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

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 a 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 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.