The ever-expanding use of US sanctions to regulate the conduct of foreign companies trading in foreign markets has alienated US trading partners and could ultimately unleash a wave of counter-retaliation by foreign governments. Although US politicians and the US media see these sanctions as lawful regulatory instruments rather than weapons of war, they involve a modern form of gunboat diplomacy using coercion rather than legal process to obtain foreign cooperation. US trading partners thus far have found no effective response, but that may soon change, and in ways that will badly damage US interests and erode US power.
At some point, in the absence of US self-restraint, the tables will turn and foreign government adoption of their own coercive measures will create enormous challenges for US and global business. The risk is not only or even largely to the primacy of the US dollar in world trade but rather the ability of US-based and multinational companies to access major markets whose governments at some point will no longer tolerate US encroachment on their sovereignty.
US sanctions programs seek to achieve US foreign policy and political objectives, often without regard to whether other countries share those objectives. For example, when President Trump withdrew from the Iran nuclear deal in 2018, he said the deal was non-binding on him because it was signed by President Obama. The fact that the European powers, China and Russia also had signed it, the UN Security Council had endorsed it, and Iran had not violated it did not deter the Trump Administration from re-imposing and expanding all of the previously waived US sanctions. Under these coercive measures, the Administration has designated or threatened to designate foreign companies as US sanctions targets for engaging in entirely foreign business with Iran that has no connection to the United States.
The US sanctions rules have always applied differently to foreign companies than to US-based and US-owned companies. Since 1995, the so-called primary sanctions against Iran have prohibited the involvement of US persons in nearly all types of Iran-related business. In more recent years, the US government has required even non-US companies to obey the primary sanctions whenever their transactions involve US persons, the US financial system or US-origin goods. However, the US government has no law enforcement jurisdiction over transactions by non-US companies that do not involve any such US elements.
Critics of US sanctions policy often focus on the enormous fines imposed on foreign companies, particularly banks, for violating the primary sanctions, and the risk that such aggressive enforcement tactics will cause a foreign flight from US dollar-based trade and payments. Although that risk is real, the fines relate only to activity within US law enforcement jurisdiction and leave foreign companies free to choose whether to continue transacting with US sanctions targets without involving any US elements and therefore with violating US law.
To overcome this jurisdictional hurdle, when the US government decided, beginning in 2010, that it wanted to deter certain types of entirely non-US business with Iran, it did so by labeling such business as “sanctionable” under so-called secondary sanctions that authorized the designation of foreign companies engaged in such non-US business as US sanctions targets. During the Obama Administration, the secondary sanctions on Iran generally worked in parallel with European and UN sanctions against Iran’s nuclear proliferation drive, culminating in the multilateral negotiation of the Iran nuclear deal. To strike that deal, the Obama Administration waived the secondary sanctions on Iran, while leaving most of the primary sanctions in place.
As a result of the Trump Administration’s restoration and expansion of the secondary sanctions on Iran and use of similar extraterritorial sanctions measures against a wide range of other targets, US sanctions policy now conflicts with European and global norms to an unprecedented degree. Instead of respecting the sovereign right of our trading partners to decide how and with whom their companies cantransact from within their own territory and in their own currency, the US Treasury and State Departments dictate to foreign companies a complex series of sanctions red lines, entirely outside US jurisdiction.
It matters not whether the sanctionable activity involves the US dollar or any other US elements because the US Treasury and State Departments do not need a US jurisdictional hook to put a foreign company on a US sanctions blacklist. Instead, crossing a red line into sanctionable activity can trigger a US sanctions designation of the offending company, prohibiting their involvement in any business that involves US persons or other US elements. Foreign purchases of Venezuelan crude oil, foreign participation in Russian pipeline projects and foreign transactions with literally thousands of persons blacklisted by the US government under a range of sanctions programs, even if unrelated to Iran (or Syria or North Korea),could all trigger a boycott of a foreign company by the US Government, without any need to tie the sanctionable activity to the United States.
Unlike the primary sanctions, which operate within the same legal structure as other US administrative and criminal laws, the secondary sanctions provide Treasury and State nearly complete freedom to strike preemptively against their foreign targets. Although the target can attempt after-the-fact to demonstrate that they did not infringe any sanctions or negotiate a resolution, that process can take years, by which time the US blacklisting often has already put the target out of business.
The impact of a US sanctions designation is supremely powerful because it not only terminates the target’s access to the US economy and US financial system, but also imposes a secondary boycott designed to force foreign firms to choose between business with the target or business with the US. Following the designation, any foreign company that transacts with the blacklisted person, and thereby provides “material assistance” to them, could itself be blacklisted in turn, even if the alleged material assistance has no connection to the United States. Thus, banks and many other companies globally will refuse any new business with, and run in the other direction from, anyone that US Treasury, through its Office of Foreign Assets Control, has put on the so-called Specially Designated Nationals list. Once blacklisted, the US sanctions target finds itself persona non grata not only in the United States, but most of the world.
In fact, the pressure on foreign companies to respect US sanctions red lines and avoid any sanctionable activity is often greatest within their own financial services community. Before providing a large loan or underwriting securities, in any currency, for Asian or European companies, the participating banks typically will require an undertaking from the borrower or issuer not to engage in any sanctionable activity, as defined by the US government. Even Chinese companies that prefer to list their shares on the Hong Kong Stock Exchange, rather than in New York, still need to address their US secondary sanctions risks as part of the listing process.
The extraordinary deterrent effect of the US secondary sanctions contrasts with the historic failure of the Arab League’s long-running secondary boycott of Israel to deter companies in the United States and third countries from Israeli business. This difference is easily explained. First, companies that needed to choose between business with Israel or the countries that boycott Israel often have seen Israel as the greener pasture. Second, the US and many other leading countries prohibited their nationals from supporting the Arab League secondary boycott. As explained by the US Office of Antiboycott Compliance, the US antiboycott rules “have the effect of preventing US firms from being used to implement foreign policies of other nations which run counter to US policy.”
The hypocrisy of prohibiting US companies from complying with other countries’ secondary boycotts while threatening to boycott foreign companies for dealing, entirely outside US jurisdiction –with US embargoed countries and/or Specially Designated Nationals– is not the issue here. Hypocrisy in foreign policy is nothing new. Historic international law principles and constraints also have not deterred the expansion in US secondary sanctions. Instead, before either Congress or the Executive Branch will lose their voracious appetite for secondary sanctions, the cost-benefit analysis of these measures in economic and thus political terms will have to change in Washington.
In the current political environment, this change will occur only when foreign countries with sufficient market power impose sufficient counter-measures to make the US reconsider its approach. Thus far, US trading partners, particularly in the EU, have relied primarily on their own version of the US antiboycott rules to threaten their nationals with domestic legal action if they comply with US secondary sanctions. But these counter-measures have failed, for two principal reasons.
First, most multinational companies, particularly in Europe, have no interest in tempting fate by crossing a US sanctions red line. In contrast, they know the domestic antiboycott laws to which they are subject, even if enforced, which they rarely are, would not have anything like the nuclear impact of a US sanctions designation. The EU’s blocking regulation in particular is widely viewed as no more than a political statement. Second, many EU and other foreign companies to which these local antiboycott rules apply can typically justify their withdrawal from and avoidance of Iran, Cuba and other targets of unilateral US sanctions for business reasons, without expressly acknowledging they have done so in response to a US secondary boycott.
In the military realm, to deter a nuclear strike against them or their allies, the world’s major powers have developed their own nuclear deterrents. The strategy of mutually assured destruction has withstood the test of time. Because it has proven to work, the same logic will ultimately prevail in the world of sanctions, led by China.
Last year, China announced that it would create its own “Unreliable Entity List” to punish firms whose actions were harmful to China’s national interests. Although China has not yet put any companies on this list, it presumably would do so if OFAC puts a major Chinese company on the Specially Designated Nationals list and seeks to compel foreign as well as US companies to sever their ties with that Chinese company. Alternatively, China could find other ways to retaliate in kind, with the aim of restricting US access to China’s market sufficiently to match the harmful impact of US secondary sanctions on Chinese firms.
An eye for an eye and a tooth for a tooth. If the retaliatory threat is both credible and commensurate in scope with the sanctions threatened by the US government, the US will have as much to lose as to gain by imposing a secondary boycott. For this reason, the US has yet to impose a secondary boycott on any major Chinese company. Instead, even under President Trump, the actions taken against Chinese companies generally seek to restrict their access to US markets and US technology under US trade, investment and export control laws; i.e., various forms of primary boycott.
In such cases, the US requires foreign companies to exclude all or some US elements from their dealings with the Chinese target company, but does not threaten them with retaliation for their entirely non-US business with that Chinese company. With the exception of some smaller Chinese companies that the US has listed as Specially Designated Nationals, the US Treasury and State Departments have not threatened to blacklist foreign companies for entirely non-US business with any leading Chinese company. Moving in that direction against China would appear certain to trigger swift retaliation and thus mutually assured economic damage.
In contrast, the US Congress has enacted, and President Trump has implemented, a broad range of secondary sanctions against Russia intended to deter foreign companies from entirely non-US dealings with targeted Russian persons, companies and energy projects. Although not comparable in either scope or extent of actual use to the US secondary sanctions against Iran, the ones on Russia have succeeded in deterring a range of foreign investment in and foreign business with Russia that the previously-imposed US and EU primary sanctions had failed to accomplish.
Although Russia has threatened to retaliate in kind, its economy is far smaller than China’s. In 2015, when Russia put 60 US politicians on its version of a sanctions list in response to the initial wave of US sanctions against Russia, the late Senator John McCain quipped “I guess this means my spring break in Siberia is off, my Gazprom stock is lost and my secret bank account in Moscow is frozen.”A tooth for an eye has never provided an effective deterrent.
Apart from China’s credible defensive capability, it also has the ability to play offense. If the US can retaliate against foreign companies for their entirely non-US dealings with US sanctions targets, what is to stop China from doing the same to US and other non-Chinese companies in response to their dealings with Taiwan or other future targets of Chinese sanctions? What is to stop India from imposing a secondary boycott on Pakistan or Turkey on Cyprus? The US can use its antiboycott law to prohibit US companies from cooperating, but only at the cost of losing their business with the boycotting country.
In sum, relying on secondary boycotts to achieve US policy objectives is dangerous not only because it invites retaliation but also because it invites imitation. The US therefore should use them cautiously rather than capriciously, recognizing that at some point the balance will tip and the costs might quickly begin to outstrip the perceived benefits.
In particular, how much longer will the EU tolerate US insistence that EU companies abandon entirely non-US business with US sanctions targets before the EU adopts its own version of China’s Unreliable Entity List and directs EU companies to resist US pressure? Like China, EU counter-retaliation could be both credible and commensurate in terms of the costs imposed on US interests. EU self-restraint to date reflects its preference for rules-based diplomacy, but when that enables the US to encroach European sovereignty with impunity, even the EU at some point, if pushed too hard, will have to respond in kind.
If and when we reach the tipping point, what the world sees as US sanctions bullying will be met with a jab in America’s eye by a major US trading partner rather than foreign subservience. Various potential scenarios come to mind. Let’s assume a new and potentially more rational leadership takes the helm in North Korea, and South Korea as well as China quickly offer trade and investment even before any major and verifiable concessions by Pyongyang. Let’s further assume the US, backed by Japan, rejects any such premature concessions and threatens to use its existing secondary sanctions against North Korea to blacklist any South Korea or Chinese company that supports their own government’s strategy of economic engagement. When the foreign policy and domestic political stakes are that high, resistance to US secondary sanctions not only by China but also South Korea becomes inevitable, creating enormous risk of miscalculation, counter-retaliation and destabilizing after-shocks.
The effectiveness of US secondary boycotts to date appears to have created a misplaced confidence in Washington that ever-expanding use will not diminish their effectiveness or harm US interests. Rather than continue along the current path, inciting US trade partners to copy our own tactics to our detriment as well as theirs, the US should develop a more restrained and strategic approach to preserve the usefulness of sanctions. Coordinating US sanctions policies with America’s closest allies rather than trampling on their sovereignty would be a helpful starting point.
Prospects for U.S.-China Relations in the Biden Era
The U.S. presidential election which will be held on November 3 is drawing ever closer. As the Trump administration performs poorly in response to the COVID-19 pandemic, where the death toll in the U.S. exceeded 210,000, the election trend appears to be very unfavorable for Donald Trump.
According to a recent poll conducted by NBC News and the Wall Street Journal, Joe Biden led Trump by 14 percentage points in the national elections. It is worth noting that retired American generals, who have traditionally been extremely low-key in politics, publicly supported Biden this year, something that is quite rare. On September 24, 489 retired generals and admirals, former national security officials and diplomats signed a joint letter in support of Biden. Among them are Republicans, Democrats, and non-partisans, showing that they have crossed the affiliation, and jointly support Biden to replace Trump. Although the opinion polls do not represent the final election, with the election only being one month away, the widening of the opinion gap is enough to predict the direction of the election.
For the whole world, especially for China, it is necessary to prepare for the advent of a possible Biden era of the United States. During Trump’s tenure, U.S.-China relations have taken a turn for the worse, and China has been listed as the foremost “long-term strategic competitor” of the United States.
There is a general view in China that after the Democratic Party comes to power, U.S.-China relations may worsen. The reason is that the Democratic Party places more emphasis on values such as human rights and ideology and is accustomed to using values such as human rights, democracy, and freedom in foreign policies against China. However, as far as U.S.-China relations are concerned, it is too vague to use the simple dichotomic “good” or “bad” to summarize the relationship of the two countries.
However, it is certain that after Biden takes office, his policies will be different from Trump’s. An important difference between Biden and Trump is that Biden will follow a certain order and geopolitical discipline to implement his own policies, and he will also seek cooperation with China in certain bottom-line principled arrangements. It should be stressed that it is crucial for China and the United States to reach some principled arrangements in their relations.
From an economic point of view, should Biden become the next President, the United States will likely ease its trade policy, which will alleviate China’s trade pressure. It can be expected that the Biden administration may quell the U.S.-China tariff war and adjust punitive tariff policies that lead to “lose-lose” policies. If Biden takes office, he might be more concerned about politics and U.S.-China balance. In terms of trade, although he would continue to stick to the general direction of the past, this would not be the main direction of his governance. Therefore, the U.S.-China trade war could see certain respite and may even stop. In that scenario, China as the largest trading partner of the United States, could hope for the pressures in the trade with the U.S. being reduced.
China must also realize that even if Biden takes power, some key areas of U.S.-China relations will not change, such as the strategic positioning of China as the “long-term strategic competitor” of the United States. This is not something that is decided by the U.S. President but by the strategic judgment of the U.S. decision-making class on the direction of its relations with China. This strategic positioning destined that the future U.S.-China relations will be based on the pattern dominated by geopolitical confrontation. Biden sees that by expanding global influence, promoting its political model, and investing in future technologies, China is engaging a long-term competition with the U.S, and that is the challenge that the United States faces.
On the whole, if and when Biden takes office, the U.S. government’s domestic and diplomatic practices will be different from those of the Trump administration, although the strategic positioning of China will not change, and neither will it change the U.S.’ general direction of long-term suppression of China’s rise. However, in terms of specific practices, the Biden administration will have its own approaches, and will seek a certain order and geopolitical discipline to implement its policies. He may also seek to reach some bottom-line principled arrangements with China. Under the basic framework, the future U.S.-China relations will undergo changes in many aspects. Instead of the crude “an eye for an eye” rivalry, we will see the return to the traditional systemic competition based on values, alliance interests, and rules. Facing the inevitable changes in U.S.-China relations, the world needs to adapt to the new situation.
Third world needs ideological shift
As nations across the world have been pooling their efforts to contain the COVID-19 spread, the looming economic crisis has caught the attention of global intelligentsia. In the light of health emergency, The policy makers of Asia, Africa and Latin America have been struggling to steer the economic vehicle back to normalcy. Although, the reason for the economic slump could be attributed to the pandemic, it is also important to cast light on the economics of these tricontinental nations. Been as colonies for more than two centuries, these players had adopted the style of economics which is a mix of market economics and socialism. The imperial powers of the then Europe had colonised these nations and had subjugated them with their military and political maneuvers. Under the banner of White man’s burden, the Imperial masters had subverted the political, economical, social and cultural spheres of the colonies and had transformed these self-reliant societies into the ones which depend on Europe for finished products. The onslaught on the economical systems of colonies was done through one way trade. Though, the western powers brought the modern values to the third world during colonial era, they were twisted to their advantage. The European industrial machines were depended on the blood, sweat and tears of the people of colonies. It is clear that the reason for the backwardness of these players is the force behind the imperial powers which had eventually pushed them towards these regions in search of raw materials and markets i.e., Capitalism. Needless to say, the competition for resources and disaccord over the distribution of wealth of colonies led to twin world wars. Capitalism, as an economic idea, cannot survive in an environment of a limited market and resources. It needs borderless access, restless labour and timeless profit. While the European imperial powers had expanded their influence over Asia and Africa, the US had exerted its influence over Latin America. Earlier, at the dawn of modern-day Europe, The capitalist liberal order had challenged the old feudal system and the authority of church. Subsequently, the sovereign power was shifted to monarchial king. With the rise of ideas like democracy and liberty, complemented by the rapid takeoff of industrialization, the conditions were set for the creation of new class i.e., capitalist class. On the one hand, Liberalism, a polical facet of capitalism, restricts the role of state(political) in economical matters but on the other hand it provides enough room for the elite class and those who have access to power corridors to persuade the authority(state) to design the policies to their advantage. Inequality is an inescapable feature of liberal economics.
The powerful nations cannot colonise these nations as once done. The Watchwords like interconnectedness, interdependency and free trade are being used to continue their domination on these players. As soon as the third world nations were freed from the shackles of colonialism, they were forced to integrate their economies into the global economical chain. Characterized by the imbalance, the globalization has been used as a weapon by the Western powers to conquer the markets of developing nations.
The Carrot and stick policy of the US is an integral part of its strategy to dominate global economical domain. The sorry state of affairs in the Middle East and Latin America could be attributed to the US lust for resources. In the name of democracy, the US has been meddling in the internal affairs of nations across the developing world. Countries like Iran, Cuba, Venezuela, Libya, Iraq and Syria have challenged the US,a global policeman. Back in the day,soon after assuming the power, the Left leadership in Latin American countries had adopted socialist schemes and had nationalised the wealth creating assets, which were previously in the hands of the US capitalists. Irked by the actions of these nations, the US had devised a series of stratagems to destabilize the regimes and to install its puppets through the imposition of cruel sanctions and by dubbing them as terrorist nations on the pretext of exporting violent communist revolution. With the exception of the regimes of Fidel castro in Cuba and Hugo Chavez in Venezuela, the US is largely successful in its agenda of destabilizing anti-American governments in the region. The US has a long history of mobilising anti-left forces in Latin America, the region which US sees as its backyard, in an attempt to oust socialist leaders. At present, by hook or by crook, the trump administration has been trying to depose Nicolas Maduro, the president of Venezuela, a socialist.
In addition,The US has been colonising the minds of the third world citizens psychologically with its cultural hegemony and anti-left indoctrination. It is important to understand that the reason for the neo-fascism, which is unfurling across the developing and developed world alike, is rooted in capitalism.The third world citizenry is disgruntled and the ultra-nationalist right wing forces in these countries have been channeling the distress amongst the working class to solidify their position. Growing inequalities, Falling living standards, Joblessness and Insecurity are exposing the incompetence of capitalism and have been pushing a large chunk of workforce in the developing countries into a state of despair.Adding to their woes, the Covid-19 has hit them hard.
The US, with the help of IMF and the world bank, had coerced the developing countries to shun welfare economics.The term “Development” is highly contested in the economic domain.Capitalists argue that the true development of an individual and the society depends upon economic progress and the free market is a panacea for all problems.Given the monopolistic tendencies in the economical systems across the developing world, the free market is a myth, especially in a societies where a few of business families, who have cronies in policy making circles, dominates the economical and social scene.The time has come for the governments of these nations to address these issues and ensure that the wealth would be distributed in a more equitable manner.
The Election Circus and an Event in the Cosmos
The election in the US is held on the Tuesday after the first Monday in November. A Tuesday was chosen to allow people enough time to drive to the election site after Sunday, reserved for religious services and rest. Those were the horse and buggy days and it took a while. The people clearly had greater ardor for democracy then considering we get a less than 50 percent turnout now when voting sites are usually less than a five-minute drive.
Most states are either heavily Republican or Democrat so the results there are a foregone conclusion. The winners get the electors assigned to the state on a basis of population. The electors then vote for the nominees receiving the most votes in the state when the electoral college meets.
There are about a dozen battleground or swing states; among them Pennsylvania and Florida are prized for their high electoral votes — hence the repeated visits by the candidates. Trump won both in 2016. Will he this time?
Meanwhile two New York papers are busy running negative stories on candidates they oppose. The New York Times offers tidbits against Trump. The latest this week is that Trump has a Chinese bank account. The fact is not new since the information was filed with his tax returns — one has to report foreign bank accounts over $10,000 — but the news is intended as an example of Trump’s hypocrisy for he has been speaking out against doing business in China. The accounts in the name of Trump International Hotels have been moribund since 2015.
The New York Post, much less distinguished than the Times, is after Hunter Biden and through him his father, candidate Joe Biden. Last week the Post unearthed a dubious email purporting to show then Vice President Biden possibly meeting with Hunter’s potential business partner. This week there is a photograph of the Bidens, father and son, flanked by a Kazakh oligarch on one side and a former president of Kazakhstan on the other. The latest on the email issue has a certain Tony Bobulinski, one of the recipients, confirming the Post email adding that Hunter sought Dad’s advice on deals. There is also a proposed equity split referring to ’20’ for ‘H’ and ’10 held by H for the big guy.’
New York State may be a secure prize for Democrats but news stories these days are picked up on the internet and spread nationally and internationally. Surely the two newspapers have something really big up their sleeves for the week before the election.
Charges and counter-charges in the final presidential debate. Biden repeatedly blamed Trump for deaths from the Covid 19 epidemic. On almost everything Biden promised, Trump’s rejoinder was why he had not done it in the 47 years he was in public office including 8 years as vice president. This included mimicking Biden’s previously successful tactic of talking directly to the public. The same interests fund both major parties and they generally get what they want except that Trump mostly funded his campaign himself.
From all the ridiculousness to the sublime. Images of M87 are the first of any black hole swallowing whatever is within range. We are told of the discovery of a black hole in the center of our own Milky Way, presumably the eventual destination of everything in our galaxy. From this perspective the Trump-Biden debate, although quite important for our immediate future, seems to diminish to nothing in significance.
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