The Double-Edged Sword of U.S. Economic Power

The United States has increasingly utilized its economic might as a tool of statecraft in the twenty-first century.

The United States has increasingly utilized its economic might as a tool of statecraft in the twenty-first century. Washington has employed tariffs, sanctions, and military force to influence the actions of its adversaries. Two of the most significant instances of this tactic are the tariffs placed on China during the trade war and the sanctions placed on Russia after it invaded Ukraine.

The goals of both actions were to safeguard American interests and exert influence overseas. However, the ramifications of their actions have been far more intricate than Washington policymakers may have expected. They have expedited the disintegration of the international order, tested relationships, and changed global markets.

In 2022, the United States and its allies imposed an unprecedented set of sanctions in response to Russian tanks rolling into Ukraine. Energy corporations were subject to restrictions, Russian banks were shut out of the global financial system, and the assets of oligarchs were frozen. The objective was clear: to put pressure on President Vladimir Putin to alter the path of the war and to make it harder for Moscow to finance it.

The sanctions have produced a range of economic outcomes. Although Russia’s GDP shrank precipitously in the immediate aftermath, the nation turned out to be more resilient than many had anticipated. Moscow was able to lessen the impact by shifting oil exports to China, India, and other ready consumers.

Despite its volatility, the ruble did not completely collapse. But there is no denying the long-term harm. Russia has been compelled to rely on Beijing, denied access to cutting-edge technology, and shut out of Western financing markets. In order to preserve cash flow, its energy industry, which was formerly the foundation of its worldwide dominance, is now selling at a discount. The largest trading bloc in the world, the Regional Comprehensive Economic Partnership (RCEP), provided China with new ways to counteract American pressure.

However, there have been notable global consequences. Europe’s severe reliance on Russian gas led to an energy crisis and a sharp increase in costs. Developing countries, already struggling with post-pandemic inflation, saw increases in the cost of food and petrol. The world was also affected by sanctions meant to punish Moscow, raising questions about whether the West had underestimated the collateral damage.

Russia’s resolve has been diplomatically reinforced by sanctions. Instead, the Kremlin has stepped up its depiction of Western hostility. For many in the Global South, the sanctions regime has reinforced perceptions of a divided international order, where Western values are selectively implemented.

Tariffs on China were the result of rivalry, whereas sanctions on Russia were the result of conflict. Citing unfair trade practices, intellectual property theft, and a widening trade deficit, Washington levied broad duties on Chinese goods starting in 2018. The purpose of the tariffs was to safeguard American industries and restore economic equilibrium. The immediate result was a dramatic rise in hostilities between the United States and China. Beijing responded by imposing tariffs of its own on American manufacturing and agriculture.

Customers suffered at the checkout counter, supply networks were interrupted, and business expenses increased. Although the tariffs hindered China’s economy, they also encouraged adaptation. By making significant investments in domestic technology and extending commercial relations with ASEAN countries, Beijing strengthened its commitment to independence.

China now has additional ways to counteract pressure from the United States thanks to the Regional Comprehensive Economic Partnership (RCEP), the largest trading grouping in the world. The trade imbalance was not significantly reduced by the tariffs for the US.

Rather, they emphasized how closely the two economies are interdependent. Farmers that depended on Chinese markets suffered from retaliatory actions, while American businesses that relied on Chinese production had to pay more.

Above all, the tariffs possibly sped up the decoupling process. As Beijing and Washington started to reconsider their mutual dependence, global supply chains gradually changed. Reshoring and diversification helped some industries, but overall, the impact was increased costs and more unpredictability.

Both measures disrupted global markets, imposed costs on both allies and adversaries, and produced mixed results in terms of changing behavior. China has not fundamentally changed its industrial policies, and Russia has not withdrawn from Ukraine. Instead, both countries have adapted, finding ways to mitigate the pressure while strengthening ties with alternative partners.

At first glance, tariffs on China and sanctions on Russia may seem like different tools aimed at different problems; one targeted geopolitical aggression, the other economic competition. However, both measures reflect a broader U.S. strategy: using economic leverage to achieve political ends without resorting to military force.

But the distinctions are just as significant. Global manufacturing has changed as a result of tariffs on China, while global energy markets have changed as a result of sanctions on Russia. Tariffs are transactional and competitive, whereas sanctions are punitive and isolating. When taken as a whole, they demonstrate the flexibility—and constraints—of economic pressure.

The indirect effects of U.S. sanctions and tariffs on the global system may be more important than their direct effects on China or Russia. Washington has made it clear that political alignment is required to gain access to its markets and financial networks by weaponizing economic interdependence.

This has caused competitors to look for other options. While China is establishing alternative organizations like the Asian Infrastructure Investment Bank and encouraging the use of the yuan in international trade, Russia is becoming more and more dependent on China. To avoid getting caught in the crossfire of great-power conflict, even allies of the United States are hedging.

As a result, the liberal economic system that the US helped establish is gradually being undermined. We might be heading towards a fractured world of rival blocs rather than a single, cohesive global organization. This results in increased expenses and uncertainty for firms. Governments will have to make more difficult decisions between conflicting areas of power.

The lesson is not that tariffs and sanctions don’t work. They have the power to signal resolve, inflict actual costs, and influence rivals’ calculations. However, they are not panaceas. Economic coercion has the risk of turning into a blunt tool that emboldens adversaries and alienates allies in the absence of diplomacy, coalition building, and long-term planning.

Additionally, Washington needs to understand the boundaries of its power. Although the dollar still holds sway, excessive use of financial sanctions may hasten the development of substitutes. Tariffs might shield some industries, but they can’t undo decades of globalization in a single day.

The United States must ultimately find a balance between engagement and pressure. Instead of being the toolkit itself, sanctions and tariffs ought to be a component of a larger one. If not, the United States runs the risk of eroding the same framework of free markets and partnerships that has long served as the basis for its dominance.

Both the potential and the danger of economic statecraft are demonstrated by the tariffs on China and the sanctions on Russia. They show that without firing a shot, the United States can nevertheless influence world events. However, they also demonstrate that, similar to military might, economic might has unforeseen repercussions.

Washington needs to use its economic powers more accurately, modestly, and strategically if it hopes to survive this new era of great-power competition. Otherwise, America itself could be harmed by the two-edged sword of tariffs and sanctions, not only its enemies.