Sanctions, tariffs, and financial exclusion have become the primary instruments of great power competition — with consequences their designers consistently underestimate.
The Rise of Economic Statecraft
Economic coercion — the use of trade restrictions, financial sanctions, investment prohibitions, and access to payment systems as instruments of foreign policy — has become the dominant mode of great power competition in the current period. The alternative instruments — military force and formal diplomatic pressure — carry costs and risks that economic coercion appears to avoid: it does not require the domestic political mobilisation that military action demands, it operates below the threshold of formal armed conflict, and it provides deniability that military action does not. These apparent advantages have made economic coercion the tool of first resort for states seeking to change rivals' behaviour.
The rise of economic statecraft reflects the genuine leverage that economic interdependence creates. States that have integrated their economies with rivals are genuinely vulnerable to disruption of that integration, and the threat or execution of that disruption can produce behavioural changes that less integrated states could not be coerced into. The extraordinary reach of US financial sanctions, which can exclude entities from the dollar-denominated financial system that most global trade depends on, is the most powerful contemporary example of economic coercion based on structural financial interdependence.
The Unintended Consequences
The consequences that economic coercion's designers consistently underestimate are the structural adaptations it motivates in the states subject to it. Every significant application of economic coercion accelerates the target state's investment in alternatives to the coercive infrastructure — in alternative payment systems, in domestic supply chain development, in the financial relationships that reduce dependence on the coercing state's infrastructure. The consistent application of economic coercion is therefore gradually undermining the structural conditions that make economic coercion effective, by motivating exactly the diversification that would reduce the coercing state's leverage.
Economic coercion is effective because of the dependencies it exploits. It is also the most reliable mechanism for motivating the reduction of those dependencies. The consistent overuse of economic coercion is a strategy for spending down the structural advantage that makes it work.
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