May 29, 2024 | Hinrich Foundation

A new war fought with old arms: The limits of economic statecraft

The US financial warfare toolkit has not stemmed the tide of conflict that places American interests at risk on a global scale. Economic statecraft misaligned with the strategic environment is likely to escalate tensions without addressing the fundamental reasons behind them.
May 29, 2024 | Hinrich Foundation

A new war fought with old arms: The limits of economic statecraft

The US financial warfare toolkit has not stemmed the tide of conflict that places American interests at risk on a global scale. Economic statecraft misaligned with the strategic environment is likely to escalate tensions without addressing the fundamental reasons behind them.

Excerpt

Today’s geopolitical environment is increasingly shaped by conflict and instability.

At present, the West largely relies on economic statecraft (e.g., sanctions, export restrictions, retaliatory tariffs) to respond to global instability. This inclination towards economic and financial tools is driven by a variety of factors, including the greater availability of such tools, the capacity they afford to use direct kinetic confrontation only as a last resort, as well as needing to engage largely only upon lower-level forms of military conflict in the last two decades.

However, the Western economic warfare toolkit, much of it dominated by the US, has not stemmed the tide of conflict that places US interests at risk on a global scale. This reality demands consideration of how effective current modes of financial warfare can be, the deficiencies of the contemporary Western approach to broader economic warfare, and the implications of those deficiencies for the global economic system. The answers on all three fronts must grapple with the novel challenges posed by a globalized economic environment and globally integrated great-power competitors to US security interests.

These realities constrain the economic statecraft playbook available to the US, its allies, and its partners. They also exacerbate the inherent tension in economic warfare between national interests and economic ones.

Emily de La Bruyère is a senior fellow at the Foundation for Defense of Democracies (FDD), and co-founder of Horizon Advisory, a strategic consultancy focused on the implications of China’s competitive approach to geopolitics. Nate Picarsic is a co-founder of Horizon Advisory, a leading geopolitical and supply chain intelligence provider.

Issues:

China Russia Sanctions and Illicit Finance