By Spyros Tsaparas, Junior Analyst KEDISA

Introduction

After the end of the Second World War and the victory of the Allied Powers, the post war period was based on founding principles to avoid another devastating conflict. Stemming from classical international relations theory, the Liberal post war period upheld trade between states as a tool of interdependence that if disturbed, both sides would suffer severely thus making war too costly for either side. The liberal theory suggests that this cycle of interdependence between nations, would make them not only foster collaboration, improving relations and economic power over time but also make the cost of any conflict so high that peace had to be maintained. However, while some may argue that during the Cold War, interdependence worked in specific parts of the world, it has now evolved into a weapon used for nations to assert their influence over one another. Specifically, this paper argues that the U.S.–China “chip war” illustrates that interdependence does not prevent conflict but enables the United States to weaponize trade networks for strategic dominance.

Literature Review

When exploring the theoretical framework of this paper two sides of Liberal institutionalism appear. Firstly, the promise of peace materialized through the concept of “complex interdependence” which was developed in the late 1970’s during the Cold War. The global order heavily shifted from realism after the Second World War to liberal institutionalism where peace had to be maintained through intergovernmental institutions, trade and cooperation between nations. Specifically, diplomacy shifted character and states stopped relying exclusively on official delegations. Instead, as the theory suggests, non-governmental organizations were conducting diplomacy by improving economic ties with other states through business deals or by settling disputes through referring to organizations like the WTO or the UN instead of taking arms [1]. The most widely known example of such liberal institutional logic would be the precursor of the European Union, the European Communities (EC). It served as the personification of the interdependence theory as the European states forming the communities sought to be dependent on one another through trade which in turn would strengthen the individual economies of each state making war an unconscionable option.

Secondly, the exploitive nature of liberal institutionalism or the concept of “weaponized interdependence”. Arising as a reaction to the liberal political order, weaponized interdependence explores how these interdepended financial systems designed to ensure peace and stability create inequalities with larger economies exerting influence over smaller ones[2]. Such was the case with the SWIFT banking system. Despite being a Belgian initiative, the majority of the world uses it for more convenient financial transactions. It is such a fitting example of weaponized interdependence for the reason that so many states are involved in such a globalized banking service that if a state is excluded, economic chaos is bound to follow as with the case of the United States and Iran. In order to exert pressure to Iran to discontinue its nuclear program the West lead by the United States cut off Iran from the SWIFT program resulting in an almost immediate collapse of Iran’s banking sector [3]. Similar to Iran’s case and considering the theoretical background of the paper, it can be adequately explored how based on the liberal economic theory, the theory of interdependence was exploited to serve state’s interests through the case study of the U.S.-China “chip war”.

Case Study

Often being called the “new oil” semiconductors (chips) are vital for the majority of technological devices in the current era. Their production takes place across the Western world, including its allies like Taiwan and South Korea. However, the country that dictates their distribution is the United States making it the most powerful actor regarding the global supply chain of semiconductors [4]. This process operates through the control over “choke points” which involves the advanced software used in producing the semiconductors, being manufactured by U.S. companies and their Western allies. On the other hand, the biggest market for semiconductors is China which relies exclusively on their import, occupying 50% of this market [5], and owes the success of its technological industries to the Western chips. This trade pattern aligns perfectly with Liberal theory as both the West and China profit from trading with each other making any conflict between them unimaginable as the cost of disrupting that trade partnership would be too great for either one to handle. However, what the Liberal theory failed to predict is the exploitation that such interdependence would bring about. In 2021 the government of the United States exercised its power and influence over the semiconductor global supply chain and banned China’s top telecom brands (for example Huawei) from accessing those chips resulting in many of those businesses being crippled [6]. This policy decision served as a foreign policy move aimed at directly attacking the US’s biggest economical and ideological competitor by forcing it out of a product so vital for today’s technological operations yet so firmly dominated by the West. This dependency by China was exploited and while Liberalism argues that conflict with arms isn’t an option under interdependent trade it didn’t account for economic warfare. As history continues to prove, some states tend to be more economically powerful than others and exercise monopolies (like the West on semiconductors) on certain goods. Even under the interdepended trading model, which was built on the concept of collaboration and fair distribution of wealth amongst nations, asymmetries arise that overlap with ideological, geostrategic or even economic interests. For those interests to be served, it is usually the case that equal trade, which is beneficial for both parties, is be very hard to be achieved. It is fair to say therefore, that cases like the US-China chip war prove that it is more beneficial for states not to follow the Liberal model of interdependence for matters of national interest.

Conclusion

In conclusion, while the Liberal theory promotes peace through interdepended trading, cases from real life prove that’s not always the case. While the concept of avoided armed conflict through trading, profits every party involved, the case of the US-China chip war proves that exploitation is not avoidable unless every party is of equal wealth, something unachievable in today’s free market dominated word economy. As state interests collide with trade agreements, asymmetries arise making the Liberal theory harder to implement. Economic warfare doesn’t cease, turning the very principal of maintaining peace against itself as interdependence is being weaponized.

Sources

Araya, Daniel. ‘Will China Dominate the Global Semiconductor Market?’ Centre for International Governance Innovation. Accessed 2 January 2026. https://www.cigionline.org/articles/will-china-dominate-the-global-semiconductor-market/.

Bloomberg.Com. ‘How World Powers Are Vying for Chip Supremacy’. 21 April 2025. https://www.bloomberg.com/explainers/global-chip-wars-semiconductors.

Farrell, Henry, and Abraham L. Newman. ‘Weaponized Interdependence: How Global Economic Networks Shape State Coercion’. International Security 44, no. 1 (2019): 42–79. https://doi.org/10.1162/isec_a_00351.

Karacali, Neslihan. The Self-Undermining Arsenal: A Critical Theory of Weaponized Interdependence. Unpublished, 2025. https://doi.org/10.13140/RG.2.2.33278.65606.

Nye, Joseph S. ‘Power and Interdependence Revisited’. International Organization 41, no. 4 (1987): 725–53.

‘U.S.-China Technological “Decoupling”: A Strategy and Policy Framework | Carnegie Endowment for International Peace’. Accessed 31 December 2025. https://carnegieendowment.org/research/2022/04/us-china-technological-decoupling-a-strategy-and-policy-framework?lang=en.

Endnotes

[1] Nye, ‘Power and Interdependence Revisited’.

[2] Farrell and Newman, ‘Weaponized Interdependence’.

[3] Karacali, The Self-Undermining Arsenal.

[4] Bloomberg.Com, ‘How World Powers Are Vying for Chip Supremacy’.

[5] Araya, ‘Will China Dominate the Global Semiconductor Market?’

[6] ‘U.S.-China Technological “Decoupling”: A Strategy and Policy Framework | Carnegie Endowment for International Peace’.

The article expresses personal views

Source: Kedisa.gr