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US Economic Sanctions at the Tipping Point

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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.

A US Sanctions Specialist, and partner at international law firm Clifford Chance, George Kleinfeld has 30+ years of experience in the fields of international economic regulation and foreign trade controls. He advises leading financial institutions, industrial enterprises, trading companies and global investors on US sanctions issues and compliance with US sanctions laws and regulations. He has participated in a wide range of US sanctions investigations and enforcement actions as well as designing compliance programs and providing compliance training and risk analyses for multinational corporations and financial institutions in Europe, the Middle East, Australia, Asia and the Americas. George also advises on compliance with US export controls and the Foreign Corrupt Practices Act and has obtained scores of national security clearances for foreign acquisitions of strategic US business assets from the Committee on Foreign Investment in the United States (CFIUS). The opinions within this commentary are his own and not that of his firm.

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Trump Lost, Biden Won. Is Joe Biden’s presidency a signal towards Obama’s America?

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image source: obamalibrary.gov

Greek statesmen, Pericles once said, “Just because you don’t take an interest in politics doesn’t mean the politics won’t take interest in you”. The same is the case of United States politics which knowingly or unknowingly has an impact on world politics. That is why the result of the US elections are of great interest to states across the world. Although, for the United States, the goal is to maintain American primacy, to see a world in which the United States can use its predominant power to get its way, regardless of what others want. However, it is a fact that the political landscape of the United States has mostly been dominated by two parties, Republicans and Democrats, who not only differ in their ideas, policies, priorities but also in their approaches towards addressing the key issues facing the country. 

Comparing the two, we see the Republicans are more conservative in their approach as compared to the liberal Democrats. Therefore, the recent election in the US (2020), with Biden (Democrat) won and trump (Republican) lost is also a signal towards a changed approach in many issue areas The focus is to see, whether the new President, Joe Biden who remained the 47th vice president during Obama’s administration for eight long years is going to follow the same lines as Barack Obama and whether he going to reverse the policies of Donald Trump?

Looking at first the climate change issues, President Joe Biden’s plans to tackle  it seems more ambitious than any of the US presidential candidates so far. Biden during his presidential campaign proposed $2trillion over four years to significantly escalate the use of clean energy in transportation, electricity and building sectors. His public health and environment platform planned the establishment of a climate and environmental justice division. He further intends to make the US electricity production carbon-free by 2035 with achieving net-zero emissions by middle of the century. Apart from all these, the most noticeable is President Joe Biden’s promise to reverse Trump’s plan to exit from the Paris climate agreement that was signed back in 2016 under Obama’s administration. 

As Joe Biden in response to the former President, Donald Trump’s unilateral withdrawal from the agreement on 4th-Nov 2020, tweeted “Today, the Trump Administration officially left the Paris Climate Agreement. And in exactly 77 days, a Biden Administration will rejoin it.” He further stated“Reversing the decision would be one of my first acts as president”. This is exactly what happened as Joe Biden’s first act in the Oval Office was his signing an executive order to have the United States rejoin the Paris climate agreement.  Thus, while Trump has taken a strident anti-climate approach, President Joe Biden decision shows his intentions to bring back the policies of Obama towards climate change. 

Considering the health sector, we again find difference in approaches of Joe Biden and Donald Trump, yet similarity between Biden and Obama. As, President Joe Biden in his presidential campaign speech in Lancaster on June 25, 2020 defended the first American healthcare law also known as the Affordable Care Act or Obamacare that was initiated by Obama’s administration. He stated, “I’m proud of the Affordable Care Act. In addition to helping people with pre-existing conditions, it delivered vital coverage for 20 million Americans who did not have health insurance”. This depicts President Joe Biden’s plans to restore Obama’s health care policies. 

America is known as the land for all, a land of cultural diversity, but we have seen with Donald Trump coming to power, the immigration rules became very strict as he imposed restrictions on foreigner’s visits to the US. An example of this is Trump’s first Muslim travel ban announced on January 27, 2017, whereby five Muslim-majority countries, including Iran, Libya, Somalia, Syria, and Yemen, were banned from traveling to the United States. Trump stated, the act is needed for national security and to save the country from terrorism. However, this discriminatory act was opposed by ex-President Obama, who in 2016, stated: “America was a country founded on religious freedom. We don’t have religious tests here”. 

This is what President Joe Biden also believes in, as he called Trump’s actions on immigration a pitiless assault on American values. On November 8, 2020 during the presidential campaign, he said,“My administration will look like America with Muslim Americans serving at every level,” and “on my first day in office I’ll end Trump’s unconstitutional Muslim ban.”So, President Joe Biden did what he said, as on his first day in office he signed 17 executive orders, memorandums and proclamations, including orders to rejoin the Paris Climate Accord and end the Muslim ban

Then racism that increased in the US under former President Donald Trump is now challenged by President Joe Biden as he came up with a very different idea just like Barack Obama’s notion of “A more perfect Union”. Example of which is Kamala Harris, who became the first black Asian America woman vice-president in American history. More can be seen by Joe Biden giving credit to African Americans for helping him win the election. So, his presidency is seen as a sign of hope to end racism in the country. 

Moving further, we know globalization has cut the long-distance short, it has made countries more interconnected in all aspects, especially economic. To name a champion of globalization, obviously no other than the USA comes into the mind of every single person. Under the administration of Obama, we have seen the US convening the G-20 summit, introduced macro-economic policies, signed Trans pacific partnership, and much more. However, the question is, whether the US is going to retain this all under Joe Biden’s presidency? What would be his approach towards the ongoing US-China trade war? 

President Joe Biden from the very start has focused on rebuilding the domestic economy, as the slogan ‘Build Back Better’. Therefore, he clearly stated that the US will not enter any international trade deals unless the domestic concerns of labor and the environment are fully addressed. Moreover, looking at the US-China trade war, which started back in 2018 when the Trump administration imposed tariffs on Chinese goods worth more than $360bn, we don’t find much difference except the tactics. As Joe Biden too in his presidential campaign accused China of violating international trade rules, subsidizing its companies, and stealing U.S. intellectual property. He promised to continue with Trump’s heavy tariffs on Chinese imports, but while Trump did this all unilaterally, Biden would continue it together with the allies.

On issues related to national security, we again find President Joe Biden’s approach a bit different from that of Donald Trump. Considering the Joint Comprehensive Plan of Action (JCPOA) or p5+1 deal that was signed between Islamic Republic of Iran and 5 permanent members of UNSC along with Germany. It imposed several restrictions on Iran in exchange for sanction reliefs and was achieved by Obama’s administration under his “constructive engagement policy“in 2015 But Trump smashed it by calling it a historical blunder and in 2018 under his “Maximum pressure policy” pulled the USA out of the deal and reinstated sanctions. Iran too after the withdrawal of US from JCPOA and upon Iran Revolutionary Guard Corp (IRGC) commander Qasim Sulemani killing by the US airstrike announced that it no longer adheres to the 2015 Nuclear Deal. 

Now, the hope is President Joe Biden, as he stated in his presidential campaign that the “maximum pressure” policy has failed, emphasizing that it led to a significant escalation in tensions, and that Iran is now closer to a nuclear weapon than it was when Trump came to office. Therefore, he pledged to rejoin the nuclear accord if Iran returns to strict compliance. Here again it shows President Joe Biden’s intention to follow Obama’s approach of constructive engagement towards Iran. 

When it comes to Afghanistan, Trump decided to end the endless war in Afghanistan by having a peace agreement with the Afghan Taliban, according to which the US will withdraw all its troops from Afghanistan. However, Joe Biden has not taken any clear decision on it yet. But he is under pressure as the Taliban wants the new president to follow the same peace accord achieved by the Trump administration. Yet, the Afghan president, Ashraf Ghani has requested President Joe Biden to rethink the Afghan peace deal. Therefore, it is too early to say what Biden would do. 

To sum up, the 78 years old Joe Biden who has smashed the election records by securing more votes than any presidential candidate in the history of United States elections, he has not only raised high expectations, but there are numerous challenges on his way as well. This is because his policies would now be a center of focus for many. In most of the issue areas, we see President Joe Biden reversing the policies of Donald Trump and following the path of Obama’s Administration. Something which he promised during his presidential campaign as he said to take the country on a very different path from what it has been in the past four years under former President Donald Trump’s administration. However, it’s just the start of a new journey for America and the future decisions by President Joe Biden will uncover a lot more

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How Uncle Sam views the world by 2040

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How the US is seeing the future world is revealed in a recent report, Global Trends 2040: A More Contested World, published by the National Intelligence Council of the US. This report of political, social and economic estimates is prepared through an integrated process for every incoming President of the USA. For Biden, the report was published in March this year. The world, its politics, economics and societies, is going to change under the forces stemmed in changes in demographic modalities, environmental fluctuations, economic preferences and technological transformations. These together are going to impact on societies, states and international systems which would end in sketching five different futures of the world. Uncle Sam seems to be shaking the world, and this time even more intensely.

Starting off how the forces will interact and intersect, it all begins with the changes in demographics. The developed economies are aging bringing a global slow economic growth whereas the contracting working age will weigh on the economies of these developed countries as Japan and South Korea will reach the median age of 53 and Europe the median age of 47 by 2040. On the other side, in developing countries the converse will be happening as Sub Saharan Africa will reach median age of less than 15 years whereas Pakistan, Egypt and Afghanistan will reach the median age of 30 years. This seems opportunity but these economies will be challenged to meet the demands of the growing working age populace in their economies with the slow global economic growth remaining constant dragging the societies into  social volatilities while testing the performances of states too.

The forces of environment will leave no country unaffected especially the developing countries that lack in adaptations skills and technologies. The occurrence of heat waves, melting of Arctic, land degradation, water misuses, food insecurity, loss of biodiversity, rising sea levels and pollution will erode the ‘human security’ while affecting states and societies, politics and economics coequally. For curtailing environmental threats, countries may apply geoengineering by interacting with the natural system of earth to counteract threats of climate change like releasing the sun’s energy back into space through Solar Radiations Management or Stratospheric Aerosol Injection spraying to cause global dimming. The developed countries especially US and China will see suspicions on sincerely working on environmental threats as this would require economic sacrifices.

In the sphere of Economics, the national debt management will push countries to avoid funding on the issues of environment as they will already be pressed hard for matching the needs of the growing demands of their elderly and younger populations alike. Covid 19 has already left indelible imprints on the economies of the world especially the developing countries two fifths of which, according to 2019 IMF assessment, were at debt distress. Automation and rapidly growing AI will reduce 9 percent global jobs and transform one third by 2040 while at the same time creating massive new technology and automation stemmed jobs which will test the states adaptability to manoeuvring technology. This will have disproportionate effect across the countries and regions. The element of Superstar firms, the new multinationals, will critically affect world economies and make definitive inroads in the affairs of politics.

The technological forces will surpass all other forces in intensity especially with the significant rise of AI and Biotechnology. The US-China rivalry in this sphere will be rampant. AI will disrupt global current workforce while also creating new dimensions of labor compelling the countries to remodel their working force structures. The application of AI in warfare will be on the rise and will be adding a new element to the geopolitical dynamics. AI is well positioned to fly and reach space which will turn the space diplomacy in new form and bring the two global rivals face to face. AI will siphon out the human element of emotions in making decisions having social effects.

As these forces interact, world will see five possible scenarios in which the first three are the prominent.

In the first scenario, it will the US and allies led democracy which will manipulate the world. Being democratic, there will be more space for innovation and the rise of technology with robust public private partnerships will prosperously affect economic growth of the countries. This will enable the states to be responsive to their people’s needs while the same time making adaptations unlike in the repressive regimes of Russian and China whose policies will let them on steady decline.

In the second scenario, it will be China which will be mastering the world arena but not exactly acting like leading it due to its inherent repressive dynamics. This will happen on account of failure of international organizations with least interest paid to them by the major powers. The factors of high national debt, the costs of caring for aging populations, and hazardous environmental occurrences will havoc states’ budgets and keep them away from spending on education, infrastructure, and scientific research. In these circumstances due to the integrally centralist and controlled Chinese centralism will help China gain global attention through its global infrastructure packages and other initiatives. Many countries will thus tilt to the Chinese sidelines.

In the third effectual scenario, it will be a contested coexistence of US and China which will emerge. This will be based on shared economic and growth preferences and agreements.

Much of what is stated in the report must be happening in the world ahead but much of what is left unstated is more critical. Summed up, there will be more instability, pandemics, economic recessions, state conflicts and disorders in the five different worlds that lay ahead.

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Understanding Ronald Regan’s approach to the Cold War

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President and Mrs. Reagan at the 1981 inauguration parade. Image source: Wikipedia

President Ronald Reagan’s ascendency in the political hierarchy of the United States, ending in him becoming the President is often regarded as a triumphant victory by American conservatives. His conception of the world order, domestic and international relations show a reflection of a conservative understanding of issues. His legacy as president remains as having effectively brought down the Soviet Union and the threat of Communism. His policies towards the Soviet Union have a transformative nature, as his understanding and approach to US-Soviet relations changed radically after his first term. Though being a staunch Anti-communist and regarding the Soviet Union as an “evil empire”, he sought to ensure that America and its idea of a “Free World” prevailed and later on, that the two most significant military powers would reach common ground in order to make peace more sustainable.

In studying his approach to tackling the Soviet threat, it’s important to first understand the correlation between the policies adopted by previous administrations and Reagan’s own pursuit of defeating the Communist threat which at the height of the Cold War, threatened to spill into a full-scale conflict between the two regional hegemons. Previous administrations had traditionally approached the threat posed by the Soviet Union with a policy of preventing the collapse of European allies at the hands of the Soviet Union. This included stymieing the spread of Communism across the world and the consistent development of Ballistic missiles in order to deter a Soviet military advance into Europe by providing a “nuclear umbrella” to European Allies.  Before the Reagan administration this policy was in large part accepted as the means through which the Soviet threat could be effectively challenged. President Reagan followed a similar policy by pursuing aggressive military buildup and focusing on development of a vast range of ballistic missile platforms which would act as a comprehensive deterrent in preventing the Soviet decision-making elite to pursue a path unacceptable to US strategists (ARBATOV 2019). Being disillusioned with the far left, his opinions and campaign slogans had strong ideological underpinnings which would later on influence his dealings with the Soviet Union.

 The changes in Reagan’s policy weren’t without the influence of another very important personality, Mikhail Gorbachev. The Soviet leader’s role in Reagan’s change in policy from antagonism to rapprochement is widely claimed by academic scholars as a major contributing factor for the rethink in Reagans approach to Communist Soviet Union. Gorbachev’s revolutionary approach to International Relations was followed by America’s “reactionary response” in the shape of pursuance of arms control and softening of political rhetoric (Fischer 1997). Ronald Reagan second term in office was marked by a change in his policy of pursuing aggressive development of arms and making space-based missile defense systems having the capability of destroying incoming Soviet missiles. The Strategic Defense Initiative was seen by many in the Soviet ranks as a dangerous escalation of arms race which had the potential of transforming into military conflict. (Britannica, T.Editors of Encyclopaedia 2021). Seeing and acknowledging Gorbachev’s new approach as “revolutionary” President Reagan sought to rely on an intense sustained engagement with the Soviet leader in order to achieve what his previous approach had failed to do (Talbott 2004).

Mikhail Gorbachev’s approach to the subject of foreign policy was based on establishing relations with the west and a recalibration of ties with the United States. At the time of the Cold War a large part of the effort by the two nations was to prevent the other state from gaining a definitive edge in the area of technology, military and nuclear weapons. Apart from the ideological conflict the Cold War witnessed many states in the world becoming the conflict grounds in which the US and USSR sought to establish their control and influence. Mikhail Gorbachev’s arrival into the political spectrum and pursuing a policy of peace and prevention of creation of arms was in large part influenced by the domestic environment of his country. The Soviet Union after Brezhnev had a weakened economy due to extensive spending building and maintaining large military industries and sophisticated missile delivery and defense systems. The Russian political elite largely dominated by Russians. Gorbachev’s “restructuring” in order to improve the economic conditions of the state was also followed by a rethink at the foreign policy front. In his famous interview at Harvard University he described how the conditions of repression, arrests and suppression of critical voices against the state were silenced. This led to perestroika which gained support from the Russian masses. (The Harvard Gazette 2004).

The question as to the extent to which the effect of President Reagan and Gorbachev’s relationship caused “reversal” of US foreign policy with regards to the Soviet Union should be considered through different metrics. Firstly it’s important to study how the “Reagan doctrine” which formulated the plan of tackling soviet expansionism into countries across the globe evolved during the time of Reagan’s Presidential terms. Ronald Reagan’s doctrine was a shift from previous administrations approach to the Soviet threat. In what was previously termed as “containment” of Soviet expansionism, Reagan’s approach constituted of a “roll back” of Soviet expansionist forces across the world. From “Afghanistan to Nicaragua” Reagan’s approach was an active effort to subdue Soviet expansionist forces seeking to gain a foothold in important areas such as South Asia and Central Americas. (US Department of State archive 2001). While toning down the harsh rhetoric and signing important arms control treaties, US efforts to prevent Soviet expansionism continued despite a thaw in relations and a warm cordial relationship between the two world leaders. 

Reagan’s original agenda of an aggressive military buildup and development of ballistic missiles saw a reversal during his second term. Both leaders sought to control the arms race and roll back on the creation of such weapons. The Strategic Arms Limitation Treaty (SALT-1) and other similar treaties was a ‘break away’ from Reagan’s original doctrinal approach. Gorbachev’s willingness to engage in talks was what initiated this change. What is also interesting to note is that despite belonging to radically different ideologies, both leaders shared a similar view on important matters. This is significant as both leaders expressed the desire to regulate arms control and to promote peace.

Another important element is the Soviet invasion of Afghanistan which saw an all-out Soviet effort to establish control over the region and reach the warm waters of the Arabian sea. The United States, eying an opportunity and realizing the threat of a possible soviet hold of South Asia, actively supported the Afghan Mujahedeen. Through Pakistan, the US pivotal role resulted in the Soviet forces failing to defeat the guerrilla forces despite huge numbers of troops and highly sophisticated weapon systems. This costly conflict was to prove detrimental to Soviet morale and the economy. After having effectively taken over, Gorbachev became heavily involved in restoring the economy and control over the production of arms between the United States and the Soviet Union. Gorbachev sought to move away from previous Soviet leaders doctrines and open diplomatic channels which would result in the final culmination of the Cold War.

President Ronald Reagan’s presidency was marked with a significant contrast in approaches to the Soviet threat. Having become president, his strong ideological standpoints were the driving forces behind his policies. With the Soviet Union, Reagan’s original approach was that of confronting, condemning and a protectionist mindset. Being a vocal proponent of American values of free speech, liberty and democracy his political campaigns to his televised addresses portrayed the Soviet Union as the principals threat to the very principals that America stood for. Like previous administrations, combating soviet expansionism and attaining global hegemony were prized objectives which defined much of US policies during the first term of President Reagan. His second term however saw a ‘shift’ in part of Reagan’s understanding of greater and more pressing issues at hand which demanded attention. Having originally promoted military spending and development of sophisticated missile weapon systems, Reagan’s view changed by the coming of Mikhail Gorbachev.

Both leaders, seeking initially to control production of arms, sought other means to create an environment more conducive for peace. While motivations differed, there was consensus between the two leaders on important matters which made diplomatic summits productive and resulted in many arms treaties. Both leaders established a relationship of trust and warmth which had largely been unseen since the start of the Cold War. These meetings were then followed by confidence building measures and trips to respective capitals which allowed a further thaw in the relations. Despite continued conflict in other states, both leaders relationship saw a significant reversal in the policies of US under the Reagan administration.

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