In Iran, China, and elsewhere, the Trump administration has put aggressive economic statecraft at the center of its foreign policy, but often without clear diplomatic objectives. Unless economic statecraft is utilized as part of a coherent diplomatic approach, measures may succeed at imposing economic pain, but fail to produce desired policy outcomes. Moreover, if U.S. actions fall short of highly principled standards, there is a risk of undermining the source of power behind economic statecraft—the singular global centrality of the U.S. economy derived from confidence in the U.S. financial system, the strength of the dollar, and the attractiveness of U.S. markets.
Economic weapons should be used carefully and with an understanding of their costs. As an alternative to military force, economic weapons are a vitally important way to counter malign activity like terrorism and nuclear proliferation, as well as economic threats like unfair trade practices. Their potency is precisely why they should be used carefully, with the goal of ensuring our tools remain effective for a long time to come.
Deploying economic weapons should rarely, if ever, be an end unto itself. Economic pressure alone will not drive other nations to end unfair trade practices, support for terrorism, or nuclear proliferation. Rather, when used as part of a diplomatic strategy, sanctions and other tools can provide leverage to persuade a sovereign to change malign practices in exchange for relief from economic pressure.
At Treasury, I employed three basic principles when considering sanctions actions and similar measures. First, marshaling broad international support for sanctions creates maximum pressure and minimizes undesired spillover effects. Second, the target of an action must have a reliable expectation of relief should it yield to demands to change its behavior. Finally, rigorous and highly principled execution is essential.
The current administration has reversed these key principles. Unilateral and unpredictable sanctions have left our allies often questioning the basis of those actions and uneasy when deciding whether to cooperate. We must reserve the right to act alone but should do so only when absolutely necessary for our national security.
In terms of a predictable pathway to relief, recent actions lack clear coercive logic—a pathway for relief if objectionable policies change. Economic pain alone is insufficient, and without a road map and diplomatic engagement with a major adversary like Iran, for example, we are unlikely to end to that regime’s support for terrorism or to negotiate a return to an agreement to prevent nuclear breakout.
The efficacy and perceived legitimacy of our tools suffer when we confuse the purpose, for example, using dubious national-security justifications to impose trade restrictions on our closest allies; or imposing on adversaries measures to bar foreign technology on the basis of a security threat and then using relief as a bargaining chip to gain commercial advantage in a trade negotiation. Finally, with arguments that fall short, and by undercutting and even targeting allies, the administration weakens the resolve of international partners, whose cooperation we need to tackle leakage and evasion.
Overuse of economic tools divorced from strategy harms American economic primacy and businesses that rely on the stable prosperity it fosters. While there is no immediate alternative to the centrality of the U.S. economy and dollar, there are troubling signs that the current approach may accelerate efforts to create new options. It is worrying when our closest allies in Europe pursue mechanisms to trade with Iran outside of our reach; and settlement in nondollar currencies is likely to emerge as a growing challenge if the U.S. abandons its role as the architect of global standards, and instead acts purely out of immediate commercial interest, or without a diplomatic approach to bring allies along.
As barriers to commerce grow, it is no surprise that business confidence has suffered. Business leaders are reluctant to invest in facilities and supply chains that may no longer be viable tomorrow. Firms that produce or buy goods with the expectation that they will be able to sell them face the unsettling prospect of a shrinking circle of potential customers. And the combination of trade friction and technology tensions—particularly in the U.S.-China relationship—raises concerns over the Balkanization of technology standards and supply chains. A world with two competing and incompatible systems would not only impede the free flow of goods and ideas but undermine global prosperity.
Economic statecraft does not exist in a vacuum. The most significant cause for concern should unite both business leaders and policy makers, and that is the close relationship between economics and security. If we allow our economic ties to become brittle and strained, geopolitical tensions can shortly follow, leading to a less secure world.
There is still time to restore our international relationships and demonstrate that the United States is committed to defending its security and its economic interests by not just promoting but following the rules we helped to design. But if we continue down the current path, the United States risks weakening its global leadership and the source of our economic power.
Jacob J. Lew is visiting professor of international and public affairs at the School of International and Public Affairs at Columbia University and a partner at Lindsay Goldberg. He served as U.S. treasury secretary from 2013 to 2017.
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