May 30, 2024
World Economy

Opinion | US economic warfare is a lot more unhinged than its British predecessor

One consequence of “Chimerica” is that it’s possible to wage a highly destructive economic war against China – the chip war is a typical example – in the way that it was not feasible against Soviet Russia.

Both adversaries have to be enmeshed in the same global economic system for one or both to disrupt the other’s or one another’s critical supply chains, financial markets, capital flows, trade and essential supplies – the characteristics of globalisation – using methods such as sanctions, export controls, tariffs, investment restrictions, and price caps.

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At the end of World War II, British officials with almost half a century of experience of economic warfare considered the option of deploying it against the Soviets, but recommended against it given the lack of economic integration between the two rival blocs.

But Whitehall did start sharing the principles and practice of economic warfare that the crumbling empire had developed over almost half a century.

Weaponising the global economy: how the Brits did it first

After a few decades of globalised “free trade” championed – and enforced – by the British Empire, by the turn of the 20th century, in a situation not unlike our own at the turn of the 21st, some prominent Anglo-American intellectuals and strategists such as Alfred Thayer Mahan, Norman Angell and Ivan Bloch argued that a new “global economic interdependence” made war unlikely or at least very short between nations. After all, it’s just stupid to attack your own most important customer and trade partner. Indeed, at the outbreak of World War I, Britain and Germany were each other’s biggest trading partner.

But well before 1914, a few mavericks within the British Admiralty already realised “the German economy was vulnerable to disruption; second, that the Royal Navy possessed the capability to isolate Germany from the global trading system; and third, that doing so should produce strategically decisive results”, the Blavatnik study said.

“The novelty, or radicalism, of the concept continued to be met with scepticism both within and outside the Admiralty through this period, not just as regards its efficacy but the as-yet-unexamined international legal and diplomatic ramifications.”

Indeed, those who championed this kind of new economic warfare still call it “blockade”. It would take a while before they started calling it “economic pressure” instead.

The new warfare, deployed during World War I, required plotting “every major military and merchant vessel in real time globally, updated more than twice a day, built on a tremendous new investment in intelligence gathering, data technology, and a handsome payment to Lloyd’s of London”, which was then the commercial hub for global shipping insurance.

Just as the US government has control and access to key internet chokepoints to intercept global messages, at the outbreak of war, the British government could access global cables for telegrams running through London to track Germany’s trade and shipping down to the last shipment, and blacklist foreign entities by denying them “access to the British financial and shipping system”.

By intercepting mail and telegraphs, the UK Treasury could read most German banking transactions through Dutch and Scandinavian banks, in Amsterdam, Rotterdam, Copenhagen, Christiania (Oslo), Bergen, Malmo, Trondheim and Stockholm.

That’s not so different to how America’s National Security Agency (NSA) could read practically any email and online transaction if it wanted to, or how US law enforcement agencies could access the massive data of the country’s biggest internet and social media firms, as the Elon Musk leaks on Twitter, now called X, have shown.

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After World War I, some of the sanctions methods would be taken up by the League of Nations and then the United Nations. There was even an abandoned plan to establish an “Economic Nato”.

It seems British leaders showed some restraint and wisdom in exercising economic warfare, having never deployed it except during declared wars.

After World War II, officials preferred to see economic warfare not as a means to maintain the empire, but to manage its decline.

The report said: “The economic weapon allowed the CID [the Committee of Imperial Defence] to rethink how the British Empire could use its material power against potential opponents. [ …] The purpose of such ‘grand strategy’ was to manage decline, not avert it, and [senior officials] were in close touch as they confronted the reality of this fact.”

America’s turn to weaponise the global economy

About 30 countries and territories are currently sanctioned by the US, including Hong Kong. In some cases, sanctions are or were so severe that entire populations in Cuba, Iran, Iraq and Venezuela have had to face a humanitarian crisis at one time or another.

Outright economic warfare is currently being waged against China, Russia and Iran. Is it any wonder that they are now ganging up together and forming an alternative financial and trade system under Brics?

Unlike the Brits, Americans have fewer qualms about using economic warfare as a tool of foreign policy. It’s the first rather than the last resort.

In the book, Underground Empire: How America Weaponised the World Economy, by political scientists Henry Farrell and Abraham Newman, US economic warfare started with “the war on terror”.

By following Osama bin Laden’s financial transactions, US anti-terror agents could uncover what al-Qaeda was up to and disrupt its plans, and kill or jail its operatives. From there, it’s but a small step to generalising such financial methods against enemy states and actors. The US similarly pursued Huawei’s No 2 Meng Wanzhou with a criminal case that we now know was part of the US economic war to disrupt the company’s global 5G plan.

China’s three-legged race to fend off the 4 Ds of an economic apocalypse

Over decades, British officials fretted about the morality and efficacy of economic warfare, and how it would affect the global financial system. Would it undermine their professed doctrines of free trade? And what of the terrible consequences on innocent civilians in targeted countries? Do they have the right to force neutral countries to join their sanctions regimes and punish them if they don’t?

Most of all, in a highly integrated global economic system, wouldn’t the results come back to harm the Brits themselves?

In a recent programmatic statement written for the Atlantic Council, Daleep Singh, who has been reappointed US deputy national security adviser for international economics, considered all these questions and said: “Their design and implementation must be infused with a sense of humility. By design, sanctions break the bonds of trade, capital, and technology in the global economy – sometimes instantaneously – making unintended consequences almost inevitable.”

But then a few paragraphs later, he wrote, “No country is too big to sanction”, adding “but there isn’t an obvious knockout blow that coercive statecraft could deliver by itself without incurring severe collateral damage in a full-fledged confrontation with China.”

If by historical analogy, the US is Britain and China is Germany, then the consequences are dire for all of us.

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