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This week in economic statecraft

The United States is getting worse at economic statecraft. China is getting better at it.

The House of Representatives overwhelmingly approves legislation to tighten sanctions on North Korea by targeting its shipping industry and companies that do business with the reclusive state.

This has not been a dull week in economic statecraft. The U.S. government has been tinkering with the sanctions machinery toward Venezuela, North Korea, Iran and Russia (also Alaska, but that’s for a different story). To understand it all properly, however, it is worth reading Robert Kahn’s assessment of whether the United States has hit peak sanctions. His conclusion:

On the Russia sanctions, the Trump administration does not want to lock in sanctions, but Congress rightly insists on its review. Beyond Russia, there seems to be a greater willingness by the administration to sanction trade and investment to achieve economic and foreign policy objectives, causing concern for those of us who see great value in U.S. leadership and support for an open, integrated global marketplace. There are economic costs, if confidence in the reliability of markets is lost, which can add up over time as sanctions are repeatedly employed.
As argued earlier, in each of these current cases, an expansion of sanctions looks to be the best of a difficult set of choices. But looking forward, we should be concerned that the pendulum will swing too far, that sanctions become too easy an option. There are some things for which a Swiss army knife is the perfect tool, but for appendicitis I’d rather see a doctor.

I fear that Kahn might be overly optimistic. Consider the Russia and Iran cases. On Russia, Congress seems hellbent on constraining the Trump administration’s latitude to lift the sanctions in place. The bill that was just passed does more than that, however, applying additional sanctions on both Russia and Iran. The hard-working staff here at Spoiler Alerts has voiced qualms about this move in the past. Sure enough, now France is declaring that these sanctions would violate international law. Actually, the entire European Union is less than thrilled with Congress’s actions:

Sanctions legislation overwhelmingly approved by the U.S. House of Representatives on Tuesday has angered EU officials: they see it as breaking trans-Atlantic unity in the West’s response to Moscow’s annexation of Crimea from Ukraine in 2014 and its support for separatists in eastern Ukraine.
Brussels also fears the new sanctions will harm European firms with connections to Russia, and oil and gas projects on which the EU is dependent.
“The U.S. bill could have unintended unilateral effects that impact the EU’s energy security interests,” EU chief executive Jean-Claude Juncker said in a statement issued after a meeting at which European commissioners were united in their views, according to a senior EU official.
“If our concerns are not taken into account sufficiently, we stand ready to act appropriately within a matter of days. ‘America First’ cannot mean that Europe’s interests come last,” he said, mentioning President Donald Trump’s guiding slogan.

It needs to be stressed at this point that America’s recent run of success in economic statecraft is due to multilateral buy-in by the European Union. The less willing they are to coordinate with the United States on sanctions, the less likely they will work, and the less legitimate they will appear to the outside world.

Say, do you know what also erodes the sanctions tool? Behavior that convinces possible targets that no concessions will lead to the end of economic coercion. And hey, guess what President Trump does in his latest Wall Street Journal interview?!

On Iran, Mr. Trump said the administration had given Iran “the benefit of every doubt” about their compliance with the 2015 multinational nuclear deal. The president must certify to Congress every 90 days that Iran is in compliance with its obligations. The president made such a certification earlier this month.
But when certification comes up again, Mr. Trump said he believes Iran will be judged not compliant with the agreement. He said he would be prepared to overrule his own advisers in proclaiming that Iran hasn’t met the terms of the agreement.
“We’ve been extremely nice to them in saying they were compliant,” Mr. Trump said. “Personally, I have great respect for my people, but if it was up to me, I would have had them noncompliant 180 days ago.”
He added: “We’ll talk about the subject in 90 days but I would be surprised if they were in compliance.”

I’ll be honest here: I have no idea how the president thinks this is going to play out to his advantage. If this Foreign Policy story is correct, Trump seems to think that his secretary of state can make the multilateral sanctions against Iran magically reappear by “speaking with foreign allies and to make sure they were on board.” But there is no way — NO WAY — that any of the other P5+1 will go along with this without concrete evidence that Iran is not complying. And Trump explicitly making this assertion without any evidence further poisons the well against generating multilateral support.

There is a pattern here, and it’s a disturbing one for the U.S. use of economic statecraft. Consistent with its distaste for multilateralism in general, the Trump White House seems unable to comprehend how much the United States needs allies and partners to use sanctions effectively. This blind spot is causing the Trump administration to fritter away one of its most important foreign policy tools of the past generation. Which, unfortunately, would be consistent with this president’s overall foreign policy incompetence.

Bear all that in mind as you read Evan Feigenbaum’s recent analysis of Chinese economic statecraft. Feigenbaum notes the proliferating examples of China’s use of “economic leverage for political and strategic ends.” China’s past use of economic sanctions has tended toward the ham-handed. As its economic clout has risen, however, Feigenbaum notes that the Chinese authorities have learned to “mix and match” among its available policy alternatives. His conclusion:

What Beijing has not yet done, I think, is develop a systematic ladder of escalation — moving from limited actions, on to stronger actions, and finally on to tactical and strategic “punishments” aimed at compelling foreign governments to act as China wishes.
Such a step-by-step, carefully calibrated escalation ladder would be a momentous turn in China’s use of economic coercion.
So it bears watching.

To sum up: the United States is getting worse at economic statecraft. China is getting better at it. America still has far greater reservoirs of economic leverage. But this is one reason, among many, that China understands how time is on its side.