Sanctions as a tool for U.S. foreign policy – pros & cons

Recently, the Monday Club organized another interesting event, this time the topic was “Sanctions as a tool for U.S. foreign policy – pros & cons”

The panelists were Amar Bhide, Professor at the Fletcher School of Law and Diplomacy, Tufts University, Fergus McCormick, Director of Sovereign Research, Emerging Markets Investors Alliance, Former Chief Economist and Head of Sovereign Ratings, DBRS and Eric Lee, Energy Strategist, Commodities Research, Cititgroup.

Eric framed the discussion with an overview of sanctions as a tool historically and argued that sanctions fall into a broader group of economic measures such as promoting free trade or imposing tariffs or quotas. Both international legitimacy and implementation effectiveness tend to depend on building international coalitions. Eric mentions that both Iran and Venezuela are resisting U.S. sanctions and they find other ways to cope or weather the pain for a while and somehow find alternatives. Specifically to energy, oil sanctions can drive higher oil prices, which hits oil consumers economically and politicians do care about oil prices, especially with upcoming elections.

Fergus is more focused on Venezuela and the difficulties U.S. sanctions bring to the country, its people, and the issues sanctions pose to the future of debt restructuring. The situation is very complex and complicated and he does not foresee an easy solution with the current government, but rather continued U.S. sanctions and an eroding economic situation. The Trump administration is using sanctions increasingly aggressively and has gain traction in terms of creating financial headwinds for the countries where the U.S. have imposed sanctions such as Iran, Venezuela, Russia and North Korea. One could argue that tariffs are close to being sanctions and the global trade war has to some extent only started with China. Trump’s strategy is more or less the same with sanctions and tariffs. They are aggressive and extreme and the U.S. is going solo.

Amar Bhide thinks the use of sanctions is barbaric and unworthy of democracies. He is strongly against any kind of sanctions and condemns U.S. sanctions as they are primarily punishing the people in respective country and cause poverty and humanitarian crisis. He also argues that sanctions often help the rulers in the sanctioned countries as the focus turns to an outside country, easy to blame for the poor economic conditions. This certainly applies to both Iran and Venezuela. Bhide also talks about the fact the U.S. domestic governmental structure is well balance to keep power in check but in the area of foreign policy the president has more or less sole decision making power. He thinks Trump is misusing this power.

Finally, longer term, sanctions changes alliances and that is in fact the trend that emerges based on U.S. sanctions. China and Russia have stronger ties as a result, U.S. has weaker ties with Europe and the Middle East is more fragmented than ever. Over time, sanctions and disrupted alliances will result in the centrality of the U.S. dollar to ease. China certainly is keen to boost the RMB internationalization. Russia is trying to build out stronger ties in Europe and at the same time pivot its business towards Asia. The U.S. is not gaining much by the sanctions and millions are suffering as a result. In the end, sanctions are not very effective as they redefine alliances, cause unnecessary harm to people and from a U.S. perspective; will lead to less long-term U.S. global influence.

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