Agathe Demarais

The United States has worn out its most powerful nonmilitary weapon – sanctions – to the point where it is backfiring on the USA. This is the essence of a powerful new analysis from Agathe Demarais in Backfire. It means a total rebalancing of the world, as she explains with perfectly clear examples. The worst fears of American administrations are coming to fruition thanks to their own actions. They are achieving exactly what they sought to prevent, and a lot more they never even considered. This book clarifies a lot of things that didn’t seem to need much clarification. They, and it, make a big difference in how the world looks.

Sanctions are restrictions that the most powerful country in the world can impose on others to get its way. Because other nations need it more than it needs them. For the United States, the reason for sanctions always seems to be “national security”. But while most readers might think of national security as a potential attack on the country, the USA uses it as an excuse for any and all kinds of actions, based on little or even nothing. Donald Trump claimed Canada’s manufacture of American cars (by American companies) was a national security threat, for example. He suspended the Free Trade Agreement and imposed punitive tariffs on Canada. Ronald Reagan was another who saw events on the other side of the world as national security threats to the USA, and imposed sanctions on both nations and individuals.

Demarais traces the history deeply, largely because it has mostly been in this lifetime, when a lot has been written about them, they have been studied from numerous angles, and they are at least vaguely familiar to most readers. She traces them back to the more primitive embargoes, which require a lot of work to ensure they’re kept up, to the newer financial sanctions, which largely police themselves. Sanctions have become so common that Demarais says “Washington has around 70 sanctions programs (currently), targeting more than 9000 individuals, companies and economic sectors in virtually every country in the world.” Iran and Russia are the most targeted, but plenty of other countries are in the line of fire.

American sanctions do not expire and can be in place forever, like names on no-fly lists for which mere death is not sufficient reason for removal. In the sanctions world, the Office of Foreign Assets Control (OFAC) keeps on seizing assets, both physical and financial. Retrieving assets? Fougeddaboudit. It doesn’t help that fully half the government’s job openings in sanctions remain unfilled, according to Demarais. She says some sanctions simply have no one dedicated to managing them at all. This is how foreign policy is run in the USA.

But what this book is really about is that only 13% of unilateral US sanctions ever achieve their goal. Even worse, they backfire on America, its economy, and its position in the world. Demarais says 200,000 American jobs are lost annually thanks to its sanctions on others.

The rules that come with these sanctions get more complex by the day, and administering them has become a nightmare for banks and industrials alike. Every year, Demarais says, a thousand authorized regulatory bodies issue some 60,000 new sanctions rules. This works out to 240 new rules every business day. At Citigroup alone, 30,000 people work in the Compliance department, to give readers an idea of the waste involved in trying to steer clear of OFAC, the SEC and the Fed.

American sanctions are forever trapping the wrong targets. In some cases, the mere fact that say, a Russian oligarch who holds no position in government, owns a company that holds shares in another, is enough to name that last company in sanctions. Or that even the customers of that third company become subject to sanctions themselves. It’s a drive-by shooting all over the world. The result is abandonment of business at the slightest mention of sanctions. No one wants the aggravation and the legal costs. And they especially don’t want the hassle of working without access to banks. It is extraterritoriality gone wild. The USA should not be ruling over the internal affairs and policies of the business community in other countries (and European nations in particular detest it and devise workarounds). And if the US lifts the sanctions only to reimpose them a few months later (as has happened), how much does that affect the reliability of the US as a partner, even if only as a customer? The world, Demarais discovers, doesn’t need the hassle of American sanctions and is finding ways to cut America out of its business.

All this interference not only doesn’t achieve behavior change in foreign government policies (think stopping nukes in North Korea in 2003, ditching the government of Cuba in 1960, stopping nuclear research in Iran in 2015, …), but it is also causing business to shift to America-free supply chains. American companies are being left out of deals so that a sudden inexplicable new sanction doesn’t ruin the project for everyone. Sanctions are causing America’s enemies to band together to trade among themselves, and causing them do their own R&D in order not to rely on US technology, which is supposedly what the US government is desperately trying to protect.

The Russia sanctions were meant to cripple that country, but Vladimir Putin can be seen weekly shaking hands with the leaders of Myanmar, North Korea, China, Syria, Iran and many others, as new trade blocks form without the USA. Russia long ago created its own electronic payments networks, ready for the time when the Visas and Mastercards of the world would be forbidden to operate there. Stores are filled with goods despite the sanctions. Oil and gas are being delivered to new customers, and arms continue to be sold, sanctions notwithstanding.

Cuba has refused to bow and scrape before the American embargo, instituted sixty years ago. Canada long ago stepped in to replace US interests there.

Iran, justifiably furious that Donald Trump reneged on its hard-fought nuclear deal to cancel sanctions, is busy developing nukes along with new relationships among those who have no contact with the USA.

North Korea took a different path in order to keep developing its nukes. It became expert in hacking, stealing money from financial accounts, and turning off transponders so that goods could be shifted from ship to ship without global authorities knowing. The drug trade has also proved profitable. And any time a small bank gets nailed for trading with the North Koreans, they just move on to another.

America’s sudden and often not even explained sanctions go against agreements that energy projects must be co-ordinated with allies. The US is forever reneging on that commitment too, leaving allies to scramble, and then defend their businesses against the almost inevitable sanctions which can appear without warning, let alone consultation. As in every facet of global power, the biggest threat to national security in the world is the USA. Add untrustworthiness in contracts, treaties and agreements, pop-up irrational sanctions, and extraterritorial acts, and the US is ripe for being isolated from the rest of the world. Which the USA is unconsciously pushing for with unrestrained sanctions and tariffs.

In recent years, all kinds of countries from India to Iran to China to South Korea have been getting into the Space Race. It is a puzzlement. Most never seemed to care about going to the moon, until America refused to sell them computers or telecom equipment. Now they’ve developed their own. With all that new expertise, they were able to launch their own space programs, something they would never have bothered with when the US was their reliable partner. The US has gone from owning 75% of the market in 1998, to less than 50% now, Demarais says.

Everyone wants their own satellites, and thanks to restrictive policies in the USA, they developed the ability to build and launch them by themselves. China has had to develop a technology that replaces wi-fi, and is busy deploying it in dozens of countries in its Belt and Road Initiative to lock in trading partners to its technology. The US no longer leads in sectors like telecom, as Finnish, Swedish, Korean and especially Chinese firms now dominate. The Nortels, General Electrics, Westinghouses and such have all but completely disappeared, never mind dominating. For telecoms, Nokia, Samsung, and Huawei and their networks are the major sources. And ironically, the USA is totally reliant on them. Another sanctions victory for national security.

Demarais describes the Nordstream pipeline fiasco, in which America put sanctions on Russia’s largest aluminum maker, Rusal. Globalizations and total vertical integration meant that Rusal’s network was so dense, it threatened the entire supply chain in metals commodities globally, with horrific effects on American producers. The US sheepishly rescinded the sanctions before they caused massive unemployment at home. But the embarrassment ran even deeper. Trump’s Treasury Secretary Steve Mnuchin proclaimed the research into who to name in sanctions for Nordstream was “extremely thorough.” But it turned out the sanctions list was composed of the Forbes magazine list of Russian billionaires, plus the telephone directory of the Kremlin. And Congress never even bothered to specify what those sanctioned had to do to get off the list. Putin mockingly pouted that his phone was not on the list because it is unlisted. That is how much of a joke US sanctions appear to the rest of the world.

And the US continues to push for more, completely oblivious to what it is doing to itself. The current obsession is with semiconductors. The US is trying desperately to block chip design and manufacturing in China, forcing the Chinese to build their own and dominate yet another field themselves. It’s a time-tested model. Instead of co-operating with them, the US is forcing its trading partners to do it all themselves, which tends to work out very well for them. And not so well for American business.

Even the dollar is losing its position thanks to sanctions, as countries like Russia no longer stock it in their reserves as much. They have diversified to include the currencies of dependable trading partners instead, helping to make them into world-class currencies. Oil was never quoted in anything but dollars until the US set up sanctions to prevent the Nordstream pipeline from Russia directly to Germany. Suddenly, the world now unconsciously looks to the euro and the renminbi as liquid and valid alternatives to the dollar. This had been unthinkable until now.

None of this was ever intended or desired by the USA when it began its sanctions binge.

Backfire is an object-lesson in shooting yourself in the foot, repeatedly, right on the world stage. I don’t know if this is the first time anyone has done as thorough an analysis of the success of sanctions, but if not, it is high time. It puts a lot of the news in new perspective. It solves a lot of mysteries for the non-governmental reader. The best analogous story I can cite is when the FBI arrested a Chinese woman at Mar A Lago. She was carrying a suitcase full of electronic spying equipment and tools. The media all focused on her as a mystery woman, a Chinese national caught in the act. But viewers and readers were left wondering: why Mar A Lago? Well, as of August, everyone now knows Mar A Lago is actually America’s least secure depository of Top Secret government documents. The light bulb went on; that was the missing link in the Chinese spy story. Backfire gives readers that same kind of Aha! moment, again and again, connecting sanctions to news.

This book is important too, because Demarais explains everything so easily and thoroughly. No stint at the Federal Reserve required. It’s just one long and varied disaster, as the USA adds further pressure to itself to lose the crown of world leadership. It seems to be dead set and determined to fail in this new way, in addition to all the others.

David Wineberg… (más)