Five (Mostly) Free Ways to Boost American Economic Statecraft

Washington could make far more progress on foreign policy goals if only it learned to deploy the tools of economic diplomacy better

Here's a riddle. 

Why is the world's largest economy, which attracts the most inventive entrepreneurs, taps the deepest capital markets, offers access to history's most dependable consumers and literally prints as much money as it needs -- why is such a place so bad at flexing its economic muscle to advance its interests? 

Tariffs change nothing in China, sanctions have barely slowed Russia’s attacks on Ukraine and for all our efforts to tackle poverty, the “Global South” as it now styles itself rarely rushes to endorse U.S. policy on much of anything.

A few partial answers seem obvious.  Maybe a country that can't agree who won the last election can't be expected to come together over export controls. Maybe tariff lines touch so many conflicting interests at home that coherent policy is impossible.  Maybe it’s just that markets will always find a way around even the tightest set of financial sanctions.

But with so many U.S. tools to influence the course of global events occupying that vast policy space between outright war and empty symbolism, even slightly more thoughtful deployment of tariffs, sanctions, export controls and investment review mechanisms would go a long way to advancing Washington's diplomatic priorities and bolstering the U.S. economy.

A "prebuttal" may be warranted at this stage.  Washington's economic policy has gotten a bad rap lately for blindly backing globalization without considering the consequences back home.  But this is clearly a failure of domestic policy to support re-training to cushion the job losses and adjust tax policy to alleviate the inequality.  Much more on this another time…

For now let's set aside the massive benefits of trade agreements that might have been and outline five ways the United States might better deploy its considerable economic leverage to make the world more prosperous, more peaceful and, yes, more just.  Nothing here involves spending money.

Doctrines of Economic Statecraft: Far more thoughtful voices have already suggested this in some form, but it's an obvious priority.  Just as the Defense Department has military doctrines that establish when and where certain weapons work best, the Treasury Department should develop a set of guidelines around when tariffs, sanctions and investment controls have the best chance of delivering the outcomes we seek. (And, by the way, we should all have a clear idea of the 'outcomes' we are actually seeking.) 

More Carrots (alongside the Sticks): With so much attention paid to financial sanctions and whether they drive countries away from the dollar, we should do more to elevate and improve the economic support we give, too. Direct foreign assistance is minuscule compared to what voters think it is, let alone as a proportion of GDP. But even without significantly increasing the amounts, we can provide much more economic support to countries with loan guarantees or better leverage of the balance sheets of the World Bank and International Monetary Fund.  And as frustrating and slow as the negotiations are, we must keep pushing on debt relief for the poorest countries.

If we have many of the tools we need already, shouldn’t we try to use them better?

Training for Congressional Staffers: A key reason our economic statecraft is so disjointed is Congressional micromanagement and political polarization. Yes, it’s a democracy. And, yes, every elected representative naturally wants to protect jobs back home. But we might get slightly more coherent outcomes if the stable pool of legislative staffers understands these tools should be better coordinated.  (Reality Check: We would never let Congress vote on the mix of land, sea or air power we deploy in the South China Sea.)

Double Down on the G-7: The bad news is that even the most internally coherent U.S. economic strategy will fail without involving Europe and Japan.  The good news is that we all broadly agree that a central challenge to global growth is China’s exports of its excess industrial capacity, while a central challenge to peace is Russia’s invasion of Ukraine.  The current level of alignment on these issues is remarkable but will require even tighter coordination as we start arguing about technology exports to China and stronger restrictions on Russian oil exports. 

Embrace Crypto: Distributed ledgers will completely restructure the financial industry over the next decade and the U.S. government needs to be in front of a technological revolution that offers a huge boost to financial inclusion, broad gains in productivity and the chance to better balance personal privacy with law enforcement. Just as regulators are properly cracking down on "meme coins" and scam artists, they need to speed work on a coordinated set of rules that allows individuals to transfer money directly, cheaply and securely over the internet. 

So much more could also be done to align rules on cross-border data transmission, corporate taxation and food and energy subsidies.  Each of these raises thorny questions and touches deep political nerves, but these are all areas where even some progress by the U.S. and its allies can bolster global growth, encourage innovation and alleviate poverty.   

Growth, innovation and poverty reduction are tall orders, but isn't that what all good policy should aim for?  And if we have many of the tools we need already, shouldn’t we try to use them better?