War by Other Means

by Robert D Blackwill

  Even with clearer ground rules for debating geoeconomic choices—more scrutiny of alternatives, greater burdens of proof on claims of “defending the rules-based system,” and so on—these choices remain a game of line-drawing. There will still be tough cases, and it is inevitable that different people will draw different lines of acceptability. For many policy makers, it may well be that, so long as upholding the rules-based system is still seen as geopolitically advantageous for the United States, most forms of geoeconomic power, to pass as net beneficial, will need to be at least neutral in their impact on this system. Adhering to this standard will constrain the U.S. far more than many other states, especially in more coercive, shorter-term cases, but even working within this exacting standard, there remains much room for improving current U.S. geoeconomic performance.

  Even though foreign policy considerations have not been leading factors in either TPP or TTIP, in both cases arguments for putting more emphasis on those considerations could meet this limited test. If successfully concluded, both TPP and TTIP could mark important geopolitical wins for the United States, but not because the U.S. government formulated them with this purpose in mind (and the geopolitical benefits for the United States could have been much greater had the administration set out to achieve them). One analysis suggests that the TPP could cost China as much as $100 billion in lost annual income and exports by excluding it from the group of countries participating in the partnership, not to mention the disadvantage of being shut out of a consortium that could evolve into the nucleus of future U.S. geoeconomic responses to the rise of Chinese power.41 Further, in Asia more so than in any other region, economics and trade are seen as the geopolitical coin of the realm.42 As such, U.S. failure to conclude this deal is far more likely to be seen by our allies and non-allies alike as foremostly a geopolitical failure and a negative test of U.S. staying power in the region, a point Lee Kuan Yew made repeatedly.43

  When viewed through the same geoeconomic lens, the Transatlantic Trade and Investment Partnership between the United States and the European Union offers security benefits by creating economic partnerships that can strengthen diplomatic ties and shape the international system in favor of American national interests. The economic benefits are clear—TTIP could add as much as $223 billion to the global economy by 2025, and U.S. exports could increase by nearly $124 billion.44 This would of course redound to the general well-being (and thus power projection capabilities) of both the United States and its closest allies. But TTIP would also have geopolitical and geoeconomic consequences around the world. “If the United States can complete the Pacific and Atlantic partnerships, it will have framed standards and market access for about two-thirds of the global economy.”45 From a national security perspective, these and other geopolitical benefits are what make agreements such as TPP and TTIP, even granting their shortcomings, of central importance to the future of U.S. power projection.46

  Structural Limitations

  If American limitations when it comes to geoeconomics are partly institutional, they are also largely structural. Certain geoeconomic tools will be simply better suited for some countries than for others. And for better or worse, given certain structural realities, the United States will probably never be capable of using trade and investment for foreign policy goals—and especially not in shorter-term, more transactional or coercive ways. Consequently, the most important question is not how inclined the United States is to engage in the geoeconomic uses of trade and investment but rather how (and how assertively) the United States sees fit to respond to the growing geoeconomic use of trade and investment by other countries.

  Similarly, cyber is another geoeconomic tool that, for a mix of structural and ideological reasons—many of them compelling—is not likely to be of much use for the United States. Not only do countries such as Russia and China not face any real legal or popular constraints in committing cyberattacks against private firms, but these countries also tend to be adroit at translating the stolen data into economic and geopolitical gains without ever leaving state-controlled channels. The United States has spent billions developing offensive cyber weapons—but to date it has deployed these weapons in only one known instance (a conventional military application).47 Underpinning this reluctance is a deeper concern about geopolitical outcomes. To put it mildly, in the context of the recent domestic controversy regarding the National Security Agency’s acquisition of big data, it is difficult to imagine that Washington could ever replicate in peacetime the cyber instruments so pervasively used by certain countries, especially China and Russia. Nevertheless, President Obama told an audience of business executives in September 2015, “If we wanted to go on offense, a whole bunch of countries would have some significant problems.”48

  Considerable as the gap is between potential U.S. geoeconomic power and U.S. willingness to use that power on trade and cyber issues, nowhere is the gap larger than in the realm of financial and monetary policy. Nor, with the exception of cyber, is any realm of U.S. geoeconomic power undergoing such dramatic shifts. As Chapter 3 noted, the United States no longer enjoys a monopoly on where capital originates, how it is intermediated, and where it ends up. This fact makes U.S. financial sanctions more difficult—and more reliant on multilateral diplomacy. Even short of sanctions, it means that countries are more able to challenge the United States without exacting a toll on their borrowing costs. Finally, the emergence of swap lines and deep-pocketed central banks outside the United States means that Washington no longer owns a decisive say on whether a country receives a sovereign bailout or credit lifeline in times of crisis.

  Even if the United States no longer enjoys a monopoly on these financial and monetary chokepoints, it still retains considerable leverage. Discomfort with exercising this potential for geopolitical use, however, can amount to geoeconomic blinders. It is telling that in the run-up to a potential military strike on Iran’s nuclear program in the fall of 2013, there was no indication that the United States and its allies might seize on what had by that time become a full-blown foreign exchange crisis in Iran. Options of that sort—intervention in foreign exchange markets, for instance—involve real risks and are not to be taken lightly. But the same is even more true of war, especially war involving nuclear weapons programs. That the United States not only contemplated taking advantage of precisely this sort of currency weakness at multiple junctures in the twentieth century but actually did so—for example, using Lend-Lease to control the value of the pound in World War II, and then threatening to orchestrate a run on the pound amid the Suez Canal dispute in 1956 (against an ally as close as the United Kingdom, no less)—makes clear just how far norms have shifted in the decades since. Acts such as those would be deemed unthinkable today, whatever the facts and circumstances.

  Again, the point is not that U.S. policy makers must move toward a more activist use of financial and monetary policy as a geoeconomic tool. It is simply that they should not delude themselves into thinking that these realms either are or can be insulated from geopolitics. The preponderance of history shows these monetary and financial tools to have been regular parts of the U.S. foreign policy arsenal. To weigh them alongside America’s potent and high-risk military and diplomatic tools is the shift in debate we are advocating. To fail to consider them and then commit to a military option (especially one that exposes the United States to costly economic and military sacrifice), for example, is damning.

  Even absent a clearer willingness by Washington officials to contend with the modern realities of monetary or financial statecraft, the United States still enjoys a number of geopolitical benefits arising from the dollar’s global role. The fact that international financial markets tend to operate in dollars gives the United States a power that other countries do not have. That it is impossible to foresee exactly under what circumstances this geoeconomic instrument might be deployed does not mean it should be ignored.49 Oil and commodities are priced in dollars, sparing the United States exchange rate shocks
associated with sudden swings in commodity prices. The dollar’s global role acts as a form of disaster insurance—in times of financial or military turmoil, money flees to dollars, boosting U.S. buying power and hence the nation’s ability to respond to international crises. It also affords Washington the unique ability to run large fiscal and current account deficits while borrowing in its own currency. After more than sixty years, these privileges have so permeated American thinking as to go largely unnoticed—especially by foreign policy and defense officials. If lost, they would force the United States to confront new trade-offs between geopolitical objectives and the higher domestic financial costs required to support those external goals. And—underscoring the mutual dependencies that can exist across different geoeconomic instruments—so long as the United States seems reliant on financial sanctions, protecting the dollar’s global role becomes all the more important.

  All this highlights the fact that the effective constraint on geoeconomics in U.S. foreign policy today is not so much ideological discomfort or bureaucratic paralysis as basic neglect. In particular, geoeconomic tools and techniques of statecraft do not register as saliently on the minds of foreign policy officials as they once did. It is a problem that surfaces at all levels of U.S. foreign policy. In questions of overarching grand strategy, for instance, despite a widely shared belief that the rise of China constitutes the greatest challenge to American foreign policy in the coming decades, the United States has been largely unable to extract itself from an overwhelming focus on the Middle East (notwithstanding a noteworthy, if largely unrealized, attempt at precisely this in the Obama administration’s Asia pivot, launched in 2011).

  One might argue that events in the Middle East simply made the prospect of such an Asian pivot too difficult. Even granting this, however, it remains difficult to justify certain decisions—like the deliberate choice, however well intended, to focus intensely on the Middle East peace process at the start of the Obama administration’s second term. There may have been a time when focusing on peace between Israel and Palestine could have made sense as a strategy for unlocking stability in the region. But with negotiations over Iran’s nuclear program reaching the moment of decision, with Egypt in revolution and counterrevolution, and with Syria and Iraq threatening to pull the region into sectarian strife, the eighteen months between February 2013 and June 2014, when negotiations finally collapsed, was not that time. Even had a peace deal been reached, it is difficult to see how such an agreement would have meaningfully advanced any of the most pressing U.S. national interests in the region at that time: it would have offered no solution to the Syrian conflict and its destabilizing influence on Iraq, no way to answer the Iranian nuclear weapons challenge in a way that would have been both peaceful and acceptable to the United States and its allies in the region, and no clear trajectory for a stable, inclusive Egypt on terms that would lend confidence to Egypt’s treaty commitments (including maintenance of the Suez Canal and recognition of Israel).50

  Inattention to geoeconomics by U.S. foreign policy makers creates problems beyond poorly triaged priorities. As noted at the outset of this book, Washington has also been hindered by a persistent political-military bias in how it goes about pursuing its objectives, whatever they may be. Once the United States did manage to turn full diplomatic attention to the growing threat posed by ISIS in Syria and Iraq, for instance, these efforts still focused overwhelmingly on questions of tactical military advances, troop readiness, and arms flows, with only belated attention to what made ISIS different and more successful than other radical Islamic groups in the first place: money. From the beginning, ISIS had prioritized securing money, lots and lots of money. Had more U.S. military and intelligence efforts gone sooner to tracking and halting ISIS’s financial gains, at least some of the considerable U.S. and allied military and intelligence efforts now being deployed against their territorial gains might not have been necessary.

  Beyond ideological opposition, bureaucratic stasis, and neglect, there is another category of cases in which geoeconomic instincts are visible in the design choices of U.S. policy but executing on these instincts proves too difficult, even with the benefit of a fully engaged State Department. Take the case of the Arab Spring, where the U.S. initial responses were decidedly geoeconomic. In May 2011, President Obama outlined a suite of measures, among them establishing loan guarantees and enterprise funds for Egypt and Tunisia, swapping $1 billion of Egypt’s debt into projects meant to generate jobs and education for the young people who led the revolution, and repurposing the European Bank of Reconstruction and Development to provide capital to North Africa. At the center of these efforts were two new initiatives: the region-wide Middle East/North Africa Incentive Fund (MENA-IF) and the regional Middle East/North Africa Trade and Investment Partnership (MENA-TIP). Both ideas were envisioned and designed within the administration in 2011, in the earliest days of the Arab Spring.51 In 2013, the State Department asked Congress for $770 million in funding for MENA-IF, to “capitalize on the opportunities presented by the Arab Spring, supporting those countries that are moving to undertake the democratic and economic reforms necessary to address citizens’ demands and provide lasting stability in the region.”52 But the plan asked Congress essentially to trust the administration in terms of how best to spend the proposed $700 million. Congressional authority to greenlight (or not) specific projects and uses was altogether absent.53 Unsurprisingly, Congress proved skeptical and the bill never passed.54

  With the Obama administration unable to overcome opposition on Capitol Hill, this particular moment of American geoeconomic opportunity has long since passed. Momentum for MENA-IF has been lost, the region has moved on, and the administration has also lost interest in the initiative.55 And, however ambitious in design, the program involved a relatively small amount of money—certainly so compared to Saudi or Emirati standards, and too modest, skeptics have argued, to incentivize meaningful reforms.

  Unlike MENA-IF, MENA-TIP contemplated no large congressional appropriation or new assistance dollars. Instead, it was to rest on active diplomacy with governments in the region to encourage trade and investment reforms—leading ultimately, or so many thought at the time, to the prospect of negotiations on a free trade agreement with the United States. Like MENA-IF, however, MENA-TIP has yielded little geopolitical benefit. Any promise of negotiations leading to eventual market access quickly fell away. What remained was never bold or visionary enough.56

  Despite an accurate assessment of the post-Arab-uprising environment as one best suited to geoeconomic initiatives, both MENA-IF and MENA-TIP have been underwhelming in their outcomes. The Obama administration, led in this case by a fully engaged State Department, attempted to employ these geoeconomic tools but ultimately failed to engage Congress or to provide enough incentives and political will to make MENA-IF and MENA-TIP look valuable and worthwhile to regional governments.57 Both efforts proved to be fair measures of U.S. geoeconomic attempts in response to the Arab Spring. Neither effort redounded to America’s credit.

  Moving past the MENA proposals, one of the Obama administration’s other plans, the $1 billion debt swap proposal that would have supported projects targeting Egyptian youth, was championed primarily by the State Department and so proved a somewhat difficult sell within the interagency process. Questions of how to allocate the funds were bureaucratically contentious, and that leaves aside the difficulties of finding a consistent Egyptian counterparty with which to negotiate. The upshot was that revolution and counterrevolution swept in long before the administration could settle on a clear plan for how the money should be spent. Somewhat scarred by how difficult the debt swap ordeal had become, officials at the State Department would later advocate cash transfers in the case of Tunisia.

  Finally, in some instances, the issue is not so much a matter of the United States being able or willing to mount a sufficiently geoeconomic response as it is a question of how aggressively the United States is willing to deploy geoec
onomic tools, and, more fundamentally, how U.S. policy makers come to understand and weigh the relative economic and geopolitical considerations bearing on their decisions.

  Consider U.S. sanctions measures in recent years. In June 1998, President Clinton famously told CBS News that the United States “seem[s] to have gotten sanctions-happy at a time when we are reducing our foreign assistance to the countries that agree with us … We are in danger of looking like we want to sanction everybody who disagrees with us and not help anybody who agrees with us.”58 Around the same time, Republicans in Congress, including Jesse Helms and John Ashcroft, worried that without sanctions, to quote Helms, U.S. “options would be empty talk or sending in the marines. Without sanctions, the United States would be virtually powerless to influence events absent war. Sanctions may not be perfect and they are not always the answer, but they are often the only weapon.”59 It is notable that the only geoeconomic instrument that was apparently known to Helms and his staff was sanctions.

  In all, the United States as of September 2014 had twenty-six sanctions programs and thousands of designated entities—more than double the number in place during President Clinton’s time—covering countries as far-flung as Cuba, Belarus, and Syria.60 The Obama administration has sanctioned more entities than any other administration (perhaps even several combined).

  Part of the reason sanctions came to occupy a larger role in U.S. foreign policy is simply that the United States got better at them. The Clinton administration channeled its doubts about sanctions into important revisions, introducing “smart sanctions” targeting individuals or entities as opposed to entire economies (Mexican and Colombian drug lords who wound up on what became known as “la lista Clinton” found it far harder to convert their ill-gotten gains into expensive toys). After the 9/11 attacks, the United States again updated its approach to targeted sanctions, this time focusing on the global financial system as a force multiplier. Washington began blocking illicit financial transfers and sought to use the prevalence of the U.S. dollar in global finance to shut out what it considered rogue banks. And, using America’s central role in financial markets, U.S. officials also began effectively conscripting banks all over the world into enforcement agents, presenting them with a simple choice: either comply with U.S. sanctions, or stop doing business in US dollars.61 This deputizing of the global financial sector in turn allowed U.S. sanctions officials to harness various technological advances that have so thoroughly reshaped finance and banking operations worldwide: the fact that almost all money trails are now virtual means that correspondent banking relationships are more easily targeted by sanctions, as are electronic payments systems.