Will Biden Sanction Half of the World in an Attempt to Isolate Russia?

The United States is no longer able to change the world to look like it. Not even 1970. It's not 1945 or even then. Yet, the US seems to be preparing to force half of the world to follow the US sanctions against Russia, even though they don't want to.

It is becoming clear that isolating Russia and completely shutting it off from the global economy will be difficult.

As I discussed last week, the world is defying Washington's call to treat Russia as a pariah state, from Mexico to Brazil to China to India and most of Africa. According to James Pindell, "most of the three vast continents—Asia, Africa, and South America—are either still working with Russia or attempting to project an image of neutrality."

Yes, the US sanctions will undoubtedly cause significant damage to the Russian economy, but it is unlikely to be severe enough to bring the Moscow regime to its knees. This is because much of the world has indicated that it intends to maintain relations with the Russians, albeit while making some efforts to avoid any direct policy confrontation with Washington.

However, if Washington wants to press the subject of global collaboration and aid with US sanctions, it will have to threaten many other regimes with secondary penalties—sanctions aimed to force compliance with the first sanctions imposed on Russia. This will be both diplomatically and economically damaging for the United States. After all, if the US is attempting to forge alliances and economic partnerships to counter a potential Russia-China bloc, impoverishing dozens of countries as punishment for noncompliance with Russia sanctions will only encourage other regimes to isolate themselves from both the US economy and the US dollar. The extent to which the US is willing to coerce third-party countries in order to gain compliance with its Russia sanctions will primarily determine whether or not this occurs.

What Are Secondary Sanctions?

Before we go any further, let's define secondary sanctions and the closely related "extraterritorial" sanctions.

Secondary sanctions, at their most basic, are measures placed on a third party who is not the target of the initial, primary sanctions. For example, if the US wishes to compel a policy change in Iran, it will apply sanctions directly on Iran, but it may also determine that this is insufficient. The US may also attempt to ban other countries from doing business with Iran. To do this, the United States will impose secondary restrictions on corporations and entities in other countries that do business with Iran.

More specifically, as outlined by the Atlantic Council, extraterritorial sanctions mean

the sanctioning country can extend its economic sanctions policy to apply to foreign-based firms outside of its jurisdiction. A well-known example is the Helms-Burton Act, which President Bill Clinton signed into law in March 1996 as the Cuban Liberty and Democratic Solidarity Act. The legislation tightened the conditions of the existing economic embargo against Cuba. It provided for penalties on foreign-owned (non-US) companies that engaged in the “wrongful trafficking in property confiscated by the Castro regime” through trade with and investment in Cuba. The Helms-Burton Act required US multinational corporations to extend their compliance practices to their foreign-based subsidiaries. The act was met with protests from countries where the foreign subsidiaries were located, which viewed the sanctions as illegal.

And secondary sanctions are cases in which

the sanctioning country can prohibit firms and individuals in other countries from conducting commercial transactions with US citizens and businesses, to inhibit their economic relationship with the country targeted with "primary" economic sanctions. A contemporary example is the secondary sanctions the United States has placed on Chinese firms and individuals for undertaking financial transactions with North Korea. On June 19, 2017, the United States imposed sanctions on a Chinese bank (Bank of Dandong), a Chinese firm (Dalian Global Unity Shipping Co.), and two Chinese citizens (Sun Wei and Li Hong Ri). The Bank of Dandong is banned from conducting any banking with US-based firms. Dalian Global is banned from commercial transactions with US firms and citizens. For Wei and Ri, the sanctions froze their assets and banned them from any business with US-based firms or individuals.

In geopolitical terms, what this means is the US government is directly attempting to punish and regulate foreign firms and foreign individuals even in cases where the United States is not a party to the trade or investment taking place. 

Why Much of the World Will Push Back

Needless to say, this irritates many foreigners and their regimes. Consider how Americans react when they are told that foreigners are interfering in American affairs. Furthermore, in recent decades, Washington has increased its use of sanctions in this manner, whether to sanction China, Iran, Russia, or other countries. This has led to growing pushback from many third-party states that find themselves targeted by these secondary sanctions. As one observer remarked back in 2021

This unchecked power to levy sanctions inevitably has met with strong opposition from across the globe, not only from governments and businesses targeted by US sanctions but also by those in third countries whose foreign policy and business interests are curtailed by US secondary sanctions. The EU and Canada and other nations traditionally aligned with the US have led the pushback up to this point, and now China has entered the fray, increasing the risk of geopolitical confrontation as well as increasing the compliance risks for multinational companies.

Now, by imposing punitive penalties on Russia, the United States is significantly broadening the scope of its sanction regime, and to a country that is far more globally connected than Iran, Cuba, or North Korea. It's one thing to propose that other countries censure a small group of countries with a modest global economic footprint. It's quite another to insist that the rest of the world support US sanctions on a huge country like Russia.

Africa, for example, is largely reliant on Russian wheat, and even more so on Ukrainian and Russian wheat combined. With Ukrainian wheat output severely decreased as a result of the Russian invasion, Egypt, South Africa, and a number of other African countries will become even more dependant on Russian wheat. Essentially, the US is driving up food prices in Africa at a time when the continent is still recovering from a hunger crisis caused by commodity lockdowns and trade disruptions. It's hardly a coincidence that over one-third of African countries voted against the UN resolution denouncing Russia's invasion.
africa
Meanwhile, India, like many other countries, relies on Russia as a source of armaments on a regular basis. Russia is also a major supplier of raw commodities such as aluminum, palladium, oil, and fertilizer to countries in Asia, Africa, and South America.

A shift toward zealous secondary sanctions enforcement will place the US in direct conflict with these governments, which have no interest in opposing the US's policy toward Russia in particular but are unwilling to completely cut off commercial links with Russia.

China Remains the Big Challenge

It may be possible to use the US's power to make many smaller, less powerful countries do the same thing if the US goes down this road. This, on the other hand, will hurt the US's "soft power," which is the real source of US global power. It will humiliate smaller countries and raise the cost of living for the poorest people in the world.

It's China that's the real question. If China doesn't want to help the US isolate Russia, the US may not be able to make China do what it wants in the short term. Of course, China has a lot more trade with South America, Africa, and Asia than Russia does. This makes it very hard to put politically effective sanctions on China.

However, Washington has already made threats against Beijing. This week, Washington put new sanctions on some Chinese officials. Washington said the sanctions were because Beijing was repressing certain ethnic groups in China. It may still be the case that the sanctions are meant to send the message that "we will punish China if we want to." CNBC said last week that threats from the U.S. against China are growing.

The White House has warned China not to provide Russia with an economic lifeline as the Kremlin steps up its onslaught on Ukraine. The U.S. says it fears China, a key strategic ally of Moscow, may seek to cushion the impact of measures designed to destroy Russia's economy if the war continues. . . .

Since Russia's attack on Ukraine, Beijing has refused to call it an invasion and said China would maintain normal trade with both countries. China has not joined the U.S., EU and other countries' sanctions on Russia.

Also recently, the Biden administration said that the president has laid out the "implications and consequences" for Chinese premier Xi Jinping if China gives Russia "material support." This is what they said. A lot of what "material support" means depends on how the United States thinks about what it is. Senate Republicans are already working on legislation that would punish China if it helped Russia find ways to work around the United States' attempts to cut it out of the global financial system.

Domestic Politics Matter for Beijing

From its perspective, however, Beijing—for domestic political reasons—can't be seen as being pushed around by US sanctions. For a glimpse of this we can look to a March 17 press conference intended primarily for the Chinese public. According to the state-owned Xinhua news agency:

Sanctions are never effective means to resolve problems, [Beijing spokesman] Zhao [Lijian] stressed, adding that China opposes all forms of unilateral sanctions and "long-arm jurisdiction" by the U.S., and will resolutely defend the legitimate rights and interests of Chinese companies and individuals.

Wielding the baton of sanctions while seeking China's support and cooperation simply won't work, said Zhao, stressing that the Chinese side urges the U.S. not to undermine China's legitimate rights and interests in any form. If the U.S. insists on going its own way, China will definitely take strong countermeasures.

Chinese nationalism—in no short supply either within the regime or among the general public—simply won't permit China to easily submit to US sanctions that approach anything like what we're seeing imposed on Russia. Should Beijing decide to push back, the US will find itself not only in a sanctions war with Russia, but with much-larger China as well. 

Long-Term Consequences 

The short-term effects of a Washington attack with secondary sanctions will not be very dramatic or obvious right away. As a matter of fact, the US is likely to get a lot of compliance at this time. Even if you have a short-term victory, it can often lead to long-term defeat. As a "global sanctions cop," Washington could choose winners and losers. This will make more countries move away from the dollar.

Because the US recently took Russia's central bank funds, any government should think twice about keeping a lot of dollars. In other words, if Washington can do it to Russia, it can do it to anyone. Other governments are likely to see this and start to leave the dollar in small amounts.

It's clear that the US regime now thinks it's the leader of a new world order in which the "free world" (i.e., the "first world") is revived, followed by regions of poorer states and rogue states. Washington thinks only about the short term. In other words: The United States, on the other hand, is no longer able to change the world to look like it does. It's not 1945 or even 1970, so the United States will have to deal with a much more powerful Global South than it did in the early years after the Second World War.
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