Notes
Introduction
1. This bears emphasis. To be sure, the United States has for much of the past century pursued geoeconomic policy at the level of grand strategy by supporting free trade and investment and a rules-based international order. These twin objectives over the long term promote prosperity, democratic pluralism, and a more benign international system, all of which make the world geopolitically safer for America and bolster U.S. national interests. However, strong U.S. rhetorical adherence to these general concepts is quite different from Washington using economic instruments operationally to address current geopolitical challenges regarding the rise of Chinese power, the Ukrainian economy and Russia’s neo-imperialist ambitions, Egypt’s desperate economic condition, and so forth. As we argue at length in Chapter 7, we do not question the value of this rules-based order, but we see little evidence of it being robustly prosecuted by U.S. administrations in a concerted and systematic way as geoeconomic policy.
2. Leslie H. Gelb, “GDP Now Matters More than Force,” Foreign Affairs, November/December 2010, 35.
3. Michael Mandelbaum, The Road to Global Prosperity (New York: Simon and Schuster, 2014), xvi–xvii.
4. David Baldwin, Economic Statecraft (Princeton, N.J.: Princeton University Press, 1985), 58–59.
5. Ibid.
6. Francis Fukuyama first presented the “end of history” thesis in 1989, arguing that there is a positive direction to current history, demonstrated by the collapse of authoritarian regimes of right and left and their replacement by liberal governments. In a later piece on the “future of history,” he admits to having been a bit too quick off the mark. See “The End of History,” National Interest, Summer 1989, and “The Future of History,” Foreign Affairs, January/February 2012.
7. Gelb, “GDP Now Matters More than Force.” Former Secretary of State Hillary Clinton voiced similar calls as part of her “Economic Statecraft” agenda (“Economic Statecraft,” speech delivered at the Economic Club of New York, October, 14, 2011, and “Delivering on the Promise of Economic Statecraft,” speech delivered at Singapore Management University, November 17, 2012). These high-level comments are reverberated by a wide range of outside observers, most powerfully by Leslie Gelb (“GDP Now Matters More than Force”), Robert Zoellick (“Economics and Security in American Foreign Policy: Back to the Future?,” speech delivered at Harvard University’s Kennedy School of Government, October 2, 2012, and “The Currency of Power,” Foreign Policy, October 2012), and Richard Haass (Foreign Policy Begins at Home [New York: Basic Books, 2013]).
8. Clinton, “Delivering on the Promise of Economic Statecraft.”
9. David Baldwin’s 1985 Economic Statecraft and Alan Dobson’s 2002 US Economic Statecraft for Survival mark two happy exceptions to this general lack of focus on economic techniques of statecraft. Both Baldwin and Dobson themselves bemoan the same void, however, and in the intervening years since, the literature on international political economy has only grown more theoretical and less relevant to questions of how, why, and to what effect states use economic instruments to pursue geopolitical agendas.
10. See such works as Kim Holmes, Rebound: Getting America Back to Great (Lanham, Md.: Rowman and Littlefield, 2013) and Haass, Foreign Policy Begins at Home.
11. See Mandelbaum, The Road to Global Prosperity, and Francis J. Gavin, Gold, Dollars, and Power: The Politics of International Monetary Relations, 1958–1971 (Chapel Hill: University of North Carolina Press, 2004).
12. Jonathan Kirshner, “Political Economy in Security Studies after the Cold War,” Department of Government, Cornell University, April 1997.
13. See, for instance, Richard N. Cooper, “Economic Aspects of the Cold War, 1962–1975,” February 2008, available at http://scholar.harvard.edu/files/cooper/files/chcw.rev-2.pdf.
14. Gelb, “GDP Now Matters More than Force.”
15. To be sure, Cyprus made its own share of unwise investment decisions in the run-up to its 2013 banking crisis, many of them in the form of Greek bond purchases. And no doubt the allure of Cyprus’s low tax rates explains much of its popularity as an offshore haven for Russian depositors. Yet at the same time, many of Russia’s oligarchs and wealthy investors used Cyprus as a means of avoiding not just taxes but also “political risk at home and [as a way] to access Cyprus’ relatively reliable court system to adjudicate disputes.” A net $56 billion left Russia in 2012—the year that Vladimir Putin returned to the Russian presidency. Much of this belonged to Russian firms and oligarchs uneager to see their resources become “the Kremlin’s tool of choice for settling domestic and foreign policy problems,” New York Times journalist Andrew Kramer explained at the time of the Cypriot crisis. Notwithstanding the other factors in play, the rise in Russian deposits in Cyprus maps robustly with Putin’s return to power. Quotations cited in Andrew Kramer, “Protecting Their Own, Russians Offer an Alternative to the Cypriot Bank Tax,” New York Times, March 19, 2013. For further analysis on the contributing role of Russia and its brand of geoeconomics to the Cypriot banking crisis, see also Ben Judah, “Putin’s Role in Cyprus,” New York Times, April 2, 2013, and Charles Clover and Courtney Weave, “Russian Money Streams through Cyprus,” Financial Times, February 6, 2013.
16. Baldwin makes this point ably: “Even when economists turn their attention to economic sanctions or economic warfare,” he argues, “the fixation with economic ends is likely to persist.… Inflicting economic harm on the target country may well be the instrumental, or intermediate, goal of the influence attempt, but it is almost never an end in itself.” See Baldwin, Economic Statecraft, 62.
17. Graham Allison and Robert Blackwill, “America’s National Interests,” Commission on America’s National Interests, Belfer Center for Science and International Affairs, Harvard University, 2000, http://belfercenter.ksg.harvard.edu/files/amernatinter.pdf.
18. David Baldwin, “Power Analysis and World Politics: New Trends versus Old Tendencies,” World Politics 31, no. 2 (1979): 161–194.
19. Baldwin takes a similar approach in his Economic Statecraft.
1. What Is Geoeconomics?
Epigraph: Benjamin Constant, quoted in Albert O. Hirschman, National Power and the Structure of Foreign Trade (expanded ed. [Berkeley: University of California Press, 1980]) (Berkeley: University of California Press, 1945), 145–155.
1. Deborah Cowen and Neil Smith, “After Geopolitics? From the Geopolitical Social to Geoeconomics,” Antipode 1 (2009): 22–48; Jean-François Gagné, “Geopolitics in a Post–Cold War Context: From Geo-Strategic to Geo-Economic Considerations?,” Étude Raoul-Dandurand 15, University of Quebec, Montreal, 2007; Edward Luttwak, “From Geopolitics to Geoeconomics: Logic of Conflict, Grammar of Commerce,” National Interest 20 (1990): 17–23. Other equally abstract definitions of geoeconomics are seen in David A. Baldwin, Economic Statecraft (Princeton, N.J.: Princeton University Press, 1985) and Renatro Cruz DeCastro, “Whither Geoeconomics? Bureaucratic Inertia in U.S. Post–Cold War Foreign Policy toward East Asia,” Asian Affairs 26, no. 4 (2000): 201–222.
2. The Brussels- and Madrid-based think tank Foundation for International Relations and Foreign Dialogue (FRIDE) defines it thus: “Geoeconomics denotes the use of statecraft for economic ends; a focus on relative economic gain and power; a concern with gaining control of resources; the enmeshing of state and business sectors; and the primacy of economic over other forms of security.” Richard Youngs, “Geo-Economic Futures,” in Challenges for European Foreign Policy in 2012: What kind of geo-economic Europe?, ed. Ana Martiningui and Richard Youngs (Madrid: FRIDE, 2011), 14.
3. Mark Thirlwell, “The Return of Geo-economics,” Interpreter, Lowy Institute for International Policy, May 24, 2010. A similarly broad definition, offered by Brad Setser and Paul Swartz, defines geoeconomics simply as “anything that touches on both the economy and geopolitics” (“Geoeconomics, in Pictures,” Follow the Money [blog], Council on Foreign Relations, July 31, 2009). Still others bifurcate geoeconomics with
economic competition, labeling the instruments of power to be centered around productive efficiency, market control, trade surplus, strong currency, foreign exchange reserves, and so on; see Samuel Huntington, “Why International Primacy Matters,” International Security 17, no. 4 (1993): 68–83.
4. French political economist Pascal Lorot, for example, explains that “geoeconomics analyzes economic strategies—especially trade strategy—that are adopted by the states in certain political conditions for the protection of their economies or their exactly determined segments, so as to help their enterprises to acquire technologies or penetrate certain segments of world market for certain production or commercialization of some product.” Pascal Lorot, “La geoeconomie, nouvelle grammaire des rivalites internationals,” L’information géographique 65, no. 1 (2001), 43–52; Blagoje S. Babić, “Geo-Economics—Reality & Science,” Megatrend Review 6, no. 1 (2009): 32, www.webster.ac.at/files/BlagojeBabic_2008.pdf.
5. See Ian Bremmer, The End of the Free Market: Who Wins the War between States and Corporations? (New York: Portfolio, 2010); David Cortright and George Lopez, eds., Smart Sanctions: Targeting Economic Statecraft (New York: Rowman and Littlefield, 2002); Daniel Drezner, “Trade Talk,” American Interest 1, no. 2 (December 2005): 68–76, and his The Sanctions Paradox: Economic Statecraft and International Relations (Cambridge: Cambridge University Press, 1999); Richard Haass, Economic Sanctions and American Diplomacy (New York: Council on Foreign Relations Press, 1998); Edward Luttwak, Turbo-Capitalism: Winners and Losers in the Global Economy (New York: Harper Perennial, 2000); Robert A. Pape, “Why Economic Sanctions Do Not Work,” International Security 22, no. 2 (Fall 1997): 90–136; James D. Sidaway, “Asia–Europe–United States: The Geoeconomics of Uncertainty,” Area 37, no. 4 (2005): 373–377; Matthew Sparke, “From Geopolitics to Geoeconomics: Transnational State Effects in the Borderlands,” Geopolitics 3, no. 2 (1998): 62–98; and Brendan Taylor, Sanctions as Grand Strategy (New York: Routledge, 2010).
6. “The argument was first made popular in the 1850s by Richard Cobden, who asserted that free trade ‘unites’ states, ‘making each equally anxious for the prosperity and happiness of both.’ This view was restated in The Great Illusion by Norman Angell just prior to World War I and again in 1933. Angell saw states having to choose between new ways of thinking, namely peaceful trade, and the ‘old method’ of power politics. Even if war was once profitable, modernization now makes it impossible to ‘enrich’ oneself through force; indeed, by destroying trading bonds, war is ‘commercially suicidal.’ ” Dale C. Copeland, “Economic Interdependence and War: A Theory of Trade Expectations,” International Security 20, no. 4 (Spring 1999): 5–41.
7. James Allen Smith, Strategic Calling: The Center for Strategic and International Studies, 1962–1992 (Washington, D.C.: Center for Strategic and International Studies, 1993).
8. In recent years, calls have emanated from across the American foreign policy spectrum pointing to the strategic necessity of prioritizing U.S. domestic economic renewal, based on the assumed correlation between an orderly U.S. domestic house and the ability to project American power abroad. In the aptly named book Foreign Policy Begins at Home, Richard Haass argues that the biggest threat to the security and prosperity of the United States comes from within. For Haass, this necessitates rebuilding “the foundation of [U.S.] strength to be in a better position to stave off potential strategic rivals or be better prepared for them should they emerge” (Richard Haass, Foreign Policy Begins at Home [New York: Basic Books, 2013], 104). Similar sentiments are echoed in comments by Zbigniew Brzezinski (Strategic Vision: America and the Crisis of Global Power [New York: Basic Books, 2012], 63–64), Kim Holmes (Rebound: Getting America Back to Great [Lanham, Md.: Rowman and Littlefield, 2013]), George Shultz (“Memo to Romney—Expand the Pie,” Wall Street Journal, July 13, 2012), and Robert Zoellick (“American Exceptionalism: Time for New Thinking on Economics and Security,” Alastair Buchan Memorial Lecture, International Institute for Strategic Studies, London, July 25, 2012).
9. The 2010 U.S. National Security Strategy, for instance, is built entirely upon the premise that national security begins at home and that American strength has domestic roots. The 2015 version further echoes these sentiments.
10. Works by the likes of David Baldwin (Economic Statecraft), Susan Strange (“International Economics and International Relations: A Case of Mutual Neglect,” International Affairs, 1970), Alan Dobson (US Economic Statecraft for Survival 1933–1991 [New York: Routledge, 2002]), Albert Hirschman (National Power and the Structure of Foreign Trade, expanded ed. [Berkeley: University of California Press, 1980]), Paul Samuelson (Economics, 10th ed. [New York: McGraw-Hill, 1976]), and Klaus Knorr (The Power of Nations: The Political Economy of International Relations [New York: Basic Books, 1975]); Klaus Knorr and Frank Trager (eds., Economics Issues and National Security [Lawrence, Kan.: National Security Education Program, 1977]) account for the various tools of economic statecraft available, but largely fail to touch upon the extent to which such tools are used. This gap in the literature review is discussed in greater detail in Chapters 2 and 3.
11. This conception of geoeconomics encompasses both purposive behavior (state actions or non-actions of some kind) as well as consequential factors (that is, the effects of other nations’ economic actions on a country’s geopolitical goals). This interpretation is shared by thinkers such as Gyula Csurgai and Klaus Solberg Søilen, even if the definitions themselves differ. See, for instance, Csurgai, “Geopolitics, Geoeconomics and Economic Intelligence,” Strategic Datalink no. 69 (Toronto: Canadian Institute of Strategic Studies, 1998); Søilen, “The Shift from Geopolitics to Geoeconomics and the Failure of Our Modern Social Sciences,” Electronic Research Archive, Blekinge Institute of Technology, 2010.
12. Similar sentiments are echoed in comments by Brzezinski (Strategic Vision, 63–64), Haass (Foreign Policy Begins at Home, 1), Shultz (“Memo to Romney—Expand the Pie”), and Zoellick (“American Exceptionalism”).
13. The vast literature on “commercial peace” (essentially asking whether increased economic ties reduces incentives for conflict among trading partners) and the globalization debates of the 1990s and early 2000s (on whether the onset of a single global marketplace will reduce global conflict) mark what are perhaps international political economy’s most totemic contributions to understanding how economic phenomena can alter geopolitical incentives and outcomes. See William Domke, War and the Changing Global System (New Haven, Conn.: Yale University Press, 1988); Erik Gartzke, Quan Li, and Charles Boehmer, “Investing in the Peace: Economic Interdependence and International Conflict,” International Organization 55, no. 2 (2001): 391–438; Edward D. Mansfield, Power, Trade, and War (Princeton, N.J.: Princeton University Press, 1994); Bruce Russett and John R. Oneal, Triangulating Peace: Democracy, Interdependence, and International Organizations (New York: Norton, 2001).
14. Dobson, US Economic Statecraft for Survival.
15. Benn Steil, “Taper Trouble,” Foreign Affairs, October 7, 2014.
16. Ibid.
17. Ibid.
18. Robert D. Blackwill, “The Geopolitical Consequences of the World Economic Recession—A Caution,” RAND Corporation Occasional Paper, 2009; Jeff Lightfoot, “The Strategic Implications of the Euro Crisis,” Fletcher Forum of World Affairs, January 24, 2013; Simon Nixon, “EU’s Next Challenges Are Geopolitical,” Wall Street Journal, July 20, 2014; Jonathan Kirshner, “Geopolitics after the Global Financial Crisis,” International Relations and Security Network, September 3, 2014; Alexander Mirtchev, “Europe’s Strategic Future: Implications of the Eurozone Crisis,” International Relations and Security Network, October 14, 2013.
19. Susan Strange, “International Economics and International Relations: A Case of Mutual Neglect,” International Affairs, April 1970, 308.
20. See Gary C. Hufbauer, Jeffrey J. Schott, Kimberly A. Elliott, and Barbara Oegg, Economic Sanctions Reconsidered (Washington, D.C.: Peterson Institute for Int
ernational Economics, 2007); Per Lundborg, The Economics of Export Embargoes (London: Croom Helm, 1987); Drezner, The Sanctions Paradox, and his “Sanctions Sometimes Smart: Targeted Sanctions in Theory and Practice,” International Studies Review (March 2011); Jonathan Kirshner, “Currency and Coercion in the Twenty-First Century,” in International Monetary Power (Ithaca, N.Y.: Cornell University Press, 2006); James Reilly, “China’s Unilateral Sanctions,” Washington Quarterly (Fall 2012); David Baldwin, “The Sanctions Debate and the Logic of Choice,” International Security 24, no. 3 (1999–2000): 80–107; Richard Haass and Meghan O’Sullivan, eds., Honey and Vinegar: Incentives, Sanctions, and Foreign Policy (Washington, D.C.: Brookings Institution Press).
21. Edward Luttwak, The Rise of China vs. the Logic of Strategy (Cambridge, Mass.: Belknap Press of Harvard University Press, 2012), 40.
22. Ibid., 42.
23. As noted earlier, Baldwin’s definition comes among the closest to ours, emphasizing means rather than ends and describing the “empirically undeniable fact that policy makers sometimes use economic means to pursue a wide variety of noneconomic ends” (Economic Statecraft, 40). Baldwin’s definition differs from our use of the term geoeconomics in that his definition is only purposive, not a means of analysis. His use of economic statecraft thus appears more restrictive on the point of noneconomic tools in a way that may exclude cyber activity.
24. The so-called classic cases of geoeconomic statecraft often include the League of Nations sanctions against Italy, the U.S. embargo against Japan, the restrictions on trade with Communist countries imposed by the United States and Western Europe, U.S. sanctions against Cuba, and UN sanctions against Rhodesia. See Baldwin, Economic Statecraft, chap. 8 and p. 373.
25. Dobson notes that economic statecraft is a neglected area of study, due in part to bias in the international relations academy but also to a sense among scholars that economic tools are not terribly effective in the realm of geopolitics. He also notes the unwillingness of liberal economists to accept economics as resting upon—and subject to—political (and geopolitical) choices and forces (see US Economic Statecraft for Survival, 4–5). More recently, Zoellick also argues that America’s security strategists seem to have lost the ability to integrate economics and foreign policy (“Currency of Power,” Foreign Policy, October 8, 2012).
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