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Trump’s Use of Sanctions Is Nothing Like Obama’s
The White House’s aggressive deployment of coercive economic tools has given rise to a growing geopolitical backlash.
Two and a half years into Donald Trump’s presidency, there is no doubt that economic sanctions are his administration’s foreign-policy weapon of choice. From China to Iran to Venezuela, sanctions and other coercive economic tools are central to Trump’s maximum pressure campaigns against U.S. adversaries. But he is not only rolling out sanctions more aggressively than his predecessors: He is also using them in new ways. A close examination of the administration’s use of sanctions reveals three broad trends and raises important questions about the future of U.S. coercive economic statecraft.
The first trend is an unprecedented level of aggressiveness. Data compiled by the law firm Gibson, Dunn & Crutcher shows that in 2018 the United States added nearly 1,500 people, companies, and entities to Treasury Department-managed sanctions, nearly 50 percent more than in the second-highest year on record—2017, also under Trump.
When I served as a senior sanctions official at the State Department in the Obama administration from 2012 to 2014, the government generally focused on one or two major sanctions programs at a time. Under President Barack Obama, Iran was the clear priority between 2010 and 2015, and Russia was the priority from 2014 to 2016, with other sanctions programs substantially lower on the list. But the Trump administration is aggressively pursuing sanctions programs against three countries as first-tier policy priorities—Iran, Venezuela, and North Korea—while also expending significant energy on the Global Magnitsky Sanctions program, which targets individual human rights violators, against Cuba, Syria, and Russia.
Equally important, the Trump administration has shown that it will sanction economically significant targets that are deeply enmeshed in global markets. Notable examples include the Russian oligarch Oleg Deripaska and his company Rusal, which produces approximately 6 percent of the world’s aluminum supply, and Venezuela’s national oil company, PDVSA, which exported approximately 1.2 million barrels of oil per day in 2018 prior to sanctions being imposed in January.
Trump has also expanded use of so-called secondary sanctions, which are designed to coerce foreign companies into stopping business with U.S. adversaries. These are not new: The Arab League’s 1970s-era effort to compel international companies to boycott Israel represented the first modern use of secondary sanctions. Before Trump took office, however, the United States had employed only a limited set of secondary sanctions, for example to deter energy investments in Iran. In the Obama administration, for example, we typically prioritized diplomacy to convince foreign governments to join in U.S. sanctions, wielding secondary sanctions only as a backstop if diplomacy failed.
In contrast, Trump has used secondary sanctions as a tool of first priority, notably against Iran, as a way of imposing economic pressure despite global opposition to much of his Iran policy. He has also threatened secondary sanctions against companies doing business with Venezuela and Cuba, among other targets. Unlike past presidents, who generally laid out clear regulatory frameworks for secondary sanctions before imposing them, Trump is increasingly blurring the line between ordinary sanctions and secondary sanctions. For instance, the United States never actually established a separate legal framework to impose secondary sanctions on foreign companies that continue to do business with Venezuela, but then-National Security Advisor John Bolton still publicly threatened to use other U.S. legal authorities to sanction those companies.
The second trend is Trump’s increased focus on political and diplomatic signaling surrounding U.S. sanctions. The United States, of course, has long articulated policy rationale when imposing new sanctions on foreign countries. When the Obama administration placed sanctions on Russia in 2014, we publicly and privately communicated to Moscow that sanctions could be lifted if it implemented the so-called Minsk peace agreement between Ukraine and Russia. Sanctioned companies and individuals have always had the ability to quietly petition U.S. regulators to have themselves removed from sanctions lists if they cease their malign activities, meaning companies can get their assets unfrozen and resume business with the United States.
But Trump has increased the focus on signaling, with respect to both broad sanctions targeting countries and those targeting companies and individuals. Secretary of State Mike Pompeo laid out a set of 12 demands of Iran in exchange for complete U.S. sanctions relief. However, the Trump administration has also begun to lay out specific public demands for individuals and companies hit with targeted sanctions. When Trump sanctioned the then-Venezuelan spy chief Manuel Ricardo Cristopher Figuera in February, the Treasury put out a press release stating, “the United States has made clear that we will consider lifting sanctions for persons … who take concrete and meaningful actions to restore democratic order, refuse to take part in human rights abuses, speak out against abuses committed by the government, and combat corruption in Venezuela.”
The administration then removed Figuera from sanctions lists in early May, a week after he defected from the government of Venezuelan strongman Nicolás Maduro. In July, the Treasury Department highlighted its rapid removal of sanctions on PB Tankers, an Italian tanker company sanctioned in April, after it agreed to stop transporting Venezuelan crude oil to Cuba. At the beginning of this year, the Treasury Department removed Rusal and several of Deripaska’s other Russian companies from U.S. sanctions lists after he brought his ownership stake to below 50 percent.
The third trend is the growing use of coercive economic measures other than sanctions. In Trump’s efforts against Chinese companies including Huawei, ZTE, and several supercomputing firms, Trump has relied on targeted export controls as a coercive tool, rather than Treasury Department sanctions. This allows the United States to impose costs on targets while minimizing the collateral costs to global markets that would have arisen if, for example, it put Huawei on U.S. sanctions lists.
For the United States, the most important question regarding Trump’s sanctions is whether they work to advance U.S. national security interests.
The president’s use of sanctions has had a clear economic impact. Iran’s oil exports have fallen by more than 95 percent from the more than 2 million barrels per day they reached at the time of the Iran nuclear deal, and the International Monetary Fund projects that Iran’s economy will contract by 6 percent in 2019. Venezuelan oil exports have also fallen after the United States tightened sanctions this year, which was driven in part by a cutback in buying from China.
The U.S. ban on chip sales to Huawei dented the company’s international sales, even as sales within China grew. U.S. and international sanctions on North Korea pushed its economy into a decline of 4 percent in 2018 and slashed exports by 90 percent. These numbers all confirm that the size of the U.S. economy and its dominance of the global financial system mean that the United States can put unprecedented levels of economic pressure on adversaries, even if the United States has limited international diplomatic support for its sanctions. The long-term diplomatic success of U.S. sanctions remains unclear.
Trump’s increased focus on diplomatic and political signaling around sanctions is a welcome development. For sanctions to encourage targets to change their behavior, those targets must understand what behavior they have to change, and they need a clear path to the removal of sanctions if they agree to concessions. This has helped achieve some near-term successes when it comes to individual people and companies targeted by U.S. sanctions.
The administration’s willingness to quickly lift sanctions off Figuera after he defected from the Maduro regime, and off Italy’s PB Tankers after it stopped transporting Venezuelan oil to Cuba, both reinforce the notion that individuals and companies will see U.S. sanctions lifted if they agree to concessions, incentivizing other targets of sanctions to make concessions to be removed from U.S. sanctions lists. Trump’s increased use of coercive economic measures other than traditional sanctions will also likely increase the range of tools the United States uses to target large enterprises and sectors where the collateral costs of traditional U.S. sanctions would be unacceptably high.
Trump’s aggressive use of sanctions, however, has given rise to a growing geopolitical backlash that brings new risks to their effectiveness over the long-term. The European Union, China, and other major countries are increasing their efforts to develop financial and trade channels insulated from U.S. economic pressure. But efforts like the EU’s much-publicized INSTEX mechanism for trade with Iran remain minor in terms of their economic scale and do not pose a near-term threat to U.S. financial dominance.
These efforts do have the potential to scale up over the long-term, however, if countries make large-scale investments in them—U.S. 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.
Perhaps more importantly, Trump must recognize that when it comes to measures targeting countries (as opposed to measures targeting individuals and companies), excessive demands can encourage them to dig in and refuse to make concessions despite draconian economic costs. Iran, for example, is unlikely to ever agree to Pompeo’s 12 demands, and in recent months it has responded to U.S. pressure by escalating attacks of its own to create negotiating leverage. Pyongyang has so far rebuffed Washington’s demands for complete, verifiable, and irreversible denuclearization and has resumed testing missiles in advance of potential further diplomatic negotiations. Maduro clings to power in Caracas even in the face of a projected 25 percent decline in GDP this year, due largely to U.S. sanctions.
Of course, it can take time for economic decline to force a government to change its policies, and the Trump administration may yet succeed in achieving its objectives in Iran, North Korea, and Venezuela. But studies of sanctions suggest that they are successful in causing regime change or other major policy changes only about one-third of the time. Regimes have historically shown a significant capacity to dig in and resist economic pressure while letting their people suffer if they deem it necessary for regime survival.
Although his maximum pressure strategy has been remarkably effective at imposing major economic costs, when it comes to hostile states, Trump’s approach to sanctions has yet to surpass the historical track record of effectiveness in achieving policy outcomes. This raises the question of what other tools are available, and when and whether Trump should consider modifying demands in pursuit of negotiated deals.