This document discusses economic statecraft and its various tools and objectives. It notes that while economic sanctions are widely used, they often do not achieve their desired outcomes, but can still be useful for signaling intentions or building consensus. Positive economic incentives are an underappreciated tool that could be more effective than sanctions. Economic interdependence can potentially lead to both political harmony and conflict depending on various factors.

1. Economic
Statecraft

2. Overview
 Economic statecraft: instruments and
objectives
 Economic sanctions: not always
successful, but still useful
 Economic incentives: an under-
appreciated instrument of statecraft?
 Economic interdependence: source of
political harmony or conflict?

3. Economic statecraft
 Statecraft: the use of instruments by
central political authorities to serve
foreign policy purposes (diplomatic,
military, economic)
 Economic statecraft: the use of
economic tools and relationships to
achieve foreign policy objectives. Part of
the wider array of foreign policy
instruments, where economic measures
are used in conjunction with military and
diplomatic tools

4. Economic Statecraft -
overview
 Long history of use, at least to ancient Greece
 But used much more heavily in modern times
 174 recorded use of sanctions between 1914 -2000
 Strong economies with many economic instruments are more likely
to use economic statecraft than weaker economies

5.  Despite widespread use, economic sanctions don’t
often appear to be that successful
 However, many argue that still have important role,
even if they don’t solve major problems
 Can be useful to signal intentions, build consensus, or
even set stage for military action

6. Economic statecraft: instruments
and objectives
Tools of economic statecraft include:
• Trade restrictions
• Financial sanctions
• Investment restrictions
• Monetary sanctions

7. Trade restrictions
• Trade restrictions are placed on given
exports or imports of a particular country
• Countries that rely heavily on imports or
exports, or in general, or of particular
commodities, are more vulnerable
• Examples:
• 1973 OPEC crisis, UN sanctions against
Iraq, US trade embargo of Cuba

8. Financial Sanctions
 Often used alongside trade restrictions in effort to
increase pressure on a government
 Includes things like cutting off of economic or
military aid or the blocking or freezing of access to
lending institutions (e.g. World Bank)
 Sometimes target specific assets of government
leaders held in other jurisdictions
 Examples:
 US freezing Iranian assets during hostage crisis, freezing
assets of suspected terrorist/supporters

9. Investment restrictions
 Restricting foreign direct investment (FDI),
which affects the state’s infrastructure
 Particularly powerful for countries that are
highly dependent on FDI for economic
growth and development
 Have been used by Western nations
against Iraq, Iran and Libya
 Also used against South Africa during the
1980s

10. Monetary sanctions
• Destabilizing a given
currency/exchange rate (buying and
selling of large quantities of a target
state’s currency)
• If effective can create serious financial
crisis for target state
• Examples: US against the UK during
the Suez Crisis

11. Negative uses of sanctions (sticks)
Governments use economic sanctions to satisfy a
range of foreign policy objectives:
 Altering the domestic politics of a target country
(e.g. over human rights practices)
 Influencing the foreign policy behaviour of a
target country (forcing an end to a conflict, or
the withdrawal of troops)

12.  Affect the economic or military capabilities of a target country
(e.g. slowing military growth)
 Attempting to bring about regime change (forcing political
capitulation)

13. Positive uses of sanctions (carrots)
 Trade promotion (promise or actuality
of expanded trade)
 Increase aid/transferring of significant
resources (Marshall Plan)
 Encourage foreign investment
 Support a country’s currency
 Promise of economic rewards to lock in
a series of desirable, long-term
changes (EU enlargement)

14. Economic sanctions:
not always successful, but still
useful
 Economic sanctions offer a possible
alternative to war as a means to settle
disputes and contain aggression
 Both League of Nations and the UN
encouraged members to use sanctions
before war
 Cumulative post-war experience suggest
that economic sanctions were for the
most part an ineffective form of statecraft.

15. Implementation difficulty
So why is it so hard to for sanctions to work?
Difficulty of maximizing economic pain
• Target states always have options to work around
sanctions, even the majority of states are cooperating
with sanctions
• States can respond over time to diversify their
economy to produce what can’t get

16. Even the imposition of economic pain does not
necessarily translate into desired political changes
 Instead of creating political disarray and pressure
domestic pressure on the government can have
the opposite effect
 Can create solidarity, political integration with
the target country or rally around the flag effect
- unit against external enemy
E.g. Castro in Cuba

17. Sanctions can be costly to the ‘sanctioner as
well as the target, making political support
difficult to sustain over time.
• In increasingly integrated economy hard to
impact economy of one country without
creating ripple effects on others (allies or
own)
• Examples - Reagan lifting US grain embargo
on USSR, China-US today

18. Can create political and public relations
problems for sanctioners when the effects
fall disproportionately on vulnerable groups
 Can’t guarantee how the sanction will be
felt inside the country and by whom
 Those with means inside the country can
still find access, while the poorest and
most vulnerable can be most impacted

19.  Sanctions can be so effective actually
create a humanitarian crisis inside the
country, which can cause backlash against
sanctions themselves
 E.g. Iraq, Haiti
 Has led to ‘smart sanctions’ that attempt
target damage more precisely
 E.g. target certain sectors of economy
(e.g. weapons imports), or the assets of
leaders & supporters

20. Usefulness
In spite of the challenges, governments still find
sanctions useful for a number of reasons:
1. Sanctions may satisfy some, if not all, of a state’s
goals.
2. Sanctions may pave the way for use of military
force.
3. Sanctions may be a relatively attractive option
in the absence of alternatives.

21. 4. An instrument increasingly used in
post-Cold War era (though not
necessarily more effective)
5. Globalisation: has important cross-
cutting implications for economic
sanctions (increases both vulnerability
and options)

22. Economic incentives: an under-
appreciated instrument of
statecraft?
Positive economic statecraft:
 Promise or provision of economic
benefits to get a state to do something.
Two basic types:
1) Tactical linkage: Operates at the
immediate level, offer a specific benefit
for a specific action
 The economic reward is tactically
calculated to gain maximum effect.
 The reward usually conditional on the
action

23. 2) Structural linkage: more of a long-term
effort to use a steady stream of
economic benefits to reconfigure the
balance of political interests within a
target state.
 It tends to be unconditional

24.  Given the importance of economic relations in
foreign policy it’s not surprising that scholars
have begun to rediscover the agenda of positive
economic statecraft
 Some argue that US foreign policy objectives
would be better served by employing carrots
rather than sticks, even in relations with
seemingly intractable states such as Iran and
North Korea

25. Economic interdependence:
source of political harmony or
conflict?
 Liberals argue that economic
interdependence decreases incentives for
conflict.
 Realists argue that economic
interdependence is more likely to lead to
state conflict.
 Each position has its own empirical
support. It may be useful to search for
intervening variables that help to explain
the circumstances under which economic
interdependence leads to war or peace.

26. Conclusion
 Economic statecraft is important and widely used
aspect of foreign policy
 Sanctions, despite not always achieving major
objectives, are widely used and can have important
impacts on foreign policy
 Have seen a growth in use of sanctions since the end
of the Cold War