July 30, 2014 SIGN IN | REGISTER

Rethinking Economic Sanctions | Commentary

Against a backdrop of escalating violence in eastern Ukraine, the principal U.S. policy response has heretofore been to target Russian individuals and firms – from the chairman of the State Duma to a Russian company that makes mineral water and soft drinks.

How effective these measures have been so far is difficult to gauge. But at least the policy hasn’t yet resulted in a significant adverse impact to the U.S. economy. Unfortunately, that may change.

The Russian Aggression Prevention Act of 2014 mandates immediate sanctions against a huge swath of the Russian economy, crucially, with or without the support of the European Union.

Given the much greater degree of trade and investment among and between Russia and many European countries, it’s likely it would be the latter. To date, E.U. members have been notably reticent to adopt a more adversarial stance with respect to sanctions. Unilateral action will block U.S companies with a long history of investment in Russia from operating there, while doing very little to actually impact or influence Russia’s activities.

The stubborn fact is that unilateral U.S. sanctions targeting key sectors of the Russian economy – energy, defense, and banking – would only result in the replacement of U.S. companies in the Russian economy by non-U.S. global competitors, to the detriment of U.S. commerce and employment. Moreover, as sanctions are deemed by their objects as an act of aggression, they will invite response that has the potential to further destabilize the situation.

If all you have is a hammer, the saying goes, everything tends to look like a nail. U.S. dominance over the global financial system has made sanctions the U.S. hammer; inevitably, those damaged by its blows will search for means to change that status quo. More broadly, even when sanctions are multilateral, they are premised on the assumption that their presumed tactical success trumps the rules-based global trading system. Perhaps it is time to put aside the hammer in the strategic interest of strengthening and expanding the trading system, rather than making holes in it.

Given the realities of Russia’s place in the global economy, as well as the realities within and around Ukraine, would it not be in the U.S. national interest to work with the E.U. in support of Ukrainian economic and political renewal by, among other means, forging an agreement with Russia that does no further harm to the rules-based global trading system?

The United States has embarked upon ambitious trade negotiations with Asian countries (the Trans-Pacific Partnership) and with the E.U. (the Transatlantic Trade and Investment Partnership). By their nature, economic sanctions depart from the principle of free trade among sovereign states. Would it not make strategic sense for the United States to abjure the sanctions hammer?

Such an act would send an unmistakable message that the United States means what it says about the benefits of global trade – not only as a tool of shared economic growth, but of diplomacy and geopolitics. After the years of military and financial misadventures following 9/11, it is time to rewrite the foreign relations playbook to accord with strategic national interests.

Richard Sawaya is director of business coalition USA*Engage and a member of the National Foreign Trade Council.

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