Economic sanctions are about more than imposing costs
Economic sanctions are more potent. That does not mean they are more successful.
by Daniel W. Drezner
PostEverythingApril 18 at 8:15 AM Follow @dandrezner
Perspective Discussion of news topics with a point of view, including narratives by individuals regarding their own experiences
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and a regular contributor toPostEverything
President Trump chats with Chinese President Xi Jinping during a welcome ceremony at the Great Hall of the People in Beijing in November 2017. (AP)
At the risk of complimenting the competition, the Financial Times is an outstanding newspaper. It produces so many interesting stories that I feel a constant, nagging guilt about not being able to read them all. That said, the salmon-colored broadsheet has had a few recent columns on economic sanctions that may have left readers with the wrong impression.
The first one, by analysts at FT Confidential Research, looked at the ways China has refined its sanctions tool in the run-up to a possible Sino-American trade war:
Trade tensions between Washington and Beijing raise the threat of Chinese authorities targeting US companies operating in China. A spat with South Korea over Seoul’s agreement to deploy a US anti-missile system in 2016 demonstrated how the Chinese government can apply pressure.China is important for US leading brands such as Nike, not only as a center for manufacturing but also because of Chinese consumer demand. Disrupting the Chinese operations of US companies would be high-profile but limited in scope, sending a strong message to Washington without threatening broader trade flows and avoiding steps that carry the risk of instability, such as currency devaluation or a fire sale of US Treasury bonds.
Another column, by the director of RUSI’s Centre for Financial Crime and Security Studies, examined the latest round of U.S. sanctions on Russian oligarchs, with a headline saying that “this time, the sanctions against Russia are having the desired effect.”
When the US imposed sanctions last week on 24 Russian oligarchs and officials, and 12 related companies, in response to “worldwide malign activity” by the Russian state, the impact was not immediately clear. But by Monday morning it was unmissable.The share prices of Rusal, one of the world’s largest producers of aluminum, and its parent company EN+ Group, both sanctioned for their material connection to Oleg Deripaska (also on the sanctions list), fell roughly 50 percent. The wider Russian market was down 10 percent. Those, such as commodity traders, transacting with designated companies found related payments blocked as banks reacted to the news. Clearstream, a key component of investment market infrastructure, announced it would stop processing related securities transactions. …Russia has … become integrated into global supply chains and global finance. But just as globalisation has benefited Russia, this integration presents a vulnerability if the markets in which these companies operate are turned against them.
If one were to read only these articles, one would infer that economic sanctions are getting more potent by the day and are therefore of greater utility to policymakers. But the truth is that this is only half-right.
There is no denying that both the United States and China are expanding the sanctions repertoires. These latest sanctions will bite more. There might even be more sanctions after that, once Donald Trump stops screaming at Nikki Haley when she is speaking on television. Similarly, China is expanding its brand of passive-aggressive, “we’re not officially declaring that these are sanctions but we’re totally sanctioning you” types of economic statecraft.
What neither China nor the United States has procured in any meaningful sense is concessions from the targeted state. There is no indication that Russia is ready to compromise on, well, anything. So the new U.S. sanctions will impose greater costs but not generate any concessions. Indeed, based on Trump’s recent tweets and policy reversals, it seems highly unlikely that this administration can maintain a policy position long enough to extract any concessions beyond token gestures.
As for China’s pressure against South Korea, that came to an end late last year. Some analysts argue that South Korea made concessions to China in return for the end of the informal sanctions, but this is a stretch. South Korea’s Foreign Minister publicly reiterated President Moon Jae-in’s “three nos”: no new THAAD deployment, no regional missile defense system and no multilateral alliance with the United States and Japan. As the Jamestown Foundation’s Jeongseok Lee concluded, “The final agreement was not a bad deal for South Korea’s President Moon, since the new ‘Three No’s’ are not really new for Seoul, which had always been cautious of participating in regional missile defense and strengthening its security cooperation with Tokyo.”
Make no mistake, for sanctions to lead to concessions, the sanctioning actor needs to demonstrate the ability to impose costs on the target. The United States and China have done this. But costs are not the only factor at play. Some asks are too big, and some rivalries are too enduring for the target to ever be willing to concede. This is a another way of saying that escalating U.S. pressure on Russia are unlikely yield new concessions.
Does this mean that more potent sanctions are useless? No. These more punishing sanctions might have a greater deterrent effect — other countries could decide to not risk incurring them. Measuring the deterrent effect of sanctions is really difficult, however.
Consider this a pushback on an emerging conventional wisdom. Some believe that economic sanctions are not the Swiss Army knife of statecraft, and can be used to respond to any foreign policy situation. The newer forms of these sanctions seem more precisely targeted.
In actuality, newer forms of economic sanctions have succeeded in punishing targeted firms more effectively. The political risk for multinational firms operating in possible targets has increased. But this has not and will not translate into greater political concessions.