Can America escape its dependence on sanctions?

The current wave of competition between the United States and China could harm America. Some US analysts fear that instead of reducing America's dependence on China, Beijing is instead gaining technical independence, which would allow it to act more autonomously.According to the Financial Times, in October 2022, 70% of European fertilizers and 50% of aluminum production capacity were unusable due to energy shortages. EU energy sanctions against Russia, imposed in response to the Russian military operation in Ukraine, have had the effect of crippling Europe's industrial capacity.

Companies ranging from BASF to ArcelorMittal have planned to relocate to China or the United States to escape high energy costs.While Europe has resolved its energy crisis for now, the gas sanctions against Russia have had unintended consequences not only for European countries, but also for countries not directly involved in the Russian-Ukrainian war.But why are sanctions so likely to produce unintended consequences? In her book, Backfire: How Sanctions Reshape the World Against U.S. Interests, published in 2022, Agathe Demarais specifically delves into the rich post-WWII history of the United States sanctioning other countries.

His book is a critique of sanctions that don't work. Ms. Demarais does an excellent job of proving this to be true. Unintended humanitarian consequences to sanctions are derailing global commodity markets. Demarais gives examples of well-intentioned policies imposing sanctions with unintended consequences.For example, there is the way non-US companies handle US sanctions. Prior to the mid-1990s, non-US companies that deemed the sanctions unfair did not have to comply with the US blacklist. However, with the passage of the Helms-Burton Act of 1996, the United States decreed that international companies could not trade with Cuba. Yet, rather than effectively isolating Havana and affecting "regime change," the US sanctions regime has only thrust it into the arms of America's foreign adversaries, including China.

The fact that companies are afraid of violating sanctions by accident has other consequences. An entire cottage industry has sprung up to manage the complexity of the US sanctions regime, with hundreds of thousands of people employed to carry out this mission.Demarais looks at the recent history of sanctions against Russia. In 2017, the US Treasury Department's Office of Foreign Assets Control (OFAC) sanctioned Oleg Deripaska, a Kremlin-linked Russian billionaire, as well as Rusal, the Russian aluminum giant of which Deripaska owned a third. Rusal is not a small company; it is the second largest aluminum producer in the world. As such, these US sanctions quickly derailed global aluminum markets. Only an agreement with Deripaska which lifted some of the sanctions restored market stability.

The Government Accountability Office, for its part, notes that " federal agencies do not conduct comprehensive evaluations that measure the effectiveness of sanctions in achieving US foreign policy objectives ". Estimates on the specific impact of the sanctions are extremely limited, given the number of sanctions imposed by Washington.Rusal's example is a demonstration of this, as OFAC staff noted that Rusal's sanctions would have unintended consequences, yet policymakers continued to impose those sanctions anyway.

Ms. Demarais devotes the final chapter of her book to predicting how the current wave of competition between the United States and China could harm America. There are fears that instead of reducing America's dependence on China, Beijing will instead gain technical independence, which would allow it to act more autonomously.We have seen this play out over the past few months. On October 7, 2022, the U.S. Bureau of Industry and Security (BIS) implemented new export controls on semiconductors. The move is a continuation of years of growing U.S. policy to restrict the supply of U.S. technology to Chinese companies.