The rising use of economic coercion is a symptom of an increasingly unstable world that is struggling to contain rise of China and is no longer bound by the institutions established in the wake of World War II.
US President Donald Trump’s scattergun threats of punitive tariffs are a continuation of this trend. The Biden administration redoubled use of export controls to slow the spread of US technology to China. The West coordinated sanctions on Russia over its invasion of Ukraine, including the appropriation of its foreign exchange reserves. And China has repeatedly used boycotts and regulatory punishments targeting businesses of nations that have displeased it.
US legal firm Gibson Dunn, which tracks the use of economic coercion, says the Biden administration pursued "the most aggressive and far-reaching use of international trade tools of any US administration in history." The number of individual designations under the US economic sanctions regime more than doubled to 16,400 in the past four years, with 3300 names added just last year.
The United States intensified its financial squeeze on Russia last year, imposing secondary sanctions on financial institutions of third countries that facilitated transactions with Russia’s military or industry, even if they had no knowledge of the prohibited activity.
The Biden administration also expanded the use of export controls on technology sales to China to cover artificial intelligence, quantum computing and chip-making equipment. A new development was a restriction on outbound investment in Chinese advanced technology businesses.
It is early days, but the Trump administration shows signs of further intensifying economic coercion. In its first three weeks, it issued direct threats of punitive tariffs on Canada and Mexico, demanding tighter border control on migration and fentanyl, and on Colombia, demanding it abandon its rejection of military deportation flights. Canada, Mexico and Colombia all took steps to appease the US.
Trump has also threatened punitive tariffs on Denmark and Panama, if they fail to hand over Greenland and the Panama Canal respectively. He has directed similar threats towards Egypt and Jordan if they fail to accept relocation of the Palestinian population.
The new administration is yet to spell out its policy towards Russia. However, Trump threatened ‘high-level taxes, tariffs, and sanctions’ if it refused to negotiate over Ukraine.
The administration has also reinstated strict sanctions on Iran, including secondary sanctions on foreign organizations facilitating Iranian trade. It is unclear whether this will extend to Chinese banks, which the Biden administration was reluctant to attack. Furthermore, Trump has rescinded a deal negotiated by the Vatican under which the US would relax sanctions on Cuba and remove its designation as a sponsor of terrorism in return for the release of political prisoners.
China is ramping up export controls on critical minerals. Last December it banned the export of germanium and gallium, used for microchips, and antimony, used for ammunition, to the US. This month it added a requirement for government approval on the export of five further metals, including tungsten.
China is also restricting the export of critical minerals processing technology, which could affect planned rare earths and lithium processing plants in Australia.
Economic coercion has been accelerating alongside globalization since the mid-1980s. As trade rose from 15 percent to 25 percent of global GDP, it became an attractive target. According to the historian Nicholas Mulder, sanctions were used twice as much in the 1990s and the 2000s as in the period from 1950 to 1985. Their use had doubled again by 2010. It has likely more than doubled once more since Russia’s attacks on Ukraine.
International trade agreements matter little when powerful nations use economic coercion. China ignored its 2015 trade agreement with Australia when it imposed bans on Australian exports. The US’s latest tariffs on aluminium and steel which have been justified on national security grounds, ignore both its trade agreement with Mexico and Canada and World Trade Organisation (WTO) standards.
China has foreshadowed a complaint to the WTO over the US’s 10 percent tariff on Chinese exports. However, the US has effectively shut down the organization’s appeal panel as presidents, starting with Barack Obama, have refused to approve new members. The US contends that the WTO has facilitated the rise of China at the expense of US manufacturing.
During the first Trump administration, legislation was drafted to withdraw from the WTO. Now, an executive order that establishes a review of US participation in all multilateral organizations will likely confirm US withdrawal. The governor of the Bank of England, Andrew Bailey, has expressed concern that the review may also lead US to pull out of the International Monetary Fund and the World Bank.
Those organizations and the General Agreement on Tariffs and Trade, the predecessor of the WTO, were established in 1944 to avert the sort of breakdown in international economic relations that created the conditions for WWII. Seventy years on, they are proving to be inadequate brakes on the rise of economic hostility.
.jpg)