Being at the center of the global financial system has its power and privileges. The United States holds a unique place in the financial world as the clearinghouse for most of the world’s business transactions. The U.S. dollar is the currency of choice for corporations far and wide, which means that establishing positive relationships with the U.S. banking system is absolutely essential if those corporations want to grow.
U.S. officials understand how powerful the U.S. financial system is to global trade and commerce. They also understand that this power can be leveraged to push U.S. foreign policy priorities — and punish other countries that aren’t on board.
Sanctions are to the Beltway what blood is to the human body. Blocking a company’s assets in U.S. jurisdiction, designating another country’s exports off-limits, and slapping travel restrictions on bad actors have taken a special place in the Trump administration’s foreign policy toolkit. Hardly a week goes by when the U.S. Treasury Department doesn’t announce a new crop of sanctions on a foreign adversary. The Trump administration has issued over 3,200 sanctions designations in its first three years, a 42% increase from the Obama administration’s entire second term. China has been an especially large target for the Trump White House this year; since July, 20 Chinese government or Communist Party officials have seen their U.S. accounts blocked and their U.S. visas frozen.
The love for sanctions extends to the other side of Pennsylvania Avenue as well. Hundreds of sanctions bills have been filed in the 116th Congress alone. Some of the strongest sanctions measures in U.S. history are the product of legislation, some of which are so airtight that they constrain the White House’s ability to negotiate their removal in exchange for reasonable policy concessions. If there is one thing that unites conservative, MAGA-loving Republicans with Bernie Sanders-style liberals, it’s passing a few sanctions to show the bad guys who’s boss.
Sanctions, however, can be an overly seductive tool. The more you use them, the more you’re liable to believe they are a magic wand that can solve all of the world’s problems. This, of course, is anything but the case.
While U.S. officials may think of sanctions as a low-cost way to punish adversaries for bad behavior or as an effective way to pressure a government into changing its conduct, the tool is only as effective as other elements of the U.S. foreign policy toolkit. If Washington levies economic penalties on another government without offering that very same government a clear, reasonable, diplomatic road map to lessen the pain, the sanctions are little more than punitive attempts at virtue-signaling. And if sanctions relief is tied to overzealous, unrealistic U.S. policy objectives, foreign governments will find it less risky to ride out the economic storm than agree to a humiliating capitulation. Iran, North Korea, Syria, Venezuela, and Cuba are all under some of the most rigorous U.S. economic sanctions regimes on the planet, yet none of them are desperate enough to meet U.S. demands if it requires selling out their core national security interests.
President-elect Joe Biden will inherit a Treasury Department designation list that spans thousands of pages long. His national security team has suggested that some U.S. sanctions authorities will be pared back, while others will be expanded. Biden, for instance, is likely to use the tool liberally on the human rights front. Russia could very well be a favorite sanctions target for the Biden administration, even more so today after Moscow’s foreign intelligence service engaged in the largest cyberattack on U.S. government systems in history.
Biden’s review of current sanctions is the type of exercise new administrations perform early in their tenures. But the review itself will be a useless bureaucratic simulation if his administration doesn’t ask the key questions Washington at large too often overlooks. Will the aggressive use of sanctions compromise U.S. financial power over time as countries search for alternatives to the U.S. banking system? Do they create more problems than they solve? What are the humanitarian impacts on ordinary people? And under what conditions is the U.S. open to removing them?
Daniel DePetris (@DanDePetris) is a contributor to the Washington Examiner’s Beltway Confidential blog. His opinions are his own.
