Sanctions: An Inadequate Substitute for Strategic Trade Policy

by WILLIAM R. HAWKINS August 9, 2017

There should not be much jubilation expressed over the new sanctions imposed on North Korea by the UN Security Council. The U.S.-drafted measure bans North Korean exports of coal, iron, lead, and seafood, cutting its hard currency income by a third (at current levels), or about $1 billion if enforced. It also prohibits member countries from increasing their current use of North Korean labor and prohibits any new joint ventures or expanded investment in the Democratic People's Republic of Korea (DPRK). Current economic ties do not have to be severed, however, which pleases China and Russia. It will be much easier to evade sanctions by conducting business under cover of existing channels. The sanctions did not touch financial links, a true pressure point, but one Beijing would not allow in the resolution.

Consider this statement from the Chinese Foreign Ministry following the UN vote.

While imposing new sanctions on the DPRK, the resolution also stresses that the sanction measures should avoid negatively affecting economic activities and cooperation that are not prohibited by the resolution as well as activities that are not prohibited by the Security Council, including food and humanitarian aids. The resolution reaffirms upholding peace and stability on the Korean Peninsula and in Northeast Asia, calls for a settlement through a peaceful, diplomatic and political means, supports the resumption of six-party talks and stresses that relevant parties should take measures to deescalate the tensions on the Korean Peninsula.

It should be remembered that the six-party talks were initiated by China in response to North Korea's request for a security guarantee from Beijing in the wake of the U.S.-led invasion of Iraq; an invasion undertaken on nonproliferation grounds. The talks were (and still are) meant to head off decisive action against Pyongyang. And, so far, that is exactly what they have done. The powers talk, and the Kim dynasty marches on.

Beijing also repeated its "solution" to the crisis: "the suspension of nuclear and missile activities by the DPRK and the suspension of massive military exercises by the US and the ROK [Republic of Korea]." In other words, North Korea is rewarded for its arms program---which it does not have to dismantle, by a weakening of the U.S.-South Korea alliance. A win-win for both communist regimes.

These new sanctions could weaken the Kim regime, but they will not bring it down; China and Russia would not have voted for them it that was the probable outcome. They are meant as leverage. But it is hard to pressure a regime that has allowed millions of its people to starve to death rather than change course. Indeed, North Korean Foreign Minister Ri Yong-ho, attending the ASEAN summit in Manila, responded by saying his country would not put its nuclear weapons and missile programs on the negotiating table. And Beijing and Moscow both lambasted the U.S. at the UN for deploying the THAAD anti-missile defense system in South Korea to defend against the threats from Pyongyang. Beijing continues to walk a fine line; confident that as long as America is pursuing a "diplomatic solution" and renouncing any thought of a regime change in Pyongyang, it can weather the storm. North Korea will survive as a buffer state and China can use minor acts like a UN vote to gain major concessions from Washington on trade issues that keep the transfer of wealth and capabilities flowing from West to East.

 America's ambassador to the UN, Nikki Haley, warned that "We should not fool ourselves into thinking we have solved the problem. Not even close. The North Korean threat has not left us; it is rapidly growing more dangerous." This does not mean that sanctions are not useful. There has long been a debate between those who overstate the impact of sanctions and those who dismiss them as an ineffective interference with benign commerce. When the claims of the advocates fall short, the critics rush in; but both are wrong in their understanding of the proper role of sanctions. They are a tactic, not a strategy. They can weaken an adversary, but if stronger measures are not taken to exploit the weakness, the confrontation will persist. An adversary may even find a way around the sanctions if given enough time. Sanctions are a peacetime equivalent to interdiction in war; part of a larger operation but not the main effort. It plays an important supporting role, but it doesn't land the main blow.

In the North Korean case, sanctions alone can, at best, only delay Kim's pursuit of a nuclear strike capability; it will not lead the regime to dismantle its program. The Trump administration must portray the UN vote as a sign of international support for its declaration that it will do whatever is necessary to prevent Pyongyang from becoming an existential nuclear threat. Only if China believes that much worse is yet to come will it act to reign in Kim to protect Beijing's own security.

Just as sanctions are not a substitute for a comprehensive strategy of power projection to "compel others to do our will"; they are not a substitute for an overall trade policy that is an integral part of grand strategy. Consider the turmoil in Venezuela as another socialist experiment fails. The Trump administration is considering sanctions against President Nicolás Maduro whose grab for dictatorial power is leading to civil war. The violent radicalism of the Venezuelan regime is not a new issue, having started with the coming to power of Hugo Chavez in 1999. Chavez's fanciful Bolivarian Revolution, his homage to Fidel Castro and his anti-imperialist rants won his accolades from left-wing intellectuals as he drove his country into the ground. Yet, throughout this long period of unrest at home and support for anti-American movements abroad, trade between American entities and the Red regime continued.

There has been a decline in U.S. imports of Venezuelan oil since 2005, but this is mainly due to the general decline in oil imports over this period as domestic "fracking" has substituted for foreign supplies. Geopolitics has had little to do with it because private buyers make these decisions in the market without regard to higher concerns. Political risk since Chavez's death has also pushed down imports, but not to the same extent as reductions elsewhere. Indeed, the U.S. is still Venezuela's top customer. It may surprise readers to learn that most of the reduction in oil imports has come from Africa where imports are down some 90% because the cost of oil production is higher there. So to save a few bucks, American corporations are funding the brutal and hostile regime in Venezuela rather than support Nigeria in its fight against the Boko Hiram jihadist insurgency.

International trade should be considered part of the larger realm of foreign policy and be subject to "guidance" when it veers away from flows that are consistent with national policy. Business interests oppose being made subordinate to security concerns and lobby heavily against sanctions. They also pushed for the creation of a Trade Representative (USTR) office separate from the State Department so negotiations could be conducted independently of geopolitics. Trade was to be an end in itself. This mirrored the creation of the Arms Control and Disarmament Agency to pursue its goals independent of Cold War military calculations. The ACDA was folded back into the State Department in 1999, and the USTR should follow suit to solidify strategy.

The ideal of a disarmed world of "free trade" has long been the dream of liberals. Thomas Paine, finding that "war is the system of Government on the old construc­tion" listed among his revolutionary proposals converting all warships into merchant vessels. The 19th Century French libertarian J. B. Say called for an end to the diplomatic corps, arguing "it is not necessary to have ambassadors. This is one of the ancient stupidit­ies which time will do away with." They should be replaced by consuls whose sole function would be to promote "free trade." The airy notion that commerce would pull people together has seen centuries of failure as the "old construction" of the world endures. Instead, "trading with the enemy" serves to support the capabilities of those aligned against us. Sanctions are an ad hoc response to threats, measures that almost always come too late or are too weak to produce a successful outcome.

Over the last 30 years, it has been promulgated far and wide that enriching China through trade and investment would tame the communist regime. Instead, it has empowered it. Beijing now believes it can challenge the U.S. as a peer competitor, with a growing military and global ambitions it no longer hides. In 1990, China was not even among the world's top ten national economies. Today, it is ranked second and closing. The disastrous classical liberal sophistry which transferred trillions of dollars and precious technology overseas was pushed by self-serving business lobbyists despite the success of the opposite policy of economic warfare in bringing down the Soviet Union. When we cannot learn from either success or failure, we find ourselves in today's predicament. Enemies large and small advance while we dither. If we cannot break out of our doldrums and illusions when faced with a threat as stark as North Korea, what chance is there to meet the much larger challenges coming over the horizon?

Our grand strategy must rest on a foundation of economic superiority, giving us the resource advantages needed to prevail in any contest peaceful or otherwise. That means building up our productive capacity and slowing down the growth of rivals. That must be done by policy and not left mindlessly to an "invisible hand" which always ends up belonging to someone else and doing their bidding, not ours. 

William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former economics professor and Republican Congressional staff member.

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