Micromanaging Foreign Nations: A Bipartisan Syndrome

Foreign Affairs

Micromanaging Foreign Nations: A Bipartisan Syndrome

It does not serve American interests to cajole faraway peoples to our way of thinking.

If one thing is certain, there will be more uncertainty abroad. Yet most Washington officials believe their job is to manage the world, even the least minutiae involving other states. And the rest of the world’s job is to obey them. At a time of multiplying wars, U.S. policymakers continue to waste time, resources, and credibility on issues that are frankly none of America’s business. 

Consider Georgia in the Caucasus. It had the misfortune in 2008 to be ruled by Mikheil Saakashvili, who triggered an invasion by recklessly bombarding Russian troops, apparently expecting the American cavalry to race to his rescue. Even the war-happy President George W. Bush, however, wasn’t prepared to confront Moscow.

Today a new government is in power in Tbilisi. Derided as pro-Russian, it has won several elections and appears to be carefully balancing Moscow and Brussels, a far smarter approach. Yet it has been under siege of late. Claims of electoral fraud have been leveled without proof. Charges of excessive force against demonstrators are better grounded, although protestors also were violent. Another issue is the European Union, which younger Georgians are impatient for their country to join. 

None of this should matter much to Washington. Georgia is not a security interest for America. It has no notable economic, cultural, or historic connection to the U.S. Yet Washington joined Europe in funding groups backing Georgia’s entry into the EU. The Biden administration then was outraged when the Tbilisi government targeted foreign funding for domestic organizations, the sort of political interference that Washington politicians ritualistically criticize in the U.S. Indeed, the Georgian legislation looks like America’s broad Foreign Agent Registration Act. Rather than taking this as a sign of flattery, Washington suspended financial aid to Tbilisi, its position apparently that the U.S. is entitled to make secret contributions to influence other nations’ politics.

More recently, Georgia’s prime minister said that he was suspending discussions involving EU membership. Protests erupted. Last month the administration issued a statement, citing alleged threats to the freedom to protest, while calling on “all sides to ensure protests remain peaceful” (emphasis added), a tacit admission that protestors also had been at fault. Yet the State Department led with criticism of “the decision by Georgian Dream [administration] to suspend Georgia’s EU accession process” and concluded by reiterating “our call to the Georgian government to return to its Euro-Atlantic path.” The U.S., a great power a continent and an ocean away, was telling another Russian neighbor that it should ignore Moscow’s sensitivities and go all in with the West—even though the U.S. refused to intervene militarily on Tbilisi’s behalf in 2008 and, as demonstrated in Ukraine, would not do so today in the event of conflict.

The International Criminal Court indictment of Israel’s Prime Minister Benjamin Netanyahu and his former Defense Minister Yoav Gallant also brought out the worst in some U.S. policymakers. Washington’s job should be to protect its own, but instead President Joe Biden defended Israel turning Gaza into a human abattoir: “The ICC issuance of arrest warrants against Israeli leaders is outrageous.… We will always stand with Israel against threats to its security,” obviously irrespective of the human cost.

Legislators, especially Republicans, responded with hysteria. For instance, Sen. Lindsey Graham (R-SC), a friend of tyrants like Saudi Crown Prince Mohammed bin Salman, urged legislation to sanction the institution and its officials. Sen. Tom Cotton (R-AK) invoked existing authority to employ “all means necessary and appropriate,” meaning military action, to free ICC prisoners. Curiously, the strongest advocates of Israel’s deadly campaign never say anything about Americans killed by the Israeli military. Rep. Michael Waltz (R-FL), slated to be national security advisor, wants the incoming Trump administration to take up the cause of Israel’s accused war criminals, announcing ominously, “You can expect a strong response to the antisemitic bias of the ICC [and] UN come January.” 

Unfortunately, President-elect Donald Trump already has threatened economic war on much of the world. In this case, he is angry that the dollar’s share of international reserves has fallen, to 59 percent from 70 percent in 2000. That reflects the rise of a major alternative, the euro, as well as Washington’s ostentatious misuse of its position by sanctioning individuals, companies, and nations here, there, and everywhere.

Countries are increasingly trading in their own currencies. For instance, Moscow and New Delhi are exploring a shift to ruble–rupee payments. Reserve Bank of India Governor Shaktikanta Das explained, “Dependence on one currency can be problematic at times because of appreciation or depreciation.” Even more dramatic is the steady expansion of the BRICS grouping, which includes not only China and Russia, but also India, Brazil, South Africa, and the United Arab Emirates. The organization also has added partner countries including Malaysia, Turkey, Nigeria, and Vietnam. Some members would like to create an alternative currency, but today that remains far from a reality. 

Other nations’ currency choices aren’t America’s business. They have every right to trade in whatever money they desire. Consider the dire consequences of past economic crises—such as in Asia in 1997, which swept up the American ally South Korea. Moreover, most trading and payment decisions are made by individuals and companies, not governments. America enjoys the benefits of dollar dominance, but is not entitled to it, especially when Washington abuses its influence to advance often dubious political ends.

Yet that’s not how Trump sees it. With characteristic bravado, he wrote on Truth Social, “The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER.” 

He went on to declare, “We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy.”

This threat is both foolish and stupid. First, the presumed problem is largely one of Washington’s own making. By sanctioning the rest of the world, American officials have pushed adversaries and friends alike to insulate their economies. As Russian President Vladimir Putin observed: “We are not refusing, not fighting the dollar, but if they don’t let us work with it, what can we do? We then have to look for other alternatives, which is happening.” If the U.S. slipped behind economically, would Trump leave the American people vulnerable to its adversaries?

Second, by threatening to promiscuously impose tariffs on just about everyone for everything, Trump is undermining his credibility and reducing his leverage. Several nations, such as Russia, are already under harsh sanctions. Moreover, he wants to impose general tariff hikes, as well as hit specific adversaries, such as China, for other reasons. Once Washington has effectively cut a country off from the U.S. economy, he can threaten it no more.

Third, Americans would pay the price of moving toward de facto autarky. Trump appears to believe that wealth comes from endlessly piling up little pieces of paper from other nations, without buying anything in return. Other nations prefer to have the products and services. Trump’s plan would increase prices for U.S. consumers, especially after foreign nations retaliated. Among the victims would be American exporters: More than a quarter of imports to America are raw materials or “intermediate goods,” used in producing products sold abroad. US exports would become less competitive. 

The economist Dean Baker of the Center for Policy and Economic Research, reviewed just the cost of closing the American market to China alone. He concluded: “The picture looks much worse from the U.S. standpoint. We will be paying substantially more for the $430 billion in goods that we had been buying from China. It would be necessary to look at possible substitutes for these imports on a sector-by-sector basis, but let’s say on average that the additional cost for the replacement is 40 percent of the price of the goods from China. In that case, we would be paying an extra $170 billion a year, roughly $1,400 per family, to cover the additional cost.” Ban goods from all of the BRICS nations, and the cost would be even higher.

Fourth, there also would be a geopolitical price. Other nations can move away from the dollar without attacking it. Marina Moreno, with Argentina’s Observa China, pointed out: “Even if [BRICS members] do not succeed in dethroning the dollar, it is certainly possible that they will be able to bypass it through payment systems that favor the clearing of transactions in local currencies.” Most trade is private. Would Trump sanction entire countries in an attempt to coerce every entrepreneur and firm around the world into using dollars?

Moreover, American market power is not so great as Trump apparently presumes. Explained the Financial Times’ Alan Beattie, 

With the exception of a few economies highly integrated with the U.S. such as Mexico and Canada, most of those likely to face U.S. tariff coercion could replace it as a final market with pain but without catastrophe. [Global Trade Alert’s Simon J.] Evenett calculates that even if the U.S. market were completely closed to a particular trading partner, by 2030 more than 100 of them, including Australia, China, Brazil, Saudi Arabia, India and Germany, would have recovered their lost exports elsewhere.

By one estimate, even if China, Trump’s main target, lost the entire U.S. market, it would see just a 2.3 percent drop in demand in its economy. Trump’s earlier China tariffs demonstrated the flexibility of international markets. Noted Beattie, “Quite apart from the loopholes negotiated by U.S. companies such as Apple, production and distribution networks proved good at slinking around blocks on exports.” In short, for most countries loss of the American market would be a painful rather than a killing blow. They might—indeed, probably would—prefer to pay that price rather than be forever at the mercy of an arbitrary power willing to destroy friends and adversaries alike to enforce its every whim. If even a handful of states initially said no and withstood the consequences, Washington’s economic weapon would prove hollow.

Indeed, almost whatever the cost, rising nationalist powers would not be inclined to prostrate themselves before Washington. If they refused to comply and the U.S. punished them, they would likely move toward America’s potential adversaries. For instance, Washington desperately wants India as a counterweight to China. Waging economic war on the Indian people would encourage New Delhi to more tightly embrace Moscow and reconcile with Beijing. Other nations throughout Asia also could move toward China economically.

Finally, even if Trump’s threat bolstered the dollar in the short-term it would likely accelerate the long-term shift away from the dollar. There is serious interest in dedollarization today because the U.S. so flagrantly misuses its economic influence. Threatening to bring down the economic temple highlights the imperative of shifting way from America economically and likely will reinforce other nations’ determination to do so. Eswar Prasad, formerly with the IMF, predicted, “This will intensify other countries’ attempts to diversify away from use of the dollar for international payments and for foreign exchange reserves.” Indeed, Trump may inadvertently encourage otherwise disparate countries to cooperate against America, in this and other areas as well. 

The world matters to America. Yet U.S. officials shouldn’t assume that they can forever rule the rest of the world. Some issues really aren’t Washington’s business. If Donald Trump really wants to make America great again, he should halt its promiscuous interference in other nations’ affairs. Absent exceptional circumstances, the U.S. should leave them alone to govern themselves.

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