War by Other Means
GEOECONOMICS AND STATECRAFT
Robert D. Blackwill and Jennifer M. Harris
• A COUNCIL ON FOREIGN RELATIONS BOOK •
THE BELKNAP PRESS OF
HARVARD UNIVERSITY PRESS
Cambridge, Massachusetts
London, England
2016
Copyright © 2016 by Robert D. Blackwill and Jennifer M. Harris
All rights reserved
The Council on Foreign Relations (CFR) is an independent, nonpartisan membership organization, think tank, and publisher dedicated to being a resource for its members, government officials, business executives, journalists, educators and students, civic and religious leaders, and other interested citizens in order to help them better understand the world and the foreign policy choices facing the United States and other countries. Founded in 1921, CFR carries out its mission by maintaining a diverse membership, with special programs to promote interest and develop expertise in the next generation of foreign policy leaders; convening meetings at its headquarters in New York and in Washington, D.C., and other cities where senior government officials, members of Congress, global leaders, and prominent thinkers come together with CFR members to discuss and debate major international issues; supporting a Studies Program that fosters independent research, enabling CFR scholars to produce articles, reports, and books and hold roundtables that analyze foreign policy issues and make concrete policy recommendations; publishing Foreign Affairs, the preeminent journal on international affairs and U.S. foreign policy; sponsoring Independent Task Forces that produce reports with both findings and policy prescriptions on the most important foreign policy topics; and providing up-to-date information and analysis about world events and American foreign policy on its website, www.cfr.org.
The Council on Foreign Relations takes no institutional positions on policy issues and has no affiliation with the U.S. government. All views expressed in its publications and on its website are the sole responsibility of the author or authors.
Jacket photo: Getty Images | Mike Kemp
Jacket design: Lisa Roberts
978-0-674-73721-1 (alk. paper)
978-0-674-54598-4 (EPUB)
978-0-674-54597-7 (MOBI)
The Library of Congress has cataloged the printed edition as follows:
Names: Blackwill, Robert D., author. | Harris, Jennifer M., 1981- author.
Title: War by other means : geoeconomics and statecraft / Robert D. Blackwill and Jennifer M. Harris.
Description: Cambridge, Massachusetts : The Belknap Press of Harvard University Press, 2016. | “A Council on Foreign Relations Book.” | Includes bibliographical references and index.
Identifiers: LCCN 2015037690
Subjects: LCSH: Economic sanctions—Political aspects. | International economic relations—Political aspects. | United States—Foreign economic relations—21st century. | Geopolitics.
Classification: LCC HF1413.5 .B545 2016 | DDC 327.1/110973—dc23 LC record available at http://lccn.loc.gov/2015037690
Contents
Acknowledgments
Introduction
1. What Is Geoeconomics?
2. Geoeconomics and the International System
3. Today’s Leading Geoeconomic Instruments
4. Geoeconomics in Chinese Foreign Policy
5. Geoeconomic Strength in Beijing and Beyond
6. U.S. Foreign Policy and Geoeconomics in Historical Context
7. America’s Geoeconomic Potential
8. The Geoeconomics of North America’s Energy Revolution
9. American Foreign Policy in an Age of Economic Power
10. Geoeconomics, U.S. Grand Strategy, and American National Interests
Notes
Index
Acknowledgments
We would like to express our gratitude to the many people who helped make this book a reality. To begin, we thank Council on Foreign Relations president Richard N. Haass, director of studies James M. Lindsay, and director of the Maurice R. Greenberg Center for Geoeconomic Studies Michael A. Levi for their support of this project and insightful feedback throughout the drafting process.
We owe a debt to the CFR 2012–2013 and 2013–2014 study groups on geoeconomics for their comments and critiques, all of which improved the ideas underlying the book. The text also benefited from interviews conducted with current and former U.S. government officials, as well as insights from researchers and journalists immersed in issues of economics and foreign policy.
Our work builds upon the scholarly expertise of David Baldwin, Alan Dobson, and David Singh Grewal, three authors who pioneered a necessary trail in the study of geoeconomics in their respective work. We are equally grateful to have received comments at various stages of this project, forcing us to rethink, clarify, and improve our text. These valuable commentators were Graham Allison, Richard Danzig, John Deutch, Andrew Erdmann, Martin Feldstein, Ellen Frost, Peter Harrell, Sasha Post, Sarah Stillman, Ali Wyne, Philip Zelikow, Rachael Ziemba, and Robert Zoellick. None of them, of course, bears any responsibility for the final product.
We are deeply indebted to our executive editor from Harvard University Press, Thomas LeBien, who was masterly in guiding us to a more polished and incisive text. We are also grateful to our agent, Andrew Wylie, as well as to Patricia Dorff and the team in CFR’s Publications Department, and to Iva Zoric and the CFR Global Communications and Marketing team for their valuable assistance. Most important, we thank our three research associates at CFR whose contributions to this book were indispensable: Lauren Dickey, our gifted sinologist, Allison Dorey, and Matthew Lester, a supporting force behind the final manuscript.
We save for last our families—Karen, Ken, Ashley, and Sasha for Jennifer, and Vera Hildebrand for Robert. It is to you that this book is dedicated.
Introduction
DESPITE HAVING the most powerful economy on earth, the United States too often reaches for the gun instead of the purse in its international conduct. America has hardly outgrown its need for military force, which will remain a central component of U.S. foreign policy. But Washington in the past several decades has increasingly forgotten a tradition that stretches back to the founding of the nation—the systematic use of economic instruments to accomplish geopolitical objectives, what we in this book term geoeconomics. This large-scale failure of collective strategic memory denies Washington potent tools to accomplish its foreign policy objectives.
To compound matters, as economic techniques of statecraft have become a lost art in the United States, the rest of the world has moved in the opposite direction. Russia, China, and others now routinely look to geoeconomic means, often as a first resort, and often to undermine American power and influence. In ignoring the ever-greater role of geoeconomics in the international system, the United States squanders opportunities and dilutes its own foreign policy outcomes. It weakens the confidence of America’s Asian and European allies. It encourages China to coerce its neighbors and lessens their ability to resist. It gives China free rein in vulnerable African and Latin American nations. It allows Russia to bend much of the former Soviet space to its will without serious answer from the United States. It reduces U.S. influence in friendly Arab capitals. It insufficiently acknowledges the economic roots of much of Islamic radicalism. These costs weigh on specific U.S. policy aims. But they also risk accumulating over time into a structural disadvantage that Washington may find hard to reverse. In short, the global geoeconomic playing field is now sharply tilting against the United States, and unless this is corrected, the price in blood and treasure for the United States will only grow.
Should Washington send lethal weapons to Ukraine? Should the North Atlantic Treaty
Organization (NATO) reestablish a permanent presence in Eastern Europe? Should the United States directly arm the Iraqi Kurds in the fight against the Islamic State of Iraq and al-Sham (ISIS)? Should it intervene militarily in the Syrian civil war? Should America deploy boots on the ground in Iraq? Was an attack on Iran’s nuclear facilities really an option for President Obama? What should be the military components of the Obama administration’s pivot toward Asia? How many U.S. combat forces should remain in Afghanistan over the long term?
In the current era and across the political spectrum, the United States instinctively debates the application of military instruments to address all of these complex challenges. There is no comparable discussion in Washington of returning Ukraine to economic viability as a way to check Vladimir Putin’s designs for a Novorossiya, or “New Russia”; of prioritizing economic and financial denial strategies in the fight against ISIS; of making reform of the Egyptian economy a primary U.S. foreign policy objective; of strengthening Jordan to withstand the effects of the Syrian conflict; of building a Middle East coalition to blunt the economic transmission lines Iran relies upon to project influence in the region; of mounting a major, patient effort to bolster the faltering Afghan economy, a prerequisite for defeating the Taliban over the long run; of building into the Trans-Pacific Partnership agreement or into the Asia pivot more broadly, defenses to help U.S. allies steel themselves against economic bullying from China.
Thomas Jefferson would have regarded this as exceedingly odd. He did not send the newly minted American army to conquer French territory between the Mississippi River and the Rocky Mountains; rather, in exquisite geoeconomic enterprise, he bought it (from Paris, France, at least; true to the colonial arrogance of that time, the native residents of these territories received no such offer). To help prevent London from supporting the Confederacy, the Lincoln administration threatened Britain with the loss of billions of dollars invested in U.S. securities. Government support for overseas private investment drove both American engagement with Latin America and the rebuilding of Europe in the 1920s. The Roosevelt administration in the 1930s deployed trade to preempt German encroachment in the Western Hemisphere and attempted to use the Export-Import Bank to blunt the rise of Japan.
A year and a half after the outbreak of World War II in Europe, the Lend-Lease policy of 1941 enabled the United States to supply Great Britain, France, the Republic of China, and later the USSR and other Allied nations with defense materials needed to win that war. In July 1944 delegates from the Allied countries, led by the United States, signed the Bretton Woods Agreement, which was explicit in its hopes that strengthened international economic cooperation, built on U.S. and British terms, could help to avoid the horrors of another global war. Secretary of State George Marshall in June 1947, delivering commencement remarks at Harvard University, famously declared an archetypal geoeconomic proposition: “The United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace.”
In 1956, President Dwight Eisenhower, in one of the most brazen geoeconomic actions in the past century, forced Britain to end its invasion of Egypt and withdraw from the Suez Canal by threatening to instigate a collapse of the British pound. Soon after, he established the Commission on Foreign Economic Policy, the charter purpose of which was to put U.S. economic policy to work for the country’s foreign policy and national security aims. “The national interest in the field of foreign economic policy is clear,” said Eisenhower. “It is to obtain … the highest possible level of trade and the most efficient use of capital and resources. That this would also strengthen our military allies adds urgency. Their strength is of critical importance to the security of our country.” In 1960, a task force commissioned by President-elect Kennedy argued for liberalization in East-West trade to produce a more reasonable and open Soviet Union, and economic assistance to developing nations as a geopolitical means of meeting the Soviet challenge in these regions.
By the Johnson and Nixon years, however, geoeconomics had noticeably begun to wane. The war in Vietnam pushed geoeconomics off the U.S. policy stage. It was perhaps inevitable that the outbreak of armed conflict and hundreds of thousands of U.S. troops on the ground in Southeast Asia would shift policy makers’ attention in the direction of military use of force. But this continued through the 1979–1981 Iranian hostage crisis and the failed rescue attempt. It gained momentum with Washington’s military responses to the Soviet invasion of Afghanistan; the interventions in Angola, Lebanon, Grenada, and Panama; the first Gulf War; the Clinton administration’s air campaign in the Balkans; 9/11 and the wars in Afghanistan and Iraq; U.S.-led NATO intervention in Libya; the American drone and combat air attacks across the greater Middle East; and the reintroduction of U.S. ground forces in Iraq.
Even when policy makers’ attention turned from waging conflict to deescalating it, the parameters of discussion stayed largely confined to conventional political-military concerns: arms control negotiations, détente with the Soviet Union, and diplomatic openings with Soviet allies, all assisted by largely political factors. And even in the rare cases when the United States did take on a geoeconomic project of some magnitude during this period—bringing Russia and China into the Western economic order is far and away the most important example—these tended to remain geoeconomic attempts only briefly, before morphing into more straightforward commercial and purely economic ones. Geopolitical factors have not disappeared from these efforts, but they have become secondary if not tertiary considerations.1
This is decidedly not so for the world’s other major and lesser powers, for whom geoeconomics is a major, often primary instrument of their foreign policies. More and more states are waging geopolitics with capital, attempting with sovereign checkbooks and other economic tools to achieve strategic objectives that in the past were often the stuff of military coercion or conquest.
China curtails the import of Japanese autos to signal its disapproval of Japan’s security policies. It lets Philippine bananas rot on China’s wharfs because Manila opposes Chinese polices in the South China Sea. It rewards Taiwanese companies that march to Beijing’s cadence, and punishes those that do not. It promises trade and business with South Korea in exchange for Seoul rejecting a U.S. bid to deploy the Terminal High-Altitude Area Defense (THAAD) missile defense system. It reduces economic benefits to European governments that host the Dalai Lama. It initiates the creation of the BRICS group, consciously excluding the United States. It promotes the Chinese-led Asian Infrastructure Investment Bank to rival the Washington-based World Bank. In its economic assistance to Africa, it privileges nations that vote with China at the United Nations. It provides more loans to Latin American nations than the World Bank and International Monetary Fund (IMF) combined. It reportedly plans to lend around $10 billion to Venezuela, the most anti-American regime in Latin America. The United States has no coherent polices to deal with these Chinese geoeconomic actions—many of which are aimed squarely at America’s allies and friends in Asia and beyond.
Russia periodically shuts off energy to Ukraine in the winter to try to bring Kiev back within Moscow’s orbit. It intends to shift all natural gas flows crossing Ukraine to alternative routes circumventing the country to deprive Kiev of crucial transit payments. It threatens to reduce energy supplies to the European Union (EU) if Europe joins the United States in responding to Russia’s aggressive external behavior. It promises massive economic assistance to the newly annexed Crimea. It entices former EU leaders with lucrative contracts with Russian companies. It establishes the Eurasian Economic Union to tie countries in former Soviet space closer to Russia’s policy preferences. It writes off the majority of Uzbekistan’s debt to Russia. After Warsaw’s strong reaction to Russia’s intervention in Ukraine, Moscow suspends imports of Polish cheese due to alleged irregularities in “normative requirements.” It bans the import of Georgian wine because of Tbilisi’
s determination to protect Georgia’s territorial integrity. It offers financial aid to Greece while EU leaders are attempting their own bailout package. It dangles the prospect of an economic bailout before Cyprus in return for military port and airfield access, forcing EU leaders to choose between coming through with a sufficiently attractive bailout of their own or living with a Russian military presence inside the European Union. It bribes the weaker, cash-strapped members of the EU in hopes of provoking a defection from the U.S.-EU sanctions against Russia. For all of the readiness drills and commitments being undertaken by NATO leaders, the United States has no consistent polices to deal with Russia’s resurgent geoeconomic coercion.
The Gulf states pledge $12 billion in 2015 as aid to Egypt, adding to the more than $20 billion already contributed since the military ouster of former President Morsi. Oman commits $500 million in aid and investment to Egypt. Saudi Arabia provides economic support to Iraqi Sunni tribes fighting ISIS. Saudi Arabia and the United Arab Emirates together supply Jordan with more than $2 billion in annual aid, leveraging Amman to contain and dismantle the Muslim Brotherhood. Riyadh approves millions to underwrite the budget of the Palestinian Authority. With sums like these, the Gulf states have essentially set off a new great game in the region; the rules are geoeconomic, and once again, the United States does not appear to have any policy to respond.
India intensifies its “Act East” initiative with a decidedly geoeconomic overhaul targeted at India’s neighbors, extending new credit lines to Nepal and Mauritius, new high-speed data links to Myanmar, and new rail rinks to Sri Lanka, among others—all in clear response to China’s own encirclement strategy around India’s periphery. The European Union responds to Russian bullying in Ukraine by providing Ukraine an on-ramp to EU membership and Western investment. It pledges $15 billion in loans and grants over the next several years to help get the shattered Ukrainian economy back on its feet (not coincidentally, $15 billion is the precise sum that Putin offered and then later withdrew as the country’s popular uprising proved itself). Turkey and Azerbaijan launch construction of the TANAP pipeline, a link in the EU-backed Southern Gas Corridor, a patchwork of pipelines intended to diversify Caspian energy export routes and reduce European dependence on Russian gas. After years of economic patronage to Hamas and Hezbollah, Iran adds Yemen’s Shi’a Houthi rebels to its list of clients with an economic package to overhaul Yemen’s ports, help construct power plants, and provide Yemen with a year’s worth of oil stocks. Israel signs a deal to supply Egypt with 5 billion cubic feet of gas anually, beginning in 2018—an insurance policy in case its uneasy friendship with Egypt’s military leaders turns out to be insufficient or short-lived.
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