost among them is the primacy of the dollar—in global trade, investments and financial transactions—and the role in the global economy played by the major U.S. banks. So much of the world’s cross-border commerce, whether initially priced in rupees, riyals or pesos, is settled in dollars passing primarily through the U.S. financial system. “The U.S. dollar is involved in nearly 90 percent of foreign exchange transactions,” Mr. Fishman notes. He cites one other critical chokepoint: “The intellectual property and technical know-how that underpin a vast array of essential technologies, notably the advanced computer chips at the core of the digital economy.” With its command over these essential chokepoints, the U.S. wields its powerful “arsenal of economic weapons”—sanctions, export controls and investment restrictions.

Mr. Fishman dates the origin of this new age to the aftermath of 9/11 and the George W. Bush administration’s drive to throttle terrorist funding. But the real catalyst, the author argues, was Iran. To halt Tehran’s march to a nuclear bomb, Congress passed a series of laws enabling the Treasury Department to apply sanctions: Any financial institution found to be doing business with Iran risked being cut off from accessing the U.S. dollar, prevented from participating in the U.S. financial system and subject to huge fines. In the battle against the mullahs, Treasury was thus transformed from its traditionally supporting role to a central one.

Later, under the Obama administration, the threat of sanctions and the specter of huge fines persuaded banks and companies around the world to sever or shrink their economic ties with Iran. Purchases of Iranian oil plummeted. Iran’s economy cratered, finally forcing Tehran to the negotiating table. A nuclear deal would be reached in 2015, though the first Trump administration would withdraw the U.S. as a signatory in 2018.

Russia has proved a more formidable foe in economic warfare. After Vladimir Putin seized Crimea in 2014, the U.S., in concert with its allies, cut off Russian access to credit markets and oil and gas technology; they also imposed travel bans on and froze the assets of Russians close to Mr. Putin. The Russian economy was sent into a tailspin. Eight years later, as Russian troops massed on the border with Ukraine, the Biden administration warned of the “most severe sanctions that have ever been imposed.” Yet Mr. Putin still invaded Ukraine. The economic consequences of U.S. sanctions were not enough to dissuade Mr. Putin.

As Mr. Fishman explains, three factors contributed to Russia’s resilience. First, once Russia met resistance to its invasion of Ukraine, the Kremlin pivoted to a wartime economy that continued to generate economic growth, albeit of a distorted kind, prioritizing military production at the expense of the civilian sector. Rampant inflation forced Russia’s central bank to set interest rates at more than 20%. Second, in the face of sanctions from the West, Russia turned to China to fill the breach. As Mr. Fishman writes, “Sino-Russian trade flourished,” with China providing everything from technology and civilian goods to bullet-proof vests. Russia is now economically dependent on China.

The third factor was the nature of the U.S. sanctions. While they targeted both finance and technology, they did not disrupt Russia in its greatest vulnerability—oil exports. Oil and gas revenues make up as much as 40% of Russia’s total budget, and a cutoff of oil exports would have strangled the Russian economy. But here was a dilemma: Russia was exporting five times as much oil as Iran to the world market. The Biden administration feared that an embargo would have sent oil prices soaring, along with the price of gasoline at the pump. That would have been bad for the global economy and bad for U.S. politics.

The solution was a price cap that sought to set a maximum price of $60 a barrel on Russian oil, enforced by international sanctions and the fact that the global oil trade is immersed in a dollar-based web of shipping, insurance and marine services. But the 10 months it took for the U.S. and its allies to work out the price cap allowed Moscow enough time to cobble together a ghost fleet of hundreds of secondhand tankers and a network of shadowy traders who operate outside the dollar-based system. Russia was thus able to develop a parallel trading system and sell oil above the $60 cap, most notably to China and India.

Even though the sanctions have not stopped the war in Ukraine, they have inflicted damage upon Russia, impeding its imperial ambitions by cutting off its economy from the Western world. And last month, only 10 days before leaving office, the Biden administration—no longer concerned about the political fallout from rising oil prices—finally put in place tougher sanctions that can partially constrain Russia’s ability to produce oil.

Today the most consequential battle of economic warfare is the one unfolding between China and the U.S. On the American side it reflects, Mr. Fishman tells us, a decided shift in thinking. The U.S. no longer believes that expanding economic relations with China will create common interests and international stability. Instead, the dominant view in America now is that China has been “waging an economic assault against the United States for decades,” stealing technology and intellectual property, launching cyberattacks, seeking “to seize the commanding heights of the digital economy” and rapidly building up a military to push the U.S. back across the Pacific.

And so when U.S. intelligence warned that the Chinese telecommunications company Huawei was rolling out advanced communications systems around the world with a hidden danger—a “backdoor” that could enable Beijing to download confidential data at will—the first Trump administration convinced companies in the U.S. and its ally countries to swear off Huawei. Sanctions followed, denying Huawei access to advanced American computer chips. Under the Biden administration, this approach evolved into a policy of denying such chips to all Chinese companies.

The Biden administration’s stated objective was to ensure that the U.S. maintains “as large of a lead as possible” on critical technologies, restraining China’s ability to harness artificial intelligence and thus hinder its rapid military buildup. The U.S. campaign is backed by a drive to shift supply chains and investment away from China. Despite its many other differences with the first Trump administration, the Biden administration not only maintained continuity with its predecessor in its stance on China but further tightened the chokepoints.

Beijing decries these efforts as a campaign to “contain China” and is pushing back. Some argue that the vitality of the U.S. tech sector will ensure that a five-year gap between U.S. and Chinese technologies can be maintained. Others argue that China is pouring huge resources into shortening the gap and building up its own capabilities. According to some estimates, China awards more than 10 times as many engineering degrees a year as the U.S. Confidence about the durability of the U.S. lead was abruptly shaken last month by the Chinese company DeepSeek’s release of its advanced artificial-intelligence model.

Adding to the risks is Beijing’s ambition to absorb Taiwan, where 90% of the world’s advanced computer chips are fabricated. China is gearing up for new rounds of economic warfare in other ways—for instance, denying American companies access to Chinese markets and banning the export to the U.S. of rare-earth materials, which are used in everything from semiconductors to batteries and weapons systems. To justify its ban, Beijing now deploys a term borrowed from the U.S., holding back rare-earth materials, it says, because of “dual use”—by the military as well as civilians.

Mr. Fishman acknowledges that, as countries seek to reduce their evident vulnerabilities, chokepoints can gradually lose their potency. Russia and China are trying to stick to rubles and yuan in their countries’ burgeoning bilateral trade. A global embrace of cryptocurrencies could further reduce the primacy of the dollar.

With “Chokepoints,” Mr. Fishman has provided a thorough analysis of what, for now, continues to be the power of that primacy. Curiously, however, the author does not address the many lessons of economic warfare learned during the Cold War, when the U.S. and its allies sought to control exports to the Soviet bloc. He also fails to define “neoliberal dogma,” even though on occasion he joins the current fashion of deriding it—as if low deficits, low inflation, the avoidance of overregulation and the growth benefits of the global economy are all to be discounted. On Iran, he skims over the other powerful factor that brought the country to the negotiating table—the U.S. shale revolution. As the economic chokepoints were closing on Tehran, the physical valves were opening on the U.S. oil fields. Oil production surged, to the mullahs’ disbelief, more than compensating for the Iranian oil that was being shut out of the market—making Iran’s dire economic situation even worse.

“Chokepoints” appears at a moment when a new twist to economic warfare is at hand: Mr. Trump’s penchant for tariffs, marking a reversion from the long trend toward trade liberalization that began with the revulsion against the trade wars of the 1930s. The second Trump administration is not hesitating to impose and brandish tariffs against both allies and adversaries, whether to offset trade deficits or to achieve other policy goals. At the same time, Moscow is already making clear in negotiations over its war against Ukraine that the removal of all sanctions is a primary objective.

Altogether, the current juncture makes “Chokepoints” a timely guide to the fragmenting of the global economy and the rising tensions that go with it. We are already in the age of economic warfare; the question is whether we can avoid an era of escalation.

Mr. Yergin, the vice chairman of S&P Global, is the author of “The Prize,” “The Quest” and “The New Map.”