The global landscape is rapidly evolving as economic statecraft emerges as a dominant pillar of international relations.
In the last two decades, nations, particularly the United States, have shifted their strategies, increasingly utilizing economic coercion—such as sanctions, tariffs, and export controls—more frequently and with heightened intensity.
As a consequence, the landscape of economic pressure has been reshaped dramatically, marked by an unprecedented growth in targeted sanctions.
The number of sanctioned individuals and entities has surged tenfold since the year 2000, while global tariffs and trade barriers have quintupled in just five years.
Furthermore, over 90 percent of advanced economies now actively screen foreign investments in sensitive sectors, a significant increase compared to less than one-third only a decade earlier.
Notably, in response to Russia’s invasion of Ukraine in February 2022, the United States and its allies froze over $300 billion of Russian central bank assets—an action that transgressed often-unchallenged financial borders.
These developments signal that the dynamics of global power are being transformed, rendering economic coercion a commonplace approach to international conflicts.
The recent administration under President Donald Trump illustrated this shift with an extensive attempt to implement tariffs at an unprecedented pace during its early days in office.
China responded decisively with export controls on crucial minerals and threatened to disrupt strategic supply chains, highlighting the transition of economic warfare from a rare occurrence to a central front in great-power rivalry.
Yet, as nations engage in economic statecraft, it is critical to acknowledge both its potential and its risks.
Uncontrolled economic coercion can disrupt global markets, solidify rivalries into distinct blocs, and incite instability—potentially sparking the very conflicts these tactics aim to avoid.
Despite the growing prominence of economic statecraft, the United States currently lacks a comprehensive doctrine to guide its use, a stark contrast to the strict rules governing military engagements.
To sustain its leadership in the global economy, the U.S. must delineate clear objectives for its economic strategies and create institutions capable of executing them effectively.
As the geopolitics of the world shifts, several structural forces compel governments to increasingly embrace economic coercion as part of their foreign policy tools.
The post-Cold War unipolar moment has given way to a new realm of international rivalry, with major powers competing for dominance without resorting to direct military conflict due to the deterrent presence of nuclear weapons.
This geopolitical context, alongside rising domestic political polarization in democracies like the United States, has led to an increase in economic tools being deployed for immediate political advantages rather than for strategic long-term benefits.
The Biden administration’s intervention to block Nippon Steel’s acquisition of U.S. Steel is emblematic of this trend, as domestic interests have been prioritized over strategic partnerships.
Additionally, the rapid innovation in dual-use technologies—such as semiconductors and artificial intelligence—has transformed the landscape, prompting countries like China to separate their technological ecosystems while tightening export controls on critical inputs.
These economic actions not only aim to secure a technological edge but also to create global dependencies on their production capabilities.
Energy dynamics further underscore this shift, as rising demand driven by technological advancements and a burgeoning middle class places strain on energy supplies, prompting governments to exploit these vulnerabilities for geopolitical leverage.
Russia’s strategic reduction of natural gas exports to Europe exemplifies this tactic, utilizing energy supply as a bargaining chip amid conflict.
As countries arm themselves with economic statecraft capabilities, the risks associated with these actions escalate.
The world is teetering on the brink of a dangerous cycle, where each new foreign policy challenge spurs retaliatory measures with the potential for rapid escalation without clear mechanisms for de-escalation.
The United States faces a critical test to uphold the legitimacy of the world order it has historically championed, particularly given its reliance on a dollar-based financial system that confers significant advantages.
If economic coercion is employed haphazardly, it could undermine U.S. credibility and invigorate global efforts to diminish American economic influence.
China’s development of the mBridge platform for multi-central bank digital currencies illustrates this potential shift, aiming to facilitate trade free from the dollar’s dominance.
In light of these developments, articulating a set of guiding principles for economic statecraft is vital for the United States.
This doctrine should clarify the objectives, methods, and targets for using economic pressure, emphasizing the need for precision and proportionality in its application.
For instance, while the U.S. may occasionally need to deploy aggressive economic measures, these actions should be strategically aligned with clearly defined geopolitical goals and should precede with a thorough assessment of expected outcomes.
The U.S. ‘maximum pressure’ approach toward Venezuela provides a cautionary tale—an attempt to enforce regime change purely through economic isolation resulted in devastating humanitarian consequences without achieving political objectives.
The calibration of economic measures is essential, necessitating a delicate balance between impact and unintended repercussions.
It is crucial to minimize collateral damage to civilians and allied nations and avoid targeting essential goods such as food and medical supplies.
Historical precedents, like the sweeping sanctions on Iraq in the 1990s, underscore the pitfalls of broad economic measures that do not consider humanitarian impacts and may backfire by eroding international support for such actions.
Ultimately, the effectiveness of economic weapons hinges not on the suffering they cause but on their ability to influence the decision-making processes of the targeted actors.
Policymakers must integrate economic analysis with political intelligence to assess how much pressure is required to elicit a desired change in behavior.
Furthermore, the timing and signaling of economic measures—whether to act proactively or reactively—must be managed carefully to enhance effectiveness.
To bolster its economic strategy, coordination among allies is indispensable.
Aligning restrictive measures multiplies their power and reinforces their legitimacy while reducing avenues for evasion.
Successful coercive statecraft should be framed as a cooperative effort to uphold shared principles of peace and security rather than executing unilateral actions.
The consequences of acting without consultation, as seen in the U.S. withdrawal from the Iran nuclear agreement, illustrate the risks of unilateralism that can isolate the U.S. and lead to legal ambiguities.
Even well-conceived economic measures are inherently blunt, often implemented amidst deep uncertainty.
Therefore, a doctrine of economic statecraft must encompass flexibility and humility, recognizing the likelihood of adapting to unexpectedly divergent impacts.
Adjustments may be necessary, not just for miscalculations, but also in response to shifting political landscapes and economic conditions that affect coalition dynamics and the target country’s resilience.
An example of a flexible approach to sanctions occurred in 2018 when the U.S. enacted measures against Rusal, a major aluminum producer.
Severe disruptions in global aluminum markets prompted the Treasury Department to issue general licenses and ultimately lift sanctions once the ownership structure was revised—a model of adaptability that should inform future strategic decisions.
Beyond formulating a robust doctrine, the United States must lead the international community in establishing a set of principles governing economic statecraft.
This framework could function similarly to the Geneva Conventions, focusing on the constraints and ethical considerations accompanying economic coercion.
Such an initiative would not only provide stability but also mitigate the risks of unchecked economic coercion, which could spiral into retaliatory actions that destabilize the global economic system.
Securing participation from countries investing in their economic statecraft, such as Japan and India, will require the U.S. to adopt a diplomatic posture rather than a dominant one—aiming for shared stability and reciprocity rather than hierarchical imposition.
Although nations like China and Russia may initially resist participation, the emergence of a credible coalition-based framework can align democratic economies around common principles, offering a counterbalance to the misuse of coercive economic instruments.
To avoid descending into an era of escalating economic brinkmanship, investing in institutional capabilities is imperative for the U.S. governmen.
Restrictive economic tools should be integrated into a disciplined strategic arsenal, enhancing the government’s ability to navigate complex economic interactions.
This infrastructure should model potential economic outcomes, including retaliation by targets, spillover effects, and adjustments in macroeconomic policies, utilizing frameworks that account for various outcomes in a multipolar world.
It’s essential for the U.S. administration to maintain current assessments of restrictive measures, evaluating their operational effectiveness and strategic limitations regularly.
Policymakers should understand how specific export controls impact adversaries’ technological capacities and how quickly new supply chains could emerge in response to U.S. interventions.
Establishing a new Department of Economic Security may be vital, staffed with skilled professionals in a range of relevant fields, such as macroeconomics, trade, and international law.
This institution would serve as a centralized operational hub, equipped to manage multiple economic crises and coordinate effectively across various governmental agencies.
Given the urgency and rapid developments associated with economic statecraft, existing ad-hoc task forces and interagency processes have often proven too cumbersome or reactive to effectively meet current challenges.
The disruptions triggered by Russia’s invasion of Ukraine, for instance, have underscored the need for enhanced operational preparedness in anticipating and managing the ripple effects of economic policies.
Additionally, this strengthened institutional capacity should not only focus on optimizing coercive tools but also encourage the deployment of positive economic strategies.
The U.S. must leverage its enduring strengths—the capacity to innovate and inspire—to foster advancements in critical sectors.
While the nation faces challenges in attracting necessary investments for strategic innovations compared to other countries like China, the need for a flexible and responsive investment framework is paramount.
To bridge this funding gap, establishing a sovereign wealth fund alongside de-risking lending mechanisms can stimulate private capital investment, ensuring that essential industries, such as shipbuilding and semiconductor manufacturing, receive adequate attention.
In a world marked by increasing competition, the U.S. must wield both economic sticks and carrots effectively.
To navigate the complexities of international relations, the United States must first articulate a clear doctrine dictating the rationale and scope of coercive economic measures.
Next, strengthening institutional capacities will be crucial to deploying these measures with foresight.
Finally, the focus must be placed on ensuring that U.S. economic power aligns with principles of resilience at home, opportunity abroad, and the promotion of innovations that contribute to global stability.
By championing an international framework rooted in these values, the U.S. can regain the legitimacy of the economic order it established, working toward preventing a fragmentation of the international system that would diminish prosperity for all nations.
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