The Trump Administration’s Economic War on the World: Hitting Adversaries, Punishing Innocents,...

The Trump Administration’s Economic War on the World: Hitting Adversaries, Punishing Innocents, Angering Allies

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As if viewing gambling at Rick’s Café Americain in Casablanca, Washington
policymakers are shocked, shocked to discover that China, too, can apply economic
pressure. Complained the Heritage Foundation’s James Carafano: “the Chinese
Communist government slapped sanctions on members of Congress as well as a U.S.
ambassador. This action is intended to send the world a message: Fear us.”

Of course, the penalties Carafano complained of were retaliation for Washington’s
imposition of similar sanctions on Chinese officials over the crackdown in Hong
Kong. The bilateral pissing match will have no impact on Beijing’s policies.

Carafano is not the first person to complain about China’s economic sanctions.
Mathew Ha of the Foundation for the Defense of Democracies was upset by South
Korea’s refusal to follow Washington’s criticism of the People’s Republic of
China, which he blamed on fear of PRC economic retaliation. Washington Examiner
columnist Tom Rogan voiced similar irritation with Beijing’s threatened economic
retaliation after Canberra moved to counteract increased Chinese repression
in Hong Kong.

Imagine. China is acting like … the US!

It’s almost charming to see such anger over Beijing’s behavior when America
continues to be the global leader in using its economic power to penalize governments
which refuse to heed its commands. In January the president said he would punish
Iraq if it acted like a sovereign state and insisted on the withdrawal of American
troops.

In June the Trump administration threatened to impose sanctions on everyone,
including family members, associated with the International Criminal
Court if it proceeded with plans to investigate US military personnel. Washington
would treat a United Nations body created by multilateral treaty like Iran.
And borrow enforcement tactics from North Korea, which punishes multiple generations
for offenses against the regime.

Last month the Trump administration added new sanctions in an attempt to block
construction of the Nord Stream 2 natural gas pipeline between Germany, a supposed
ally, and Russia, essentially demanding that Berlin submit its energy policy
to America for approval. (It is widely suspected in Europe that Washington’s
ultimate objective is to force US natural gas exports into the German market.)

However, what continues to most set America apart from ever other country,
including China, is the former’s insistence on conscripting the rest of the
world to follow US policy. Originally American officials punished American
companies and individuals trading with disfavored states. However, in the 1980s
the US began expanding penalties for commerce with the Soviet Union and later
Cuba to foreign, especially European, subsidiaries of American firms.

The next step, applied to Sudan in 1997, was financial sanctions, punishing
any company or individual doing business with anyone in Sudan if they had the
slightest connection to any US banking institution. Which prevented normal commerce,
irrespective of where a firm was located. As a result, even Khartoum’s embassies
had to operate on a cash basis. After the 9/11 attacks Washington extended this
form of penalty. Today the US uses America’s dominant economic role to insist
that every resident of earth follow Washington’s directives.

The Trump administration sanctions everyone everywhere for everything even
if there is no likelihood that doing so will have any practical impact. That
is most evident in the administration’s high-profile “maximum pressure”
campaigns against Iran, North Korea, and Venezuela. So far none of America’s
targets have yielded.

Washington nevertheless has attempted to spin these failures as victories,
since sanctions obviously hurt the countries involved. However, the original
objective in every case was to change the target regime’s policies. President
Donald Trump promised a new regime in power in Caracas, a nuclear agreement
with Pyongyang, and an improved nuclear deal with Tehran. In every case he failed
to deliver. Indeed, his conduct toward Iran, which refused to even talk with
him after he tossed the Joint Comprehensive Plan of Action, degenerated into
shameless begging when he promised the reigning clerics a better deal if they
settled before the election. The administration’s ongoing economic campaigns
against Cuba, Russia, and Syria have been no more successful.

Now the president is using economic war against the PRC for domestic political
purposes. Hoping to win reelection with a “tough on China” campaign,
he likely does not care about sanctions’ actual impact. His primary objective
is to appear strong and determined to protect America. No matter how ineffective,
most any economic penalty will fulfill that role.

History demonstrates that sanctions most often work when they receive wide
international backing and are tied to something short of regime change or its
policy equivalent. Moreover, commercial pressure needs to be part of a larger
diplomatic process. And the conditions to end sanctions must be clear. When
unrealistic terms are set, the policy is guaranteed to fail. Even impoverished
regimes steadfastly resist demands to surrender political control and other
vital interests. Hence the failure of the administration’s promiscuous use of
“maximum pressure.” The result in every case has been maximum resistance.
Cuba’s communists have been defiant for six decades.

Unfortunately, economic sanctions usually hurt the wrong people. When I visited
Cuba in 2018 the strongest critics of the Trump administration’s reinvigorated
sanctions were private businesspeople. Trump effectively wiped out investments
made by multiple entrepreneurs hoping to welcome more American visitors. The
private sector’s growing success had undermined the communist regime by providing
some 40 percent of jobs in Cuba, draining power and revenue away from the state.
Trump reversed the process.

The impact of economic warfare often falls hardest on the most vulnerable members
of societies already ravaged by authoritarian politics and socialist economics.
In the worst case the impact of sanctions is akin to that of military conflict.
And many US policymakers don’t care. When UN Ambassador Madeleine Albright was
asked about the death of a half million Iraqi babies as a result of US sanctions,
she famously replied: “I think this is a very hard choice, but the price
– we think the price is worth it.” No doubt she did, since the high human
cost did not affect her. Today economists Mark Weisbrot and Jeffrey Sachs warn
that U.S. sanctions on Iran, North Korea, and Venezuela also are killing civilians,
perhaps resulting in tens of thousands of unnecessary deaths.

In contrast, ruling elites are much better positioned to work commercial restrictions
to their advantage. For instance, authoritarian regimes can use foreign threats
to rally public support. The Trump administration’s policies showed Iran’s relative
moderates, most importantly President Hassan Rouhani, to be fools to trust the
U.S. Hardline factions strengthened their hold over the parliament in February’s
election and are expected to retake the presidency in next year’s contest. Dissidents
with whom I met on an earlier trip to Cuba complained that Washington’s painful
economic assault supported Fidel Castro’s criticism of “Yanqui imperialism.”
The regime blamed its self-inflicted economic failures on the American embargo.

Almost 30 years ago I visited Belgrade and interviewed opposition leader Zoran
Djindzic – who after Slobodan Milosevic’s defeat became prime minister (and
was later assassinated). Djindzic criticized US sanctions which, he complained,
left his supporters without enough money even for gasoline to travel to his
rallies while Milosevic’s allies profited from illicit smuggling.

In part in reaction to such perverse impacts, the US enthusiastically added
“smart” or individual sanctions to its repertoire. So Washington punishes
specific individuals – often foreign officials in highly politicized cases.
For instance, the US recently targeted the hardline party boss for Xinjiang,
Chen Quanguo, and the local puppet chief executive for Hong Kong, Carrie Lam.
Both are accomplices to great crimes who ultimately will find themselves looking
for their proper level of hell. However, neither is likely to barge into Chinese
President Xi Jinping’s office to demand that he end the central government’s
oppression in territories that they oversee. If they did so they probably would
end up in one of the prisons their opponents are assigned to.

The number of individual sanctions imposed is extraordinary. The Treasury Department’s
“Specially Designated Nationals and Blocked Persons List” runs 1421
pages and covers people, companies, organizations, ships, airplanes, and more.
Most individual penalties, though they might make US policymakers feel good,
do little more than inconvenience regime elites, who are denied the pleasure
of purchasing a second home or hiding ill-gotten assets in America. In January
the law firm Gibson, Dunn & Crutcher published its annual report on US sanctions,
explaining:

Between claims of ‘financial carpet bombing’ and dire warnings
regarding the ‘weaponization’ of the US dollar, it was difficult to avoid hyperbole
when describing the use of economic sanctions in 2019. Sanctions promulgated
by the US Department of the Treasury’s Office of Foreign Assets Control (‘OFAC’)
have become an increasingly prominent part of US foreign policy under the Trump
administration. For the third year in a row, OFAC blacklisted more entities
than it had under any previous administration, adding an average of 1,000 names
to the Specially Designated Nationals and Blocked Persons (‘SDN’) List each
year – more than twice the annual average increase seen under either President
Barack Obama or President George W. Bush. Targets included major state-owned
oil companies such as Petróleos de Venezuela, S.A. (‘PdVSA’), ostensible
US allies such as Turkey (and – almost – Iraq), major shipping lines, foreign
officials implicated in allegations of corruption and abuse, drug traffickers,
sanctions evaders, and more. As if one blacklisting was not enough, some entities
had the misfortune of being designated multiple times under different regulatory
authorities – each new announcement resulting in widespread media coverage if
little practical impact. At last count, Iran’s Islamic Revolutionary Guard Corps
(‘IRGC’) has been sanctioned under seven separate sanctions authorities. Eager
to exert its own authorities in what has traditionally been a solely presidential
prerogative, in 2019 the US Congress proposed dozens of bills to increase the
use of sanctions. Compounding the impact of expansive new sanctions, OFAC’s
enforcement penalties hit a record of more than US $1.2 billion.”

Other than collecting some cash – last year a bit more than a
tenth of a percent of the deficit – Washington’s economic warfare usually achieves
little of note. Instead, the administration’s sanctions have been the occasion
for endless hypocrisy, which seems inevitable for American foreign policy, and
sanctimony, which Secretary of State Mike Pompeo supplies in abundance. He is
notable for shamelessly lauding brutal, dangerous, and vile regimes, such as
Saudi Arabia and Egypt, while sanctioning awful but actually lesser oppressors
like Iran and Cuba. The more closely one studies administration policy, the
more political and less serious it is revealed to be.

The Trump administration’s ever-increasing use of the dollar to coerce its
friends as well as adversaries also is creating resentment even among those
who share many of America’s interests. So far Europe, which helped negotiate
the nuclear pact with Iran, has repeatedly chosen Tehran’s Islamist regime over
Washington’s Trump administration. Most recently European governments rejected
the latter’s preposterous claim that it remained a participant in the JCPOA
which it ostentatiously abandoned and thus could trigger reimposition of UN
sanctions.

There also is growing incentive for China, Russia, Europe, and other nations
to cooperate in looking for alternative mediums of exchange and payment systems.
Commerce involving barter trade, gold, crypto/digital currencies, local currency/non-dollar
transactions, and special facilities, such as Europe’s INSTEX, which shuffles
payments both ways without transfer through a US connected bank, is expanding.
Nascent Chinese and Russian payment systems have begun to operate, though an
alternative to the US dominated SWIFT system remains far off.

Predictably, Washington’s reacted to such developments by threatening to sanction
anyone attempting to work around US sanctions, most notably the creators of
INSTEX. The danger to American financial dominance is real. Even Treasury Secretary
Steve Mnuchin acknowledged the long-term risk to the US dollar’s status as the
world’s reserve currency. Peter Harrell of the Center for a New American Security
observed: “US financial dominance is not immutable in a world where the
United States constitutes a slowly but steadily shrinking share of global GDP.
The Trump administration needs to weigh the near-term benefits of its aggressive
use of sanctions against the potential longer-term risks of a global backlash.”
Obama administration Treasury Secretary Jack Lew warned that “While there
is no immediate alternative to the centrality of the US economy and dollar,
there are troubling signs that the current approach may accelerate efforts to
create new options.”

Long-time advocates of US economic aggression are horrified to find that Beijing
now views commercial coercion as a legitimate tactic. After all, in their view
the only country that has the mandate of heaven to rule the globe is America.
Do as we say, not as we do, long has been Uncle Sam’s mantra.

The good news is that the PRC’s economic clout remains limited. Despite its
malign intentions, it is far less able than the US to compel others to comply
with its dictates. Financial penalties can be a useful international tool, but
not as America’s “go-to” response to every foreign challenge, especially
given the human cost that so often results. Washington needs to relearn the
concepts of humility, restraint, and proportionality before it sparks a global
revolt that harms more innocent parties and further undermines America’s economic
clout.

Doug Bandow is a Senior Fellow at the Cato Institute. A former Special Assistant
to President Ronald Reagan, he is author of
Foreign Follies: America’s New
Global Empire.



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