It is becoming increasingly apparent that isolating Russia and totally cutting it off from the global economy is not going to be easy.
As I discussed last week, from Mexico to Brazil to China to India and much of Africa, the world is resisting Washington’s call to treat Russia as a pariah nation. In the words of James Pindell, “Most of three huge continents—Asia, Africa, and South America—are either still working with Russia or trying to project the image of neutrality.”
Yes, the US will certainly inflict a lot of damage on the Russian economy with its sanctions, but it’s unlikely to be enough damage to incapacitate the Moscow regime. This is because much of the world has shown it plans to continue having relations with the Russians, albeit while taking some efforts to avoid any direct policy confrontation with Washington.
But this all also means that if Washington wants to press the issue of global cooperation and assistance with US sanctions, the US is going to have to threaten many other regimes with secondary sanctions—sanctions designed to force compliance with the initial sanctions on Russia. This will be diplomatically and economically costly for the US. After all, if the US is trying to build up alliances and economic partnerships against a potential Russia-China bloc, trying to impoverish dozens of countries as punishment for noncompliance with Russia sanctions will only encourage other regimes to insulate themselves from both the US economy and the US dollar. Whether or not this happens will largely depend on how hard the US is willing to bully third-party countries in order to win compliance with its Russia sanctions.
What Are Secondary Sanctions?
Before we proceed, let’s look at what exactly secondary sanctions—and the closely related “extraterritorial” sanctions—are.
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At their most basic, secondary sanctions are sanctions imposed on a third party that is not the target of the initial, primary sanctions. For example, if the United States wants to force a change of policy in Iran, the US will impose sanctions directly on Iran but might also decide that this isn’t enough. The US might also seek to prevent other countries from doing business with Iran as well. In order to do this, the US will then impose secondary sanctions on firms and entities in other countries that do business with Iran.
More specifically, as outlined by the Atlantic Council, extraterritorial sanctions mean
And secondary sanctions are cases in which
In geopolitical terms, what this means is the US government is directly attempting to punish and regulate foreign firms and foreign individuals even in cases where the United States is not a party to the trade or investment taking place.
Why Much of the World Will Push Back
Needless to say, this rubs many foreigners and their regimes the wrong way. Imagine, for example, how Americans react any time they’re told foreigners are somehow meddling in American affairs. Moreover, Washington has ratcheted up its use of sanctions in this way in recent decades, whether to sanction China, Iran, Russia, or other countries. This has led to growing pushback from many third-party states that find themselves targeted by these secondary sanctions. As one observer remarked back in 2021:
Now, by extending very harsh sanctions to Russia, the US is greatly expanding the scope of its sanction regime, and to a country that is far more globally connected than Iran or Cuba or North Korea. It’s one thing to demand other countries sanction a handful of small countries with a small global economic footprint. It’s quite something else to demand that the world go along with US sanctions of a large country like Russia.
For example, Africa depends heavily on Russian wheat, and even more heavily on Ukrainian and Russian wheat combined. With Ukrainian wheat production greatly reduced thanks to the Russian invasion, Egypt, South Africa, and numerous other African states will be even more reliant on Russian wheat. Essentially, the US is forcing up the price of food in Africa just as Africa is still reeling from a hunger crisis in the wake of covid lockdowns and trade disruptions. It is likely not a coincidence that nearly one-third of African states refused to vote in favor of the UN resolution condemning the Russian invasion.
Meanwhile, India, like many other countries, deals frequently with Russia as a source of weapons. Russia is also a key source of numerous important raw materials like aluminum, palladium, oil, and fertilizer for countries across Asia, Africa, and South America.
A turn toward enthusiastic enforcement of secondary sanctions will put the US in direct conflict with these regimes that have no interest in opposing the US’s policies toward Russia specifically but are unprepared to totally cut off their trade relations with Russia.
China Remains the Big Challenge
Ultimately, should the US go down this path, it may be able to use its clout to force many smaller, geopolitically weak countries to go along. This will, however, reduce the US’s so-called soft power—the real source of US global power—by humiliating smaller regimes and driving up the cost of living for the developing world’s economically beleaguered households.
But the real question is China. It may not even be possible for the US to force compliance in the short term if China refuses to embrace US efforts to isolate Russia. China’s trade connections to South America, Africa, and the rest of Asia, of course, are far more extensive than those of Russia. This makes it far more difficult to impose politically effective sanctions on China than on Russia.
Nonetheless, Washington has already started making threats toward Beijing. This week, Washington imposed new minor sanctions on some Chinese officials, but Washington claimed the sanctions were motivated by Beijing’s repression of certain ethnic minorities in China. The sanctions may nonetheless be calculated to send the message of “we will sanction China if we feel like it.” Moreover, US threats against China are mounting, and CNBC reported last week:
The Biden administration also recently reiterated that the president has laid out the “implications and consequences” for Chinese premier Xi Jinping should China provide “material support” to Russia. (What “material support” means would depend heavily on how the US defines it.) Senate Republicans are already crafting legislation designed to punish China should it assist Russia with finding ways to work around the US’s attempts to cut it out of the global financial system.
Domestic Politics Matter for Beijing
From its perspective, however, Beijing—for domestic political reasons—can’t be seen as being pushed around by US sanctions. For a glimpse of this we can look to a March 17 press conference intended primarily for the Chinese public. According to the state-owned Xinhua news agency:
Chinese nationalism—in no short supply either within the regime or among the general public—simply won’t permit China to easily submit to US sanctions that approach anything like what we’re seeing imposed on Russia. Should Beijing decide to push back, the US will find itself not only in a sanctions war with Russia, but with much-larger China as well.
The short-term effects of an aggressive assault with secondary sanctions by Washington will not be dramatic or immediately apparent. In fact, the US is likely to get a sizable amount of compliance in the moment. But short-term victories can often lead to long-term defeat. If Washington pursues a path as a “global sanctions cop” picking winners and losers, this will only encourage more regimes to decouple from the dollar.
Moreover, the US’s recent seizure of Russia’s central bank reserves should make any regime think twice about holding large amounts of dollars. If Washington can do it to Russia, Washington can do it to anyone, and other regimes are likely to see this and slowly flee the dollar.
Washington, however, thinks only in the short term, and it’s clear that the US regime now fancies itself the leader of some kind of new world order in which are revived old notions of a “free world” (i.e., the “first world”) followed by lesser regions of poorer states and rogue states. The United States, though, is no longer in any position to remake the world in its image. It’s not 1945 or even 1970, so the United States will find itself contending with a Global South that has many more options than it did in the first decades following the Second World War.
Ryan McMaken (@ryanmcmaken) is a senior editor at the Mises Institute. Ryan has a bachelor’s degree in economics and a master’s degree in public policy and international relations from the University of Colorado. He was a housing economist for the State of Colorado. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre. This article was originally published on the Mises Institute.