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The Coming Wave of Sanctions

The Coming Wave of Sanctions

In the past week, Russia and Saudi Arabia have stolen a page from the United States’ sanctions playbook. In response to Turkey’s shoot down of a Russian military aircraft in Turkish airspace, Russia has imposed a number of economic sanctions designed to hurt key sectors of Turkey’s economy. Similarly, Saudi Arabia levied sanctions on 12 individuals linked to Hezbollah, blocked their assets, and prohibited Saudi citizens from doing business with them.

If these actions sound familiar, they should. Over the past 15 years, the United States and its European allies have employed sophisticated economic sanctions as a coercive tool of early resort for dealing with intractable foreign policy challenges. Yet as we’ve recently argued in a new study for the Center for a New American Security — and as these instances show — the United States may one day (and maybe sooner than you expect) become a victim of its own success: other countries are learning from our use of these tools and beginning to employ them in ways that may threaten U.S. interests.

Of course, other countries have long used tools of economic statecraft to achieve political ends. But the tools the United States has used to greatest effect in the last decade have been a new form of economic coercion, called financial levers, that made special use of what were considered features peculiar to America’s privileged position of global economic influence. What we are starting to see is other global actors recognizing the power that these and similar tools can have, and beginning to rely more heavily on them.

In the recent spat between Russia and Turkey, for example, Russia has imposed restrictions on Turkey’s tourism industry, canceled visa-free travel between the countries, suspended a joint pipeline project, and banned the import of certain Turkish goods. These moves are designed to hurt one of Turkey’s most vibrant industries: tourism. While different in form from — and significantly less sophisticated than — U.S. financial sanctions targeting Iran’s nuclear program, these actions are notably similar to recent U.S. pressure campaigns to coerce or punish states such as Russia and Venezuela for destabilizing activities that threaten U.S. interests. Economic warfare between two of the powers with the most influence over the situation in Syria complicates an already daunting picture and further sets back U.S. efforts to forge some coherent international response to the crisis there.

In addition to Russia’s use of economic sanctions, other countries are turning more readily to economic coercion. China for one is becoming increasingly active in using its economic power to achieve foreign policy goals. Over the past few years, China has created coercive leverage with regulations, purchasing decisions, the refusal to allow the import of certain goods into Chinese markets, and limiting exports of strategic materials to the markets of its adversaries.

In 2010, for example, following the arrest of a Chinese ship captain after he rammed a Japanese Coast Guard vessel in a disputed maritime region, the Chinese restricted exports to Japan of rare earth elements, which are essential to many high-tech industries. Similarly, in response to recent U.S. threats to impose economic sanctions on Chinese individuals and entities for cyberattacks, China was prepared to impose new banking sector regulations that prohibit domestic firms from using non-Chinese technology that could make it more difficult for U.S. companies to do business in China.

While China’s use of economic coercion also may not exactly mimic what the United States has done with financial sanctions against targets such as Iran over the past decade, China has clearly learned how powerful these tools can be. For example, a prominent think tank associated with the Chinese government has pointed out that, “given the fact that our nation has increasing economic power, we should prudently use economic sanctions against those countries that undermine world peace and threaten our country’s national interests.”

To complicate matters, U.S. financial sanctions may actually become less potent in the medium-to-long term. On Monday, the IMF added the Chinese renminbi as a special drawing rights (SDR) currency, signaling its stability and elevating to a similar status as the dollar, yen, euro, and British pound. The rise of a non-dollar currency — particularly one unaffiliated with the European Union or our East Asian partners — poses a risk to the United States’ ability to impose crippling financial sanctions. U.S. financial sanctions rely on the attractiveness of U.S. and European financial markets: the strength and stability of the U.S. dollar, in particular, make it the ideal currency for conducting many types of international transactions.

But if alternate reserve currencies such as the renminbi become more attractive, then many companies will no longer need to rely primarily on the U.S. dollar and the U.S. financial system to conduct transactions. This will likewise limit the leverage the United States can bring to bear on sanctions targets: If companies are unwilling to stop doing business with Russia or Syria following U.S. threats, for example, then the United States will be unable to impose biting sanctions on those countries.

These developments do not mean that the United States cannot continue to employ sophisticated sanctions to great effect, or that China, Russia, or other countries will now gain an upper hand in using these tools. Rather, they suggest that policymakers at the Treasury, State, and Commerce Departments, and the White House need to begin thinking through how to ensure that U.S. sanctions remain effective even with the rise of the renminbi, as well as ways to mitigate Russia and China’s use of economic statecraft that may threaten U.S. interests.

As we argue in our CNAS report, one approach to enhance the effectiveness of U.S. sanctions moving forward would be to establish an interagency sanctions working group tasked with systematically identifying new and powerful ways to sanction potential adversaries moving forward. Such thinking on the use of coercive economic power would help ensure that when new challenges arise, U.S. policymakers would be able to quickly bring to bear this important tool.

This group could also help develop strategies for blunting sanctions use that is harmful to the United States and its allies. In East Asia, for example, if China were to exercise economic coercion against Japan by cutting off its supply of rare earth elements, the United States should consider providing Japan with access to key materials and technologies. U.S. steps could include rolling back regulations prohibiting the export of particular key materials to Japan, or providing tax breaks to U.S. companies that increase their exports of such goods and services to Japan.

What these recent Russian, Saudi, and Chinese episodes make clear is that the United States and its partners may no longer dominate the sanctions game in the way they have for the past 15 years. But while these developments will pose challenges to the United States’ ability to effectively employ economic statecraft and protect its interests, policymakers can take steps now to ensure our continued ability to employ powerful economic tools while mitigating other countries’ attempts at economic coercion.

There is probably little the United States can do to dissuade other actors from deploying economic coercive tools that the United States has found so useful. But this is not a counsel to despair, yielding to the inevitable loss of a tool that has served U.S. foreign policy rather well. This is a reminder that geopolitics is a challenge of strategic interaction — the state that fails to adapt to changing circumstances is the state that sees its global position decline the fastest. The United States should heed the signs and adjust to maintain our competitive advantage in this crucial arena of global strategy.

Peter Feaver is a Professor of Political Science at Duke University and the Director of the Triangle Institute for Security Studies and the Duke University American Grand Strategy Program. Eric Lorber is an adjunct Fellow at the Center for a New American Security and a Senior Associate at the Financial Integrity Network.

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