October 7, 2016
By: Ken Barden*
In recent times, the US has not been known for its peaceful way of conducting international disputes, choosing instead to resort to a violent show of aggression, an approach which some argue is not always the best course of action.
In their new book, War by Other Means: Geoeconomics and Statecraft, authors and Fellows at the Council on Foreign Relations, Robert Blackwill and Jennifer Harris put forth the proposition that in recent times the US has too often and too readily resorted to the use of military force, rather than using its economic power to advance its foreign policy and security interests. Citing examples from history as well as the experiences of other countries in the modern era, Blackwill and Harris argue that American statecraft should include a large measure of “geoeconomics.”
Blackwill and Harris define geoeconomics as “the use of economic instruments to promote and defend national interests, and to produce beneficial geopolitical results; and the effects of other nations’ economic actions on a country’s geopolitical goals.”
Simply said, it’s when a country flexes its economic strength, such as imposing economic and financial sanctions, to further its own interests. Edward Luttwak, a Romanian-born military strategist called the rise of geo-economics, a contest defined by the “grammar of commerce but the logic of war”.
Early instances of geoeconomics
The book describes that the concept is certainly not new to American policy-making. During the early years of the Republic, America faced the predatory practices of many European nations and, in consequence, it looked to economics as a primary means to protect itself from these more established military powers. In his Common Sense series, American political theorist and revolutionary, Thomas Paine, described a strategy in which the US could protect itself from Europe’s power struggles. Paine wrote: “Our plan is commerce, and that, well attended to, will secure us the peace and friendship of all Europe; because it is the interest of all Europe to have America a free port. Her trade will always be a protection.” A clearer description of geoeconomics would be difficult to find.
A prime example of geoeconomics being put to use in the early days of the American Republic may be found in the 1803 purchase of the Louisiana Territory by Jefferson. While that purchase is often looked at as an economic bargain, doubling the size of the US for less than four cents an acre, initially the motivation for the purchase was geopolitical – to limit the interests of France in creating a potential military confrontation with the US.
Instances of applied geoeconomics were also evident during the Civil War. During that conflict, the UK, at the instigation of the North, stopped providing support to the South. This was accomplished in part through threats by the North to confiscate British investments in US securities as well as the cessation of trade if the British did not accede.
‘Dollar diplomacy’ in World Wars
Upon entering World War I in 1917, the US implemented and enforced a number of economic embargoes, ultimately leading to a full cooperation with the Allies’ food blockade of Germany and the embargo of all exports to Scandinavian countries and the Netherlands, all of which had stayed neutral. Though initially skeptical of what he called “dollar diplomacy”, by the end of the war President Woodrow Wilson turned to a geoeconomic answer in order to prevent another war. As the League of Nations was set up, Wilson stressed to that organization that its best hope of preventing another war was an “absolute” boycott on aggressor countries. “Apply this economic, peaceful, silent, deadly remedy and there will be no need for force,” Wilson was quoted as saying.
During WWII, President Franklin Roosevelt was also an avid user of geoeconomics by using the concept to discourage German influence in the Western Hemisphere. Among the efforts undertaken during this period were some 29 trade agreements with Latin American countries, an attempt to use the Export-Import Bank to counter the rise of Japan in Asia, as well as a $25 million loan to China. The Lend-Lease Act of 1941, described by Secretary of War Henry Stimson as a “declaration of economic war”, authorized the US to supply Allied nations with billions of dollars’ worth of military supplies. One of the more obvious indications that the US considered the use of economic policies as a tool of warfare could be found in the Office of Economic Warfare, an agency established in 1943 and tasked with safeguarding the US dollar by helping US producers increase exports and securing vital imports at favorable terms through strategic purchase agreements with supplying countries.
Shifting away from geoeconomics
Geoeconomic practices continued by the US after World War II, mostly as an effort to assert US economic dominance over the growing threat of the Soviet Union. As the Cold War progressed, however, and the US became embroiled in the Vietnam conflict, politicians began to re-evaluate their geoeconomic strategies. President Nixon expressed his disdain for geoeconomics. Policymakers began to see that economic crisis often led to the rise of aggressive dictatorships and international strife. In response, those policymakers looked to using economic tools as a way to promote peace. Gradually, the US government grew less enamored with geoeconomics and Congress started to reconsider the use of trade as a foreign policy tool, particularly with respect to trade restrictions against the Soviets leading to a bill passed in 1969 which liberalized East-West trade even beyond that requested by the Administration.
President Jimmy Carter temporarily reignited geoeconomic strategy during the Iran hostage crisis, ordering the freezing of Iranian assets because “depriving them of about twelve billion dollars in ready assets was a good way to get their attention.” Carter also implemented a grain embargo against the Soviet Union to punish it for invading Afghanistan. Nevertheless, when Reagan assumed the Presidency, following on general public perception that a geoeconomic policy was a failure, repealed the embargo and negotiated a new trade agreement with the Soviet Union that expressly forbade the US from banning grain exports for reasons of foreign policy.
Much of this shift away from geoeconomically based policy has related to the evolution of beliefs that economic policy should be kept separate from geopolitical interventions. International economic policymaking became the domain of economists, rather than foreign policymakers. US strategists no longer looked to using economics as a key instrument of exerting the country’s geopolitical will in the world.
Investment policies, foreign exchange rates as tool
In their book, Blackwill and Harris highly criticize the recent shift away from geoeconomics in US policy-making. They cite several examples of how other nations, including China, India and Russia use trade and investment policies, energy supply, as well as foreign exchange rates as tools to obtain diplomatic favors and alliances, while penalizing those who oppose them. To stop this decline in influence, the authors propose that the US Government reinstitute geoeconomics as part of its statecraft.
Blackwill and Harris argue that the lack of an effective US economic response in this emerging context is one reason why the US is losing ground as a world power.
Without a cogent strategy to wield its vast economic might, the US too often resorts to the use of its military power, resulting in greater costs, more bloodshed and a polarizing approach that, ultimately, will tip the balance of interests and power against it. In spite of the US having one of the most powerful economies in the world, the Blackwill and Harris despair that in times of crisis, too often the US turns to the “gun instead of the purse.” For instance, what would have been the outcome had the US chosen to leverage its economic might against Iraq, rather than attacking it militarily?
Delaying customs clearance on banana imports
In separating economic interests from foreign policy interests, the US has lost much of its competitive advantage. The result is a stark unpreparedness by the US to deal with this new phase of geoeconomic competition. Meanwhile, other countries with emerging economic might have quickly adapted to take advantage of this developing paradigm.
For instance, China challenges the Philippines’ claim in the South China Sea by delaying customs clearance on banana imports from the Philippines. China rewards Taiwanese businesses that operate in ways acceptable to China but those that wish to operate in unacceptable ways are penalized. With South Korea, China promised new trade and investment opportunities conditioned on rejection of a proposal by the US to deploy a new missile system there.
India has also displayed a brazen approach to geoeconomics. In a clear attempt to counteract China’s strategy in the region, India has provided credit lines to Nepal and Mauritius, supported a new high speed data link to Myanmar and rail links to Sri Lanka. Russia, as well, has displayed its economic might, as evidenced in its threatening of default on Ukraine’s sovereign debts as a means of keeping the country within its sphere of influence.
Next US presidency
Blackwill and Harris go on to urge the next president to lay out an affirmative vision for a geoeconomics-centered foreign policy. In addition the US Congress should be recognized as often serving as an impediment to a successful American geoeconomic strategy. The book outlines recommendations for the incoming administration to adopt new rules of engagement with lawmakers, beginning with a set of hearings on the potential of the US to use economic tools to further its geopolitical objectives.
On a government-wide level, US agencies involved in foreign policy will need to develop a deeper understanding of geoeconomics and how it relates to the greater US foreign policy and national security, including a means of considering and evaluating geoeconomic policy options against other, arguably less beneficial, policy alternatives.
* Ken Barden is Senior Governance and Anti-Corruption Officer at the Center of Excellence for Democracy, Rights and Governance DCHA Bureau, USAID.