Amid controversy over a maybe yes/maybe no ceasefire in Donald Trump’s trade war with China, the United States engineered the arrest by Canada of a top Chinese executive for allegedly busting U.S. sanctions on Iran. The detention sparked outrage in Beijing, which threatened Canada with “grave consequences” if Meng Wanzhou is not released.
Huawei Technologies Co. is one of China’s international behemoths, a telecom firm that now sells more smartphones than Apple. The arrest of Meng, the founder’s daughter and Huawei’s chief financial officer, was not for committing a genuine crime against Americans, but rather for allegedly lying over Huawei’s connection to another firm that did business in Iran. The Trump administration is determined to dragoon other nations into its anti-Tehran crusade.
Washington’s use of its economic clout to coerce the rest of the world reflects extraordinary hubris. Americans would be outraged if another nation did the same to us.
By busting Meng Wanzhou, Trump is signaling that he expects to dictate to every nation, no matter how powerful.
In recent years, the United States has imposed sanctions on numerous nations, including Cuba, Iran, Iraq, Libya, Myanmar, Russia, Venezuela, and Yugoslavia. Increasingly Washington insists that the rest of the world follow America’s lead or else. It seemed radical when the 1996 Helms-Burton Act targeted foreign firms trading with Cuba. Since then, secondary sanctions have become commonplace, the economic weapon of choice against Sudan (since lifted), North Korea, Syria, and Iran. Against that latter nation, Washington currently is using U.S.-dominated financial markets in an attempt to enforce essentially a total embargo.
Obviously, the purpose of secondary penalties is to magnify the impact of a boycott. In some cases, such as Iraq and North Korea, Washington has won UN Security Council support for multilateral penalties. In many instances, however, foreign governments dismiss what they see as shortsighted, counterproductive penalties—yet we press ahead anyway.
For instance, only in the U.S. do ethnic Cubans possess disproportionate political clout, based on Florida’s importance in determining the outcome of presidential elections. Hence, six decades after imposing its embargo, Washington continues, alone, to isolate Cuba economically. Given the politics, the U.S. may still be doing so 60 years from now.
When international support is lacking, Washington threatens foreign businesses to expand its bans. Even the slightest error can lead to huge fines if companies do business in the U.S. Firms forced to choose between markets in America and much smaller, isolated states overwhelmingly pick the former, which requires complying with American restrictions. That turns a secondary boycott by the U.S. into a global squeeze, if not a full boycott.
Commercial restrictions have become all too common, perhaps because they are easy to apply and seem to offer a costless remedy to difficult foreign policy problems. Alas, they seldom achieve their alleged ends. Governments of target states almost never comply and only rarely offer to negotiate. Even then, positive inducements are required to clinch a deal. Foreign governments typically are too concerned about power and prestige to capitulate to threatening foreigners.
Another reason sanctions fail is that they hurt the wrong people—average folks most vulnerable to economic decline. For instance, one estimate, likely exaggerated, was that a half million Iraqi babies died from the ban on Iraq’s oil sales; in contrast, dictator Saddam Hussein and his family didn’t suffer. In fact, elites often profit from the increase in the state’s economic role. Two decades ago, Yugoslav opposition leaders complained to me that the oppressive Milosevic government had manipulated sanctions; years later Cuban opposition leaders told me that communist officials had used the U.S. embargo as an excuse.
In response, the U.S. and other nations have increasingly tried “smart sanctions,” targeting perpetrators and malefactors, especially government officials. However, while this approach is ethically more justifiable, evidence of its success remains sparse. No dictator has yet given in because he wanted to vacation in the West or been overthrown because his backers worried about the security of their Western investments.
Nevertheless, Washington continues to promiscuously impose sanctions. Today, Iran is the target du jour. The president appears lost under the sway of Saudi Arabia, which is a more disruptive, brutal, and destabilizing power than Tehran. He sacrificed a working denuclearization agreement for the fantasy of Iran’s complete surrender.
America is virtually alone in reapplying sanctions against Iran. Washington’s demands for renewed talks are impossibly high, essentially requiring Tehran to subordinate its foreign policy to Saudi Arabia as well as the U.S., something Washington would never agree to if the circumstances were reversed.
As is evident from Meng’s arrest, imposing Washington’s will on the rest of the world creates resentment and resistance. Even U.S. allies have tired of the blundering behemoth taking shortsighted measures and creating long-term damage, with nary a thought about the interests of anyone else.
After the president killed the Iran deal, European governments began exploring strategies to protect their businesses from U.S. controls. The purpose was to preserve the deal with Iran by continuing to deliver economic benefits to the Iranian people. Today, several European countries are working on both an alternative to the SWIFT global financial messaging network and a “special purpose” financial entity to process payments for commercial transactions involving Iran. The Europeans have also considered employing state banks and firms, daring Washington to sanction allied governments.
China and Russia are interested in these endeavors. Neither wants to cede control over their policies to the U.S. nor open their countries’ firms to ruinous penalties. They are likely to cooperate with whatever the Europeans develop.
The Huawei case adds another dimension. Even if administration policy toward Iran was not so misguided, it should not become the tail that wags the dog. China matters far more than Iran, a weak middling power that does not threaten America or even Israel. In contrast, Beijing is the one potential peer competitor to the United States. Our bilateral relationship with them is the most important one on earth.
American relations with China already are frayed, given the trade war and other differences, especially over North Korea and control of East Asian waters. The administration’s grievances against Beijing include the possibility of Huawei being used by the Chinese government to effectively conduct surveillance and intelligence. Washington has substantial leverage but must set priorities. Meng’s arrest effectively raises the importance of complying with Washington’s Iran sanctions. That inevitably will crowd out other potentially more important issues.
Moreover, the Huawei arrest is likely to stiffen spines in Zhongnanhai. Chinese officials want to deescalate the trade dispute and avoid penalties against Huawei, but nationalistic, politically sensitive leaders don’t like to be pushed around. The failure of President Trump to raise the issue when he met with China’s President Xi Jinping is seen as a loss of face. The hardline Global Times called the arrest “despicable hooliganism” and “a declaration of war” against China. Chinese analyst Deng Yuwen warned that “if the U.S. makes an example of Huawei, the conservative nationalist forces in China and also the military will be very unhappy, and that will make it even more difficult to make compromises with the United States.”
Indeed, China’s leadership faces aroused public opinion, which tends to unite on issues of national pride. The regime fears and often accommodates public sentiments. The state-run China Daily editorialized: “The U.S. is trying to do whatever it can to contain Huawei’s expansion in the world simply because the company is the point man for China’s competitive technology companies.” Some Chinese have expressed fear for investments in the U.S. while others have urged an economic boycott.
The regime might look for subtle means to retaliate. Indeed, one can imagine charges emerging in Beijing against U.S. technology firms and their executives. Chinese officials are unlikely to let a concern for justice get in the way of embarrassing the United States. Some American business executives are now expressing unease over traveling to China.
Washington’s hubris is threatening America’s foreign relationships and international authority. Meng’s arrest is a stark declaration by the Trump administration that it expects to dictate to every other nation, no matter how powerful. China and other countries are ever less willing to comply. A backlash is certain. When it comes, it’s likely to do far more than undermine American efforts to isolate Iran.Doug Bandow is a senior fellow at the Cato Institute. A former special assistant to President Ronald Reagan, he is author of Foreign Follies: America’s New Global Empire.
Unlike many commentators, I believe that a no-deal Brexit still very possible.
It is the default as the clock ticks, and parliament must vote for government-backed legislation to change path.
For all the threats about a second referendum, the Conservatives would implode if they rowed back on delivering Brexit. And as regrettable as a no-deal scenario might be, it seems the only way of achieving a meaningful Brexit.
Yes, adjustment will be disruptive. It requires an active government to prepare. But markets respond quickly in the face of necessity.
But Brexiteers who consider this option the best path forward should admit that it would come with short-term dislocation, and prepare the country for it.
The effect here would not be “uncertainty”. No-deal provides clarity relative to the chaos of Theresa May’s proposed withdrawal agreement or a second referendum.
Rather, the impact would be practical disruptions as we shift towards a new trading environment.
The visible effect widely discussed is at ports. Critics argue that delays caused by physical customs, administration, and regulatory checks will slow down the rate of vehicle pass-through. This could cause ferry and ship delays, in effect reducing capacity, mainly between Dover and Calais.
Some at HMRC envisage far less disruption than Downing Street’s apocalyptic tales, and Tim Morris, chief executive at the UK Major Ports Group, has rubbished the idea that “the Dover effect” will occur elsewhere. But it seems reasonable to expect an early impact.
The government must therefore be clear on what environment for cross-border trade it envisages — not just on regulations (it has largely said that it will accept all EU goods as before), but on tariffs, and whether it will apply a tariff-free environment to all goods worldwide under WTO law.
This move towards unilateral free trade would helpfully offset some of the economic costs of more trade barriers with the EU, mitigating the Brexit trade disruption which politicians and commentators seem to fear so greatly.
Sadly, rather than focus on these big structural questions, politicians’ instincts lean towards micro-management. Despite Treasury efforts, ministers are already discussing rationing space on ferries to guarantee that “essentials” are shipped.
Such hysterical attempts at central planning are misguided.
A no-deal Brexit would be a near-term negative supply shock, like the disruption caused by sustained adverse weather. Delays naturally drive up shipping prices, in turn raising prices of shipped goods while changing relative prices between them.
These rising costs are, of course, not good for the economy. But markets are remarkably adept and self-correcting, helping to alleviate queuing and shortages.
Firms which ship goods would have to reassess their willingness to pay. That helps ration space towards producers which judge that they can still profitably reach market.
Similar decisions are made at the individual level. A rise in the price of imported Spanish tomatoes, for example, may shift demand and encourage consumers to buy more British carrots.
But, dynamically, higher shipping prices also incentivise more ferries or container ships to serve the UK market, using ports where capacity is available.
There may be practical difficulties to changing routes, and questions of the suitability of ports (some are designed for load-on, load-off container ships rather than roll-on, roll-off ferries). But one could envisage new trade routes into other ports such as Hull, Liverpool, Ramsgate, Immingham, and Sheerness.
In time, producers might also adjust product ingredients so that they are less perishable in the face of some longer journeys. Other sellers might be encouraged, at the margin, to transport goods by air or train, or relocate activity to the UK.
Government planning of which goods should get carried on ships distorts these adjustments. It also encourages special pleading.
What starts with guarantees on medicines and water chemicals would soon see a plethora of industries lobbying for privileges. Ministries would be under pressure to grant favours to everyone from the car industry to food suppliers.
This could harm competition too: large firms would be better positioned to make these demands than their smaller rivals.
Already, ministers muse patronisingly about deciding between space for French paté or German gearboxes. But consumers and producers should determine priorities, not ministers. The government wading in is guaranteed to ensure shortages of some highly-demanded products.
Ministers must resist their interventionist urges. Yes, adjustment will be disruptive. It requires an active government to prepare. But markets respond quickly in the face of necessity.
The government’s focus should not be on planning what trade occurs, but minimising trade barriers faced by all where it can.Ryan Bourne occupies the R Evan Scharf Chair in the Public Understanding of Economics at the Cato Institute in Washington DC.