Episode 68. How Effective are Economic Sanctions?
War is an increasingly complicated operation, and these days most battles are fought on spreadsheets as much as they are in the field. The US has just launched a barrage of sanctions against long time rival Russia, a far bigger fish than the usual target of such an economic attack. When the US sanctions Venezuela or Iran the blowback domestically is minimal, but what happens when sanctions are applied to a major economy and what will the result be? Will this be the action that shakes the US's economic hegemony?
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS).
He previously served for 15 years as President of the National Foreign Trade Council, where he led efforts in favour of open markets, against unilateral sanctions, and in support of sound international tax policy, among many issues.
He is also an Adjunct Assistant Professor at the University of Maryland School of Public Policy, teaching courses in globalisation, trade policy, and politics.
Kate Bauer is the Blumenstein-Katz Family fellow at The Washington Institute for Near East Policy.
She is a former Treasury official who served as the department's financial attaché in Jerusalem and the Gulf, as well as senior policy advisor for Iran in the Office of Terrorist Financing and Financial Crimes (TFFC).
Bauer is also an adjunct associate professor in the Security Studies Program at Georgetown University’s Edmund A Walsh School of Foreign Service.
Chris Miller is Assistant Professor of international history at The Fletcher School at Tufts University and co-director of the school's Russia and Eurasia Program.
He is author of Putinomics: Power and Money in Resurgent Russia (2018) and The Struggle to Save the Soviet Economy (2016).
He has previously served as the Associate Director of the Brady-Johnson Program in Grand Strategy at Yale and as a lecturer at the New Economic School in Moscow.
John Parachini is the Senior Fellow and Director of the Brookings Intelligence Project, part of the Brookings Center for 21st Century Security and Intelligence.
Previously, Parachini served as executive director of the Washington office of the Monterey Institute of International Studies' Center for Nonproliferation Studies.
He has testified before both houses of Congress and has been widely published writing on terrorism and weapons proliferation.
Part 1: War in the Spreadsheets (4:30)
William Reinsch discusses the ascendency of sanctions as a sort of middle ground between softer diplomatic action but short of using military force. He talks about the evolution towards 'surgical' sanctions targeting against specific individuals and institutions under the George W Bush administration, which both offered a more targeted policy option while also lowering the threshold for the use of sanctions.
He offers some foundational background on the difference between tariffs and sanctions before examining some of the different sanctions options available in the international system and their pros and cons.
Reinsch gets into the US' technological hegemony and how it allows for extraterritorial technology sanctions and controls that have wide-reaching flow on effects.
He also talks about the limits of sanctions and the importance of anticipating some of their second-order effects, such as a targeted country developing their own technology or manufacturing outputs, and how the long term impact of sanctions can result in significant damage to the sanctioning countries.
Part 2: Directional Dynamite (28:10)
Kate Bauer expands on the evolution of sanctions since the Cold War and how the War on Terror had a significant impact on the nature and usage of sanctions in the modern globalised economy. One of the key changes brought about through the pursuit of terrorism financing has been dramatically increased transparency into the international financial system.
She discusses the impact on sanctions on long term targets of the United States, Iran and Cuba, and if sanctions can be truly separated from the average citizen of those countries.
With the rise of the use of sanctions, Bauer highlights the need to identify clear policy objectives and link those to each ongoing sanction initiative to ensure the cumulative effect still serves the wider strategy on punishing individual figures and countries within the interconnected international system.
Part 3: Squeezing the Bear (44:20)
Chris Miller talks modern sanctions on Russia, starting with those enacted in response to the 2014 annexation of Crimea. He discusses the US' reluctance to impose severe energy sanctions on Russia due to the flow on effect such actions will create for domestic and international energy costs in economies still recovering from the effects of the COVID pandemic.
Miller identifies the deft targeting of specialised supply chains in areas such as semi-conductors as an example of effective and damaging sanctions, which has been aided by the wide-spread unity of opposition to Russia's actions in Ukraine, helping to more comprehensively deny certain technologies and supplies from reaching the Russian economy.
Russia poses a more significant challenge to the wider international community's ability to prevent these crucial items being imported due to its significantly larger size than typical sanction targets as well as its web of allies who in theory could act as third-party supplies. While there will be leaks, Miller posits that the inconsistency and scale of such arrangements would be of limited utility to Russia.
We conclude our conversation with a discussion about if the current raft of sanctions will accelerate a potential geopolitical shift with Russia turning towards becoming a client state of China, and how we will judge the strategic success of these sanctions in the future.
Part 4: No Room in the Big Tent (1:00:09)
John Parachini talks about China's perspective on the current economic impact on Russia and its potential policy actions in response to Russia's foreign currency reserves being so severely impacted.
We continue to evaluate on the impact removing Russia from the US-based international payment system Swift, which caused significant damage to Iran when enacted against their economy, and if this will push Russia into adoption of a Chinese alternative.
We discuss potential consequences to countries currently involved in purchasing military technology from Russia, including Turkey and Russia, and where the limits of direct economic punishment on allies and neutral countries lies in this scenario. We conclude with an evaluation on the continued effectiveness of sanctions as a tool of statecraft in the future.
The Red Line's Sanctions Reading List:
We’ve compiled a list of further reading to better understand the role that sanctions play in the international system and Russia's place within that system.
Kleptopia: How Dirty Money Is Conquering the World
Putinomics: Power and Money in Resurgent Russia
The Economic Weapon: The Rise of Sanctions as a Tool of Modern War
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This episode is dedicated to Patreon members James Chamley, Rosa, Kurt Thiele Sr, and Ben Busath.