Using U.S. businesses as weapons is misguided economic policy. The Trump administration has shown that liberating business leads to growth. Countering this market dynamic by entangling U.S. business in poorly designed and overly broad trade and economic sanctions must be avoided whenever possible. However, since these debates almost always revolve around countries that we are at odds with, these fights can be contentious. Recently, that means Russia.
Our economy is humming along, thanks in large part to the administration’s policies. Reducing the top corporate tax rate has made American businesses more competitive globally. Simplifying the tax code is geared toward letting businesses focus on job creation instead of accounting fees. Consumers have more money in their pockets. On top of that, the administration has taken the boot of government off of the throat of entrepreneurs.
Recently, Chairman of the Council of Economic Advisers Kevin Hassett said business optimism is high, capital investments are up, and GDP growth is solid. He was right. Small business optimism is higher than it was even under former President Ronald Reagan, and capital investment is up. GDP is higher than the unemployment rate for the first time in more than a decade. These are all reasons for optimism.
On the other hand, the administration’s moves to make trade more balanced with the use of tariffs has bounced back and hit many farmers and other business. The sooner trade deals can be revised, the better. Trade battles weaponize U.S. businesses instead of freeing them up to compete and create jobs. Unfortunately, a number of congressional proposals would go in the opposite direction and use trade and economic sanctions as tools in our foreign policy arsenal.
On September 12, President Trump announced an executive order that would impose sanctions surgically on Russia and other countries if they try to interfere with this fall’s elections. But a number of U.S. lawmakers say it is not enough. Sens. Marco Rubio, R-Fla., and Chris Van Hollen, D-Md., are pushing for passage of the Defending Elections from Threats by Establishing Redlines Act (DETER).
While laudable in their aims to prevent Russia’s meddling in the U.S. political system, the sanctions will result in restraining U.S. business – at the very time when the unleashing of business has been proven to be so successful in strengthening the U.S. economically at home and abroad.
In particular, the DETER Act lays out sanctions that would have to be imposed on Russia for attempting to hack our elections. Because Russia’s economic security is so dependent on oil and gas, the bill’s sanctions are especially tough in this area. The problem is that such sanctions would force U.S. companies to exit joint exploration and drilling projects not just in Russia but in many other countries. William Reinsch of the Center for Strategic and International Studies recently argued, “The DETER Act would make it nearly impossible for companies to do business in Central Asia and the Caspian Sea region by limiting access to crucial Russian-owned rail and pipeline networks.”
In addition, sanctioning new sovereign debt could have a lot of negative ramifications for emerging markets, in countries not actually targeted by the sanctions. This could hurt demand for products and services, cause volatility in foreign exchanges, and perhaps lead to a selloff in markets without strong ties to the United States. Given the U.S. integration and central role in the global economy, it is all but impossible to shield it from this fallout. Lawmakers should consider what the effects of those sanctions would be: harming U.S. businesses rather than dissuading Russia from meddling in our affairs.
What really works is capitalism. The more U.S. companies are engaged in global trade and finance, and in the energy sector specifically, the stronger and more competitive they become. Putin wants to weaken the United States. Sanctions that sideline U.S. companies will strengthen his hand. However, if U.S. companies maintain their leading role in sectors such as the energy industry, it is Russia that will pay the economic price.
American know-how and capital are the greatest tools in our arsenal. We should weaponize them through aggressive capitalism, not by tying their hands behind their back.
Trade wars and restrictive sanctions will likely be a drag on U.S. economy that is picking up pace better than it has in years. If the U.S. is serious about reining in Russia’s nefarious activity and changing its behavior, lawmakers need to allow American companies to triumph in the global marketplace. Maybe then Putin will grasp that Russia’s interests are actually aligned with those of the United States. Instead of meddling in our elections, Russia’s long-term interests are best served by allowing American companies to invest and openly compete in Russia – whether Putin likes it or not.
Charles Sauer (@CharlesSauer) is a contributor to the Washington Examiner ‘s Beltway Confidential blog. He is the author of “Profit Motive”, president of the Market Institute, and previously worked on Capitol Hill, for a governor, and for an academic think tank.
