Washington, November 19 – Eric Lorber, an Adjunct Fellow in the Center for a New American Security (CNAS) Energy, Economics, and Security Program, and Peter Feaver, a Professor of Political Science and Public Policy at Duke University, have written a new report, “Diminishing Returns? The Future of Economic Coercion.” The report lays out the success of recent financial sanctions, details obstacles to their continued effectiveness, discusses how other countries like China may use similar tools moving forward, and makes recommendations for how the United States can keep its sanctions tools strong.
The full report is available here:
This report is the third in CNAS’ Economic Statecraft Series, which examines the United States’ coercive tools of economic statecraft. Previous reports include “American Economic Power and the New Face of Financial Warfare” and “Lessons from Russia for the Future of Sanctions.”
Please find a summary of the report below:
Over the past ten years, sophisticated financial sanctions have become a tool of first resort in dealing with intractable foreign policy issues. U.S. policymakers have come to see them as a silver bullet: powerful, easily imposed, and relatively painless to the United States. As President Obama noted in his 2015 National Security Strategy, these “[t]argeted economic sanctions remain an effective tool for imposing costs on ... irresponsible actors.” Sanctions have provided U.S. leaders with powerful ways to address difficult foreign policy issues such as terrorism, non-proliferation, foreign aggression, and cyberattacks. They have been credited as game-changers in key disputes. For example, most experts agree that financial levers were indispensable in driving the negotiations over Iran’s nuclear program and the ultimate agreement between Iran and the P5+1.
Yet precisely because of the increasing use of financial sanctions, the United States could one day become a victim of its own success. Two problems loom on the horizon. First, other countries’ responses to sanctions may undermine them. The United States relies on the desire for continued access to its financial sector as a way to pressure bad actors to change their behavior to advance U.S. policy objectives; countries have, however, begun reconsidering their reliance on U.S. dollars for a wide range of transactions. Such moves would hurt U.S. economic competitiveness and would also mean that future threats to cut off access to the U.S. financial system may be less effective.
Second, other countries are beginning to use similar tools of economic statecraft to achieve their own foreign policy objectives. Over the past few years, China – which often has interests inimical to those of the United States – has increasingly relied on its economic clout to pressure other East Asian countries on a range of political issues. While the economic tools China will employ – and the ways in which it will employ them – will likely differ from recent U.S. approaches, it is also likely that China will learn from the U.S. experience and refine their use of these tools to the detriment of U.S. interests.
To ensure that U.S. sanctions strategies can remain effective – and to counteract potential adversaries’ use of similar tools – U.S. policymakers need to think through what the next wave of sanctions should look like and how the United States can most effectively leverage these economic measures. In addition, U.S. policymakers should anticipate and begin to plan how to blunt China’s use of economic coercion against American interests and U.S. allies. Such an analysis should include assessments of U.S. allies’ key economic vulnerabilities, as well as potential ways the United States could help mitigate them.
This paper first provides a recent history of the use of financial sanctions by the United States. Second, it explains why their effectiveness may decline – even though policymakers have increasingly relied on these tools over the past decade. Third, it identifies how China and similarly situated countries may employ forms of economic coercion against U.S. interests. Fourth and finally, it suggests steps the United States can take to ensure that it can continue to employ economic statecraft successfully to achieve policy objectives, while limiting others’ ability to use these tools against the United States and its allies.
Lorber and Feaver are available for interviews. To arrange an interview, please contact Neal Urwitz at firstname.lastname@example.org or call 202-457-9409.