War by Other Means
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Finally, the G8 Deauville Partnership should be transitioned into a permanent, APEC-like body for the Middle East and North Africa, notwithstanding the current turmoil in the region. Just as APEC provided the Asia-Pacific an organizing principle for economic integration and spurred domestic reforms, a similar organization in the very different—and much more challenging—Middle East/North Africa region could spur the reinforcement of democratic progress with economic reforms. Specifically, it would provide the means for the countries of the region to agree on a common agenda of expanding intraregional and interregional trade. APEC’s Bogor Goals, which set the goal of a free trade area for the Pacific within twenty years, offers a loose model. As was noted by Egypt’s finance minister, Hany Dimian, there is no need to reinvent the principles of economic integration for the Middle East and North Africa.41 For such a body to materialize, stepped-up support from the international community should bolster the regional economic and political reform already under way. The United States and others will need to continue providing financing so that public spending can support regional economic growth.
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Refocus U.S. development aid toward cultivating the next generation of emerging markets, especially in Latin America and Africa.42
The China Development Bank and Brazil’s BNDES each now have lending portfolios that outstrip the World Bank’s. More than half of global development aid comes from the EU and its member states but depends upon fulfillment of select criteria.43 Canada has also actively sent aid and development-minded investment dollars into countries identified as having mineral resources of interest to Canadian firms, including Mongolia, Peru, Bolivia, Ghana, and even the conflict-torn Democratic Republic of the Congo; it smacks of corporate welfare for some critics, of crass commercialism for others. But they are taking Canadian standards with them.44
The United States should respond in six ways:
Explore aligning Canada and the United States with the Pacific Alliance. The Pacific Alliance is a coalition that unites Chile, Colombia, Mexico, and Peru in support of free trade and open economies.45 As a current observer to the alliance, the United States should pursue full membership while continuing to expand cooperation with member countries.46
Initiate a new Plan Central America. The goal is to promote better security, governance, and economic development in the region with support from Mexico, Colombia, Panama, and Canada.47 Furthermore, the United States should work to manage the complexities of dealing with regional governments in pursuing a Plan Central America initiative, addressing root causes of weak governance and uncertain public expectations as necessary.
Create a development financing institution. As official aid sources account for an ever-smaller share of development budgets—falling from 70 percent to 13 percent in the past decade alone—achieving U.S. development goals will require greater private sector investment. Presently, only a limited share of U.S. annual development resources is devoted to private sector investment. The Overseas Private Investment Corporation (OPIC), the U.S. government’s primary private sector development partner, invested $2.58 billion in 2014 and returned $269 million profit to U.S. taxpayers (providing a net resource, as opposed to net expense, to the $56 billion international affairs budget).48 Other smaller, disparate private-sector-focused activities are spread throughout the U.S. Agency for International Development (through the Development Credit Authority), the U.S. Trade and Development Agency, the Millennium Challenge Corporation, the State Department, and the Export-Import Bank. Despite all of these various efforts, the U.S. government does not offer a comprehensive set of investment tools with the range of equity, debt, and guarantee products needed to support private investment in more challenging and risky landscapes. This makes the United States something of an outlier among its G7 peers. Japan’s Bank of International Cooperation, along with European development finance institutions such as the Dutch FMO and Germany’s KfW, and multilateral mechanisms such as the International Finance Corporation (the private sector lending arm of the World Bank) are innovating new, private sector development approaches through a broad set of financial offerings, including equity. They also invest a sizeable share of their resources in businesses that are locally owned in developing countries, provided those investments are projected to have a positive development impact (in comparison, OPIC is limited to debt financing and is required to have a U.S. business involved in any investment).
China has grown foreign direct investment flows to low-income countries (primarily in Africa) an estimated twentyfold between 2003 and 2009. As Chapters 4 and 5 underscored, these flows are quickly becoming choice tools in Beijing and elsewhere for waging geopolitics and exercising influence. Once operational, the BRICS bank and the Asian Infrastructure Investment Bank will only compound these disparities.
OPIC is likely the most attractive and efficient foundation on which to build a robust U.S. development finance institution. Several changes in OPIC’s mandate and structure would be required, including enabling equity investments as well as first-loss and other risk-sharing arrangements; permitting investment in a wider range of businesses that support development goals, in particular indigenous businesses in priority partner countries (which could be specified for geopolitical as well as development reasons); creating one or more new financing windows more explicitly linked to development impact targets (projects in these windows would share development as well as financial targets); congressional reauthorization for OPIC’s budget on an enduring multiyear basis (as opposed to the current annual authorization cycle); and merging a meaningful share of the related programmatic activities and assets of other agencies to enable OPIC to provide a full range of financial products without interagency competition, duplication, or inefficient costs.
Revamp tools of U.S. power projection to play to two of our greatest national assets: technology and entrepreneurship. In an era of unprecedented youth unemployment, American entrepreneurship remains underdeveloped as a geoeconomic instrument. We need to move beyond our current, largely programmatic approach, seeking instead to elevate technology and entrepreneurship as a fully developed tool in our diplomatic arsenal. One possibility might be partnering with Venture for America to launch a global counterpart to their U.S. operations. Modeled on Teach for America, Venture for America recruits and trains top young college graduates to spend two years in the trenches of a community-development-oriented start-up with the goal that these graduates become mobilized as entrepreneurs.49
Consider preemptive contract sanctions. Washington should also pursue an updated spin on a long-standing concept known as “odious debt”—effectively creating a new type of sanctions regime, what we and some others call preemptive contract sanctions, that would enlist the power of credit markets in ousting the most brutal and kleptocratic regimes. The idea would be to designate contracts as unenforceable for judgment going forward from the day of designation.50 In the case of, say, the Assad regime in Syria or Qaddafi’s in Libya, the United States would designate any new commercial contracts signed after a given date as unenforceable in U.S. jurisdictions. Ideally, other major financial hubs (the United Kingdom, Singapore, and Hong Kong are perhaps the most important three) would follow suit. The result would be to force regimes subject to the sanction to pay sharp increases in borrowing rates.
Release the evidence packets that U.S. administrations and Congress use in making sanctions determinations. As part of handing these packets to Congress, all information contained is usually not classified. The idea, then, would be to go one step further and provide this information to the public in certain appropriate cases. Even the threat that this could happen may have a chilling effect on certain corruption-prone leaders, offering a potential counter to President Putin and others, who are blackmailing with presumably much of the same information.
Treat corruption as the systematic geoeconomic weapon it often is. Western diplomats with experience in Eastern Europe and Central Asia frequently regale one another
with accounts of Russian president Vladimir Putin corrupting corporate and government officials as a reliable, cheap means of marshaling influence in Russia’s near-abroad. U.S. military officials returning from forward deployments describe how terrorist groups in Afghanistan, Iraq, Nigeria, and elsewhere capitalize on endemic government corruption as a recruiting tool. Yet diplomatic priorities and defense budgets do not reflect the central role that corruption plays in the United States’ toughest security challenges.51 The next U.S. president could, for example: direct the Department of Justice to indict corrupt foreign officials with greater regularity; order various federal agencies to cooperate with foreign corruption proceedings, supplying prosecutors with evidence on a case-by-case basis; establish new requirements on contracting transparency (ensuring that noncommercially sensitive portions of resource-based contracts with foreign governments are made public); and grant victims of corruption greater ability to sue in third-party jurisdictions.
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Shore up the rules governing geoeconomic playing fields.
Our current system is buckling under the weight of a host of new forces that our existing rules and institutions never contemplated—from the rise of state capitalism to a host of market distortions far more damaging and elusive than tariffs. As international trade law has substantially eliminated tariff barriers to trade between major economies, countries have turned to a host of market-distorting practices that are largely impervious to existing rules, including currency manipulation, indigenous innovation policies, the deliberate nonenforcement of intellectual property rights, and abusive regulatory regimes. Rising public awareness of these new barriers in the United States and elsewhere, meanwhile, is causing an ebb in domestic public support for a robust, liberal trade and investment agenda—creating potential long-term problems for America’s ability to shape the rules governing global playing fields going forward.
Much as the General Agreement on Tariffs and Trade and the World Trade Organization offered a global solution to the problem of tariff barriers, the United States must develop a means of confronting the most salient forms of protectionism in evidence today, particularly when they are used for coercive purposes. A robust TPP Round 1 and a meaningful TTIP together would mark real momentum but still fall short of a global answer to these challenges.52
Fashioning such a global answer will require several fundamental changes. First, the United States must move beyond the current trade and investment framework toward an expanded geoeconomic approach that takes the full range of competitive conditions as an organizing principle and introduces dimensions of international antitrust law, currency practices, regulatory policy (including financial regulation as well as regulatory issues touching data and spectrum management), and mercantilist tax policies, such as value-added tax rebates for exporters. The single largest factor in the offshoring of U.S.-based production and millions of jobs abroad, say many economists, is the packages of financial incentives that China and others offer to global companies to encourage them to relocate production.53 Others point to China’s value-added tax rebates for exporters, which cost China the equivalent of 20 percent of annual government spending in 2010. Existing trade and investment rules simply do not address these realities and thus are entirely disconnected from America’s geopolitical objectives.
The problem is not just about antiquated and insufficient rules but also about how the United States measures and enforces them. In a world of competing global supply chains and integrated capital flows, trade rules that focus largely on tariffs, national treatment, and most-favored-nation status are outdated and permit nations to pressure recalcitrant neighbors through geoeconomic means. The harmful practices tend to be fluid, and where one is struck down or becomes too controversial, governments can all too easily reintroduce it with only slight refinement.
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If America is going to be effective at exploiting its geoeconomic potential, it needs the right signals and bureaucratic structures in place, many of which can only come from the White House.
Progress on all of these fronts will require a sustained and determined look by successive U.S. administrations at how Washington too often privileges security tools over geoeconomic instruments, especially in terms of how the United States apportions finite diplomatic influence and how it allocates the time and energies of its senior officials.
U.S. foreign policy is and will remain an advocacy-based system. The reason geoeconomic approaches are not suitably reflected in recent U.S. policy is simply that there are no institutional or bureaucratic actors properly incentivized to argue for them. Under the current system, there are two White House offices with responsibility for coordinating U.S. international economic policy: the International Economics Directorate of the National Security Council (NSC), which tends to be staffed by officials with backgrounds in investment banking and finance (often coupled with substantial time at the Treasury Department or the IMF), and the National Economic Council (NEC), whose portfolio spans both domestic and international issues. The NEC, especially under the Obama administration, has tended to shrink away from its international mandate, partly to avoid overlap with the NSC, and partly owing to more than enough work to do on domestic issues alone.
A new White House entity should be created and tasked with strengthening the country’s overall understanding and use of geoeconomics and, as noted earlier, the harmonization of domestic and foreign policies. Housed within the National Security Council, this office should be staffed with roughly equal numbers of officials from the State, Intelligence, Defense, Treasury, and Commerce Departments, plus the Office of the U.S. Trade Representative, and should replace the current NSC International Economics Directorate. The new office should occupy itself with two overarching responsibilities. First, it should diagnose cases of geoeconomic coercion at work in the world, and coordinate international responses wherever U.S. national interests are at stake. Second, it should make geoeconomic reflexes far more central to every element of U.S. foreign policy—in effect, helping to restore the balance lost as military approaches have steadily won out over the past three decades. Where inevitable tensions arise between certain purely economic and geopolitical interests, this new entity should be clear-eyed about these tensions, and should be charged with ensuring that the geoeconomic dimension is included in interagency deliberations (realizing that the purely economic interests, meanwhile, will continue to be well represented by the economic agencies). The NEC, meanwhile, should reclaim its international economic policy coordination responsibilities, so as to fill the void of coordinating more straightforward international economic policy matters.
Second, administrations need to build in safeguards to help senior officials balance the important alongside the urgent. There are countless small, routine processes—how trip agendas are planned, how issues get elevated up the chain of command, how certain outreach is designed and executed (high-level phone calls to foreign counterparts, congressional briefings, etc.)—that tend to occur in nearly automated channels, often with powerful cumulative effects. A Presidential Study Directive process should be established and charged with identifying ways to insert geoeconomic approaches at all stages of policy formulation, and to protect the time and attention of senior officials executing these geoeconomic policies.
Finally, the executive branch also needs to become far better at managing American defensive concerns (as with the example around crafting disciplines for state-owned enterprises mentioned earlier), and more generally at negotiating delicate issues that span foreign and domestic policy agencies and often have substantial domestic political and thus congressional implications. The decision to treat currency as a trade issue and the decision to look to forms of economic pressure on Iran beyond sanctions are examples of the crucial debates represented in this agenda that—given the trade-offs and the range of equities (including domestic interests) they often span—only the White House can broker.
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Adopt new rules of engagement with Congress.
One reason U.S. officials reach so reflexively for military solutions to foreign policy challenges is because, counterintuitively, U.S. political institutions often render military solutions easier than serious geoeconomic alternatives. Military interventions such as that in Libya need not require congressional authorization, and once a country becomes an active theater for U.S. troops, funds become available from a variety of sources, typically adding to many times beyond what a country might otherwise expect absent a U.S. military presence of some kind. Thanks to the blanket Authorization of Military Force issued in 2001 and still in effect, the executive branch need not request congressional approval for ongoing military and counterterror operations in Pakistan and Yemen, for example. Compare this to the years of largely unsuccessful conversations between the Obama administration and Congress aimed at securing the necessary approvals to deliver the $1 billion debt swap to Egypt, announced by President Obama in May 2011 as the centerpiece of the U.S. response to the democratic uprisings. Funding sources for countries seen as theaters of combat for U.S. troops are also far more flexible than those for countries without an active combat presence but of high strategic value nonetheless. As the Ukraine crisis fomented in the spring of 2014, it was only after enormous effort and several precious weeks that Congress agreed to allow the State Department to draw from its Overseas Contingency Operations accounts (dedicated to Iraq, Pakistan, and Afghanistan) to finance the 2014 loan guarantee to Ukraine following the ouster of President Yanukovych.54
Even in the area of sanctions—the area that arguably enjoys the highest levels of cooperation between the executive branch and Congress—a lack of nuance in congressional sanctions has hindered foreign policy makers’ room for maneuver. Many point to the 2013–2014 negotiations with Iran, noting that because administration officials lack authority to roll back some of the most severe, congressionally mandated sanctions, administration credibility on this score is less than what a maximal negotiating strategy would advise. Policy makers and legislators will need to devise new approaches geared toward maximizing credibility in both the application and removal of sanctions.55