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Henry Farrell is the SNF Agora professor at Johns Hopkins School of Advanced International Studies and a member of the Council on Foreign Relations. Abraham L. Newman is a professor at the School of Foreign Service and Government Department at Georgetown University. They are the co-authors of Underground Empire: How America Weaponized the World Economy, which is a finalist for this year’s Lionel Gelber Prize, presented by the Munk School of Global Affairs & Public Policy.

When the United States imposed sanctions on Hong Kong’s then-chief executive Carrie Lam in 2020, in response to her government’s crackdown on democratic protests, she quickly discovered that banks – even Chinese banks – didn’t want to touch her. She was forced to hold her salary in cash, which she kept in heaps in her official residence.

Increasingly, allies as well as adversaries risk feeling the brunt of U.S. financial power. If Donald Trump wins the presidential elections in November, even Canadians could be blocked from their bank accounts.

In our recent book Underground Empire: How America Weaponized the World Economy, we explain how the U.S. dollar became the axis of the global economy. Non-U.S. banks need access to the U.S. financial system to clear dollar transactions. U.S. regulators can “designate” individuals or banks, blocking access and cutting off their relations with other banks that fear being targeted, too. That explains why Chinese banks wanted nothing to do with a senior Chinese official.

But the story doesn’t stop with Ms. Lam. When the Trump administration withdrew from the nuclear deal with Iran, European countries wanted to continue trading with Iran. The U.S. didn’t just threaten foreign businesses but European government officials, too.

Now, U.S. financial power is being deployed against very different targets. Just last month, Joe Biden’s administration decided to sanction four Israeli extremists accused of violence against Palestinians and peace activists.

Israel’s Finance Minister, Bezalel Smotrich, complained furiously that this was “an egregious violation of Israel’s sovereignty.” But Israeli banks worried more about the U.S. than their own government. As a banking industry insider told Haaretz, they “have zero degrees of freedom or discretion regarding the sanctions regime.” Israel is now reportedly tapping into communications between the Palestinian Authority and the U.S, hoping somehow to pre-empt the sanctioning of hundreds of other settlers and “senior civil servants” in the next wave.

Few Canadian officials worry about the targeting of extremists. But what if it’s the extremists who are doing the targeting next year?

In the first Trump term, the most disruptive instincts were often frustrated by mid-level officials’ efforts to maintain stable relations with allies. A second term will be Mr. Trump all the way down. Institutions such as the Heritage Foundation will vet political appointees for loyalty while the administration guts job protections for career civil servants who fail to do Mr. Trump’s bidding.

Mr. Trump’s likely targets will be the lawyers, human-rights activists, business leaders and politicians who oppose his vision of untrammelled U.S. power. And Mr. Trump doesn’t see countries like Canada just as allies, but as disobedient flunkies who need to be pressed into submission. He has already threatened to let Russia attack NATO allies that don’t pay their “dues.” And sanctions, export controls and investment measures developed by the Biden administration would provide Mr. Trump with a more finely gradated set of economic weapons to deploy against his opponents. Principled disagreement will be treated as insubordination, and punished accordingly.

While the fall election seems far away, Canada needs to start preparing for this outcome, as do other U.S. allies. They will all likely fare better if they start talking quietly together. For many decades, the U.S. has been at the centre of a web of relationships, spanning Europe, Latin America, Japan, South Korea and Taiwan. Could the countries in that web work together to remake it, building financial arrangements that were more robust against both U.S. power and Chinese economic coercion? That might even be in the long-term interests of the U.S. itself, should it later return to its senses.

Justin Trudeau’s government is already quietly preparing a “Team Canada” approach to smooth trade and political relations if Mr. Trump wins. That is an excellent start. It should also, without any fuss, build informal ties with other U.S. allies to quietly think through how best they might work together to protect their citizens and officials in a possible near future where the U.S. is not only unreliable, but temporarily malign.

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