Andrea Binder raises two important issues in her review that allow me to expand on my book’s main lessons. Her first critique focuses on the issue of power, the second on the missing discussion of the legal nature of offshore finance, which features as a backdrop in many cases I explore.
Let me begin by addressing the concern that US power is portrayed as largely unconstrained. Indeed, I argue that legal challenges do not lead to the same retaliation as other forms of economic statecraft. Think of tariff barriers that trigger an immediate tit-for-tat. Since legal challenges are not border conflicts but carry normative arguments that may fall on fertile ground within the home countries of firms, they are economic statecraft in disguise. This does not mean that they will fail to be identified by the target country. In my Chapter 5, I therefore go into great length discussing the nature of the pushback and the results in three different cases in Japan, Europe, and China. When the United States agreed to embed normative claims in multilateral or reciprocal regimes, they have been largely accepted as shared international governance, and there was therefore little retaliation, for example, in instances of antitrust or the fight against corruption. This is much less the case in sanctions violations, however, which have pitted the European Union against the United States, or in specific areas such as fraud or economic theft, that have strained Chinese-US relations. When the United States imposes its domestic law abroad unilaterally, the target countries will seek to retaliate and find creative new ways to do so. So yes, US power is not unconstrained, but it is an empirical question whether the countermeasures will be effective.
On offshore finance, Binder criticizes that I do not discuss the phenomenon sufficiently. I concede this point, given the important role offshore markets play in the circumvention strategies firms have used to escape from domestic rules. While I agree with Binder on the importance of offshore markets, I disagree with the reasons for this. In my account, offshore markets are relevant as a pervasive phenomenon: they are where a large portion of global wealth circulates. However, the legal nature of offshore banking, in particular its roots in English law, is largely irrelevant for my purpose, because I am interested in the coercive power to enforce such domestic law beyond one’s territory. Just like Switzerland was unable to defend its domestic legal norms against the United States, the United Kingdom will find it hard to enforce English law protecting its banks’ dealings with foreign residents, should the United States seek to enforce domestic provisions that clash. This will only change if the United Kingdom is willing to enforce English law in offshore markets against foreign companies or individuals with criminal prosecutions as well.
Interestingly, the juxtaposition of our two studies provides insights into the geopolitical spheres of influence that shape our world. While the United States has built an “underground empire” through financial networks, trade, stock exchanges, and data (see Henry Farrell and Abraham Newman, Underground Empire: How America Weaponized the World Economy, 2023). Great Britain has built its own “second empire” through offshore money creation. It is domestic laws and regulations that hold these empires together, not tanks and military might.
My book focuses on the mechanisms that allow enforcing such rules. Binder draws our attention to the dynamics that can develop within these connected spheres that hold together imperfectly. As a result of the enormous growth of offshore markets, governments appear like sorcerer apprentices in times of crisis, unable to reign in the powers they have called. It is therefore paramount to understand the dynamics of the global economy so that governments everywhere can create conditions for economic and political resilience and a more stable world.
