David S. Cohen co-authors a report by the Center for a New American Security to help provide a road map for US policymakers to ensure the continued efficacy of coercive economic measures.
Key Takeaways
- Coercive economic measures, such as sanctions, investment restrictions, trade controls, and tariffs, have become an increasingly important tool of US foreign policy in recent years.
- Recent years have witnessed a strengthening of US coercive economic measures, which are likely to remain powerful in the near and medium term.
- Over the longer term, purely commercial factors are likely to support continued US coercive economic power. However, choices by both US policymakers and foreign governments will be the primary determinant of whether coercive economic measures remain powerful tools of US foreign policy over the longer term.
- Shifts in the nature of US coercive economic power could prompt some shifts in the balance and nature of the type of coercive economic measures the United States deploys.
Executive Summary
Coercive economic measures have been a longstanding tool of American foreign policy, dating back to the early 19th century. But since the end of the Cold War, coercive economic measures have become an ever more important instrument of US foreign policy. That trend is likely to continue as the Donald Trump administration and members of both parties in Congress, as well as successor US policy leaders, continue to turn to sanctions, investment restrictions, tariffs, and trade controls to achieve foreign policy aims. At the same time, the expanding use of these measures has antagonized allies and spurred diplomatic backlash.
America’s expanding use of coercive economic measures rests on the major role of the US dollar, the size of the US economy, and the role of US companies abroad. The fundamental strength of the US economy and its large global footprint have enabled the United States to leverage that strength and interconnectedness to use sanctions and other coercive economic measures in pursuit of foreign policy goals. This report examines the factors that have allowed the expansive US use of coercive economic measures in recent years, as well as how their use may change over the near term and the longer term. It also offers a set of recommendations for US policymakers and other stakeholders to ensure the continued efficacy of coercive economic measures.
Over the last several decades economic, technological, and policy trends have enhanced the strength of US coercive economic measures and made them an attractive option for national security policymakers. The global financial crisis, which heavily implicated US banks and US policymakers, actually supported US economic leverage and bolstered the cogency of coercive economic tools. In the near term, US coercive economic measures are highly likely to retain their strength, but in the longer term there are a number of trends that may weaken their effectiveness.
The United States’ expansive use of these measures has sparked an increasing backlash both from allies in Europe and Asia and from adversaries seeking to circumvent the US-dominated global financial system. European Union policymakers have increasingly dis-cussed the possibility of increasing the role of the euro and are considering mechanisms or countermeasures in response to US coercive economic measures that target European interests. China’s rise will also threaten the strength of US coercive economic measures, as China increasingly develops the capacity to offer an alternative to US financial and economic dominance, and seeks to leverage its economic and financial strength in pursuit of its own foreign policy goals. Financial technology developments may help enable these trends as well, as blockchain-based payment systems and other technological advances may eventually support a move away from dollar-based clearing and payments, and also facilitate a greater flow of licit and illicit money outside of traditional financial channels.'
Ultimately, government policy choices in both Washington and foreign capitals will be the strongest determinant of the continued strength of US coercive economic measures. These measures are powerful tools now and the United States has inherent strengths that can support its coercive economic power in the future, but poor decisionmaking in Washington, combined with aggressive policy initiatives by foreign governments, could erode US coercive economic measures in the future. Policymakers should take a number of steps to ensure their continued efficacy. The goal of this report is to help provide a roadmap for them to do so.