Xi’s Costly Obsession With Security
How a Quest for Control Threatens China’s Economic Growth
At the end of August, U.S. officials imposed new sanctions on Venezuela following the government’s crackdown on both the opposition and the country’s democratic institutions. The measures marked the fourth major expansion in U.S. sanctions programs this summer. (The others were against Iran, North Korea, and Russia.) With each set addressing different security threats, sanctions have been dubbed the “Swiss army knife of U.S. foreign policy” by the scholar Robert Kahn. Yet at a time when Washington has so many such programs in place, determining how best to wind down sanctions is perhaps more important than discussing when and how to impose them. If U.S. leaders want to use sanctions to change their targets’ policies, they need to plan for their eventual removal. Otherwise, Washington will lose credibility during negotiations and limit the mechanism’s effectiveness.
Sanctions have become popular with U.S. policymakers in recent years thanks to their success in changing Iran’s behavior. First implemented against Iran in 1996 but significantly stepped up between 2010 and 2012, U.S. sanctions helped shrink GDP by nine percent between 2012 and 2014, depress the value of its currency, and deepen its unemployment rate. Those effects convinced Tehran to enter into negotiations over its nuclear enrichment program. Successes such as this have encouraged U.S. officials to use so-called smart sanctions—or highly targeted sanctions programs against specific individuals, entities, and transactions as opposed to broader, less-focused programs—which leverage the United States’ primacy in the global financial system to shut down targets’ ability to do business. The most recent U.S. programs build on this success. Each, however, fails to offer a road map for its own end, a potentially fatal flaw.
Without clear goals, the United States risks enshrining sanctions indefinitely and making negotiations fruitless. The sanctions imposed on Russia in August 2017 are the worst among the new programs in this respect. Lawmakers’ desire to block President Donald Trump from unilaterally lifting the sanctions led them to create checks on the executive branch’s sanctioning authority. The new legislation codified into statute previous White House-created executive orders—including restrictions on the country’s energy, financial services, and munitions sectors—from 2014, in response to the Ukraine conflict, and from the end of 2016, in response to malicious Russian cyber activity. This codification means that Congress, not the president, will have the ultimate power to repeal the measures. The legislation also instituted a review process that allows Congress to reject even minor changes to the sanctions.
This means, however, that even if Russia complies with the Minsk agreements by ceasing its aggression in Ukraine, the legislative and executive branches still need to act together to lift the sanctions. If Congress disagrees with the president on ending them, it could use its review powers to derail the process. The resulting uncertainty could discourage Russia from negotiating over its position in Ukraine and prolong both the conflict and the sanctions.
It is similarly difficult to envision an agreement that could lead to the end of the U.S. sanctions on North Korea, which were first implemented in 2008 and target trade and investment between the U.S. and North Korea as well as economic sectors including mining, energy, financial services, and transportation. The conflict has been intractable for so long that the division of the Korean peninsula seems immutable, and the quest for nuclear weapons is a central goal of North Korean leader Kim Jong-un’s regime. In a recent Wall Street Journal op-ed, Secretary of State Rex Tillerson and Secretary of Defense James Mattis began to articulate a goal by calling for the denuclearization of the Korean peninsula and the dismantling of North Korea’s ballistic-missile program. Still, the administration has not always spoken coherently about this goal, nor has it communicated a comprehensive strategy for achieving it. It is, furthermore, doubtful whether the sanctions could dissuade the Kim regime from abandoning its nuclear deterrent—a capability it sees as an existential priority—and whether denuclearization would serve as an appropriate goal for U.S. sanctions policy.
It is doubtful whether the sanctions could dissuade the Kim regime from abandoning its nuclear deterrent.
The sanctions against Venezuela are similarly lacking. Does the United States want to stop President Nicolas Maduro’s power grab? Does it want regime change? Even as these questions have remained unresolved, the United States has continued to add Venezuelan officials to its sanctions list, has restricted bond and stock transactions for both the national government and the state-owned oil company, and is even considering restrictions on its oil industry as a whole. (Venezuela is the United States’ third-largest source of crude oil.) If policymakers are going to massively disrupt the U.S. energy market, they should not do this without a clear desired objective and a coherent plan to eventually lift the sanctions and restore energy markets back to normal.
Perhaps more than any other, the United States’ experience with Iran illustrates the difficulty of following through with winding down sanctions. Even though the European Union and the United States have lifted the most draconian penalties after the 2015 nuclear deal, including the restrictions on the country’s oil exports, economic relief from investment in the country has not met the expectations of the Iranian leaders. Iranian Supreme Leader Ayatollah Ali Khamenei has called out these disappointing results, particularly the continued joblessness, with unemployment rising two percent since the signing of the nuclear deal in 2015. Other sectors have also fallen short. Iran-EU trade remains half of what it was in 2008, and, as of July 2017, oil production was still at 3.8 million barrels per day, below the 4 million barrels per day by March 2017 predicted by Oil Minister Bijan Zanganeh in 2016.
The sanctions that remain in place against Tehran (for terrorism financing, human rights abuses, its ballistic missile program, and other infractions), as well as fears of the nuclear deal’s imminent collapse, have created a climate of uncertainty that has deterred foreign investment. A small number of European and American companies have signed deals in the country: the French energy company Total, for example, closed a $4.8 billion deal to develop the South Pars natural gas field in July 2017. But the pace of investment remains slow, and major banks have not reestablished links with Iran for fear of losing access to the U.S. financial system. To be sure, sanctions are not the only culprit for lackluster investment. Iran’s domestic business climate also bears the blame—the country ranks 120 out 190 in the World Bank’s Ease of Doing Business Index, and corruption is rife. Still, the limited foreign capital flowing into Iran shows the lingering effect of sanctions—and the need for greater thought on how to end them.
Political considerations often complicate plans to lift sanctions. U.S. officials invariably call for further economic pressure during crises—for example, after a North Korean missile launch—without thinking about how to eventually ease that pressure down the line. In these situations, politicians present an aggressive sanctions posture to confront the enemy and to appeal to constituents demanding a strong response but underplay planning for the end of sanctions for fear of signaling weakness or lack of resolve. Policymakers also must be disciplined in distinguishing the conditions the United States’ targets must meet for Washington to lift sanctions. If Russia complies with the Minsk agreements, for example, U.S. policymakers should lift the sanctions, regardless of the country’s continued human rights abuses. And more missile tests by Iran should not be not a basis to reimpose sanctions meant for its nuclear program.
Clearer messaging about the purpose of such policies—they should be incentives, not punishments—would create the political space to better plan the end of U.S. sanctions programs. If Congress and the president focus on the entire life cycle of sanctions rather than just their imposition, they will improve the effectiveness of individual programs and ensure that sanctions stay relevant as a foreign policy tool. In 2016, then-Treasury Secretary Jack Lew warned that if sanctions made the business environment “too complicated—or unpredictable or if they excessively interfere[d] with the flow of funds worldwide,” the United States would lose its role as the central node of the global financial system. The country would then lose its primary asset for the imposition of sanctions and diminish their effectiveness. Knowing when and how to end sanctions after they have achieved their goals is crucial to maintaining this central U.S. role. To preserve its new favorite weapon, the United States must learn how to holster it.