Today, Explained - Weapons of cash destruction

Episode Date: February 18, 2022

The US hopes the threat of sanctions will dissuade Russia from invading Ukraine. Historian Nicholas Mulder explains the surprising history of economic penalties as a weapon of war. This episode was produced by Amina Al-Sadi, edited by Matt Collette and Sean Rameswaram, engineered by Efim Shapiro, fact-checked by Laura Bullard and hosted by Noel King. Transcript at vox.com/todayexplained Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

Get groceries delivered across the GTA from Real Canadian Superstore with PC Express. Shop online for super prices and super savings. Try it today and get up to $75 in PC Optimum Points. Visit superstore.ca to get started. It's Today Explained. I'm Noelle King. By the time you hear this episode, things may have changed. Or not. For months, Russian troops have been massing along its border with Ukraine. The U.S. and NATO allies see this as evidence of an impending invasion.

Ukraine is not so sure. This week, Russia started withdrawing troops, says Russia. The U.S. says it's not a meaningful pullback. On Thursday, the U.S., Russia, and the EU all agreed that artillery shells landed in eastern Ukraine. Ukraine says that shelling was Russia. Russia says that shelling was Ukraine. Meanwhile, world leaders and diplomats have been banging the phones. It's not clear how effectively trying to broker a solution. What do we know for sure? First, President Biden is confident of the probability that Russia is about to invade Ukraine. Second, Biden is confident that there is zero probability that he'll deploy U.S. troops to Ukraine. There's not. That's a world war when Americans and Russians start shooting at one another.

The U.S. has a tool it can and does use when it wants to influence another government. Sanctions. Given how ineffective sanctions have been in deterring Putin in the past, why should the threat of new sanctions give him pause? Well, because he's never seen sanctions like the ones I promised will be imposed if he moves, number one. With world powers in a holding pattern, this is a good moment to step back and look at how the U.S. came to rely so heavily on sanctions and also ask how they work. They do really involve the actual use of force or sometimes

a threat of force, but they don't necessarily have the same intensity always as kinetic warfare. That's Nick Mulder. He's an assistant professor of history at Cornell. He's got a new book out, The Economic Weapon, The Rise of Sanctions as a Tool of Modern War. You have war or kinetic warfare as the most intense kind of use of force. You have attempts at persuasion or coercion that can be threats or message sending. And sanctions are somewhere in between. Nick says to understand how the U.S. uses sanctions, we need to go back a century. It started happening about a hundred years ago during and after the First World War. The nation slithered over the brink into the boiling cauldron of war.

And at that time, that war was so terrible that involved trench warfare and enormous amounts of casualties on a scale that people weren't necessarily familiar with there are perhaps 10 million men dead of this war and perhaps 100 million persons to whom death would be a blessing writes an american ambassador in europe and he adds the hills about verdun are not blown to pieces worse than the whole social structure and the intellectual and spiritual life of Europe. And the thing they wanted to do most was to try and avoid a repetition of that war. And in order to stop countries from going to war,

they needed something that was powerful, potentially as powerful as war itself, but that wouldn't be war itself. And that's kind of where sanctions come in. So in the war, they had used this instrument, a policy of economic blockade, trying to weaken the adversary with deprivation, trying to cut off their access to exports and imports and income, money, goods, finance, commodities. And that became the model for economic sanctions. And the first organization that had the power to do that and to use sanctions was the League of Nations,

so the predecessor to today's United Nations. When is the first time that we see sanctions like a blockade? You can't get food in or out. When is the first time we see it used and used in a way that you might say, okay, that worked. That's why we kept going with this. So initially, because the use of blockade in World War I had been so severe in its effects on civilians, the hope of the people in the League of Nations was that they could use the sanctions instrument as a pure threat, so that you wouldn't actually have to implement it. Because they The hope of the people in the League of Nations was that they could use the sanctions instrument

as a pure threat so that you wouldn't actually have to implement it because they thought people still have this memory of how much hunger they were suffering from in the war. No one in their right mind is going to actually risk any kind of political behavior that would prompt this instrument to be used against them. And the times that they used it successfully were in the 1920s. So there were two incidents, two small border wars in the Balkans at that time, Yugoslavia, Albania, and then Greece. And in two cases there, there was a border war that broke out in the case of Greece. It actually had a very funny name. It was called the War of the Strayed Dog.

Okay. Why? I mean, I'll leave it to your imagination how a strayed dog can lead to a border war. Okay. But very sort of small scale incidents, but they had a powder keg potential, right? They could set off another war. After all, the First World War itself had started with the assassination of this Austrian Archduke, Franz Ferdinand, in 1914 in the Balkans. So everyone was very worried that if you let these small wars rage, ultimately they're going to become a sort of spark in a tinderbox and they're going to lead to

a much bigger great power conflict. So it was important to nip them in the bud quickly. And in two cases, first in 1921 against Yugoslavia, and then in 1925 against Greece in this War of the Stray Dog, the League of Nations threatened to use sanctions if they didn't restrain themselves. And both of those times, that seemed to work, and the situation was quickly de-escalated. And what was the threat exactly? We're not going to let food into the country? We're not going to let you sell your goods in the market so you guys won't have any money? What was the actual threat? The threat was a number of things put together, but part of it was a naval blockade. And both of those countries were dependent on ports for

their imports. So you could imagine a small country, partially landlocked countries that are dependent on ports and maritime supply lines, that they were very worried about that. And then there was also the idea that they, for example, wouldn't be able to sell their goods anymore in other countries. And that was kind of a package that was threatened, and it included potentially food supplies. And that was very worrisome to them as well. Was anyone at the time making the case like, we're going to avoid trench warfare, we're going to avoid guys shooting at each other in an open field. But if we do this, we're going to be starving people to death. Was anyone saying that? Yeah, so that was very explicitly the threat. And that's really one of the paradoxes of sanctions, particularly in this early period, that they are meant as a

deterrent. So a threat that is so severe that you don't want to do whatever the thing is that would make the threat real. But in order to do that, the threat needs to be so total and severe that if the actual, you know, your bluff gets cold, you then have to do things that are very, very inhumane and you have to target civilians. And there's kind of a paradox because in order to make the threat credible you must threaten this sort of behavior that in a sense you wouldn't really think of as preserving peace at all right that would be in a sense going to war and waging total war on civilians but it was hoped that in order to make it credible you had to make it total and interestingly at the time there were also

feminists for example who wrote to the league of nations and said things like women and children they don't support war they're not the ones who are pushing governments to go to war, but they are now being targeted. That's unfair. But then the sanctionists, the people who designed the sanctions said, sorry, but actually they too need to suffer the consequences or there's not going to be a kind of broad public opinion that is going to move towards peace in the country. So you have to target people who they actually accepted were innocent. Otherwise, this deterrence model doesn't work. God, that's fascinating. I wonder what the backroom conversations were like when this is all being conceived of. The idea that, yeah, women and children are civilians. Normally, we're able to keep them out of the shooting until we can't. But sanctions affect everybody right away equally because everybody starves together.

A seven-year-old who wouldn't go out onto the battlefield is going to starve along with the 21-year-old who would. Wow. I want to ask you about when a shift started to happen. So sanctions were originally conceived as a way to keep peace on the European continent, and they did work to prevent war between smaller countries. When did that start to change? Yeah, it began really to change when there was a massive economic crisis that was global, the Great Depression. And that began in the late 1920s, and it got much worse in the early 1930s. And one of the side effects of the Great Depression

was that there was a very broad global turn towards nationalism. People became much more distrustful. People become more fearful. They start to blame certain groups for economic collapse or for economic loss. And that also led to a number of countries to embark on a much more aggressive attempt to revise the territorial order, the international system that had been produced by World War I. And those are countries like Mussolini's Italy, which was the first fascist regime, Nazi Germany, and also the military regime in Japan. And they were really intent on building their own empires, on changing the borders, expanding

their hold over territory and resources. On the one hand, Italy's Duce, in 15 years of power, has made his people believe that at home they are marching to a new prosperity, and abroad Italy is rebuilding the Roman Empire. And initially the sanctionists tried to confront them with further threats of economic blockade. But when you confront a regime that's already ideologically quite radical and inclined towards

nationalism, you'd actually, in this case, in the 1930s, it turned out this didn't work to restrain them. It actually fed their anxieties that they had to act more aggressively, more quickly to secure those resources for their people. And at the time, territorial conquest was still seen as a way that you could potentially become self-sufficient. So the real tragedy of the 1930s is that sanctions had worked in the previous decade, but precisely when they were used in the wake of the Great Depression, they ended up actually accelerating political

and economic disintegration in the world. Because a country like Germany hears, we're going to blockade you, we're going to keep food from getting in if you continue down this path, the path that led to World War II. And instead of getting scared in the right way, Germany gets scared in the wrong way. And it's like, we better go out and conquer some territory so that these blockades can't work. We need to be bigger and stronger. Exactly. Yeah. Being scared in the right way, I think that's a great way to put it.

Yeah. Wow. So back in the 1930s and 40s, the United States is not part of the League of Nations. It's not part of the group that generally puts the sanction pressure on. Was the U.S. itself using sanctions at all as a threat? They were not part of it for a large part of this period. They were very much kind of torn internally, the United States. So there are people who are internationalists who think the United States should become a member of all these international organizations, that it should do much more to try

and maintain world peace. And then there's a very big group of Americans in the 20s and 30s who actually think, no, that actually gets the United States involved in these endless foreign wars. That's the old world. We're a new country, a young country. We don't want to have anything to do with that. And if you start with sanctions, it will escalate to war. So let's not be part of any of this. But of course, in the 30s, you do get all of these regimes, very radical regimes, nationalist regimes, that begin to challenge the status quo in very dangerous ways. And ultimately, Roosevelt, the president at FDR, he does begin to use economic sanctions because he realizes that the United States actually has quite a lot of levers that it can pull. So this is kind of interesting because at that time, particularly in the late 30s, early 40s, for example, the United States is the world's largest oil producer. It has the power to stop

oil supplies to all of these other countries. Some countries are actually very dependent on American oil supplies. America is kind of like Saudi Arabia at that point. It can stop tankers from going across the ocean, and that potentially can bring the economies of other societies to a halt. And in 1940 and 1941, they actually twice use this. Once they use it against Spain, where the Spanish, they're under this dictator, Francisco Franco, and he's kind of tempted to side with the fascists. And at the right moment, Roosevelt actually withholds oil from Spain. And Franco realizes, oh, this is going to turn out badly. We're totally dependent on the US. And he actually

also does not join the war. He remains neutral for the entire duration of World War II. So there, again, it ends up working. But one year later, the United States tries the same thing against Japan. And in the summer of 1941, together with Britain and the Netherlands, they impose this big oil embargo on the Japanese economy. And Japan is an island. It has no oil. It's totally dependent on overseas supplies. And the Japanese respond by this by realizing, OK, well, we need to now conquer resources by force.

We have to take over most of Southeast Asia if we want to remain self-sufficient and keep our economy running. And this is one of the things that makes Japan attack the U.S. at Pearl Harbor. So sanctions actually drag the United States into the Pacific War in the second half of 1941. Wow. December 7th, 1941, a date which will live in infamy. The United States of America was suddenly and deliberately attacked by naval and air forces of the Empire of Japan.

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In general, the United States kind of avoids using sanctions in that very big, comprehensive, provocative way that got them into World War II. But they do keep that lesson of what went wrong with Japan somewhat in mind because they never actually for much of the Cold War imposed sanctions against a large industrial state. In the Cold War, as the United States is fighting the Soviet Union or competing with the Soviet Union rather and competing with communist China, they don't use sanctions that are as severe. They never cut off all oil supplies or anything like that. And it wouldn't have really worked because the Soviet Union itself has enough of those resources. It's a very large country, right? It controls one sixth of the Earth's surface. So for most of the Cold War, so the 1950s, 60s, 70s, 80s, the United States ends up using sanctions mainly against small countries, the embargo against Cuba. That's kind of a good example of the sort of sanctions the United States has been using in the last half century.

So Cuba, it's very interdependent. It used to be at least very interdependent with the United States economy. And the embargo against Cuba is a pretty severe imposition on their economy. And there's a few other cases, North Korea, for example, because there's the Korean War. So you mentioned Cuba, you mentioned North Korea. Tell me some other places where the U.S. has used sanctions since the, let's say, 70s, 80s, 90s, and the types of sanctions that we're seeing. Yeah, so the United States in the 70s gets this extra kind of shot in the arm from the fact that there's a lot of things changing in the world economy. There's a new kind of wave of financial globalization that happens.

And at the core of it is the U.S. dollar. So it's the control over what becomes really the global reserve currency that's very powerful. The United States can exploit this. And much of international trade and a lot of international banking happens through dollars. And at some point, that means there's always some aspect of companies or banks' activity that happens in U.S. jurisdiction. So the United States can use whatever that little leg that is in a U.S. jurisdiction is to try and exert control over the transactions as a whole.

So the use of the dollar since the 1970s is really key to the way that the United States has used sanctions. And at first, for example, does this against Iran. Good evening. The U.S. embassy in Tehran has been invaded and occupied by Iranian students. The Americans inside have been taken prisoner and according to a student spokesman will be held as hostages. So in 1979 there's a big revolution in Iran and the Shah is overthrown and the Islamic Republic under Khomeini comes to power and immediately what the United States does is it freezes all of the assets about 11 or 12 billion dollars of Iranian assets held in American banks and that's something that you see quite a lot subsequently. So that oftentimes is now the way that the U.S. begins with a use of economic

sanctions. But it's not the only way. Sometimes they can also target not just their reserves, but also their exports. So they try and prevent them from selling things abroad. Our position must be clear. I am ordering that we discontinue purchasing of any oil from Iran for delivery to this country. They drive down the amount of export earnings that those countries can have, and that puts them in difficult economic situations because they have to make really tough choices about how to distribute the resources that they do have. Off the top of your head, and I ask because you're an expert, can you list the countries that the U.S. has put sanctions on since the 90s?

I mean, there's probably too many for me to accurately list. But since the 90s, I mean, it's a pretty big list. So some of the most important cases I think you would have are Iraq, Libya, North Korea, Venezuela, Belarus, Yugoslavia, Ethiopia, and Eritrea. It's also put sanctions on Russia. There are certain technological restrictions against China, Myanmar, Syria recently. So, yeah, it's a pretty, pretty long list. Yeah. And it seems worth pointing out that all of those countries you listed, the vast majority of them, the United States has not necessarily gotten what it wanted from those countries. Yeah. So in most cases, I think

it's clear that if the goal of those sanctions was behavioral change, only a very small amount of them have worked or they've worked only a very small amount of them have worked or they've worked only a little bit, but not actually fully. And yeah, I think that at the moment, what you see is that these sanctions are easy to impose, they're much more difficult to lift. And when a government decides that it can risk or it can, you know, it will take its chances to try and ride out the sanctions, then it retrenches. They often try and at times try and ferment nationalism and make people rally around the flag. And then the conflict basically becomes kind of frozen. So there's no actual prospect that it's going to lead to better

diplomatic relations or that they're going to give up on this policy that the U.S. wants them to stop pursuing. So in most cases now where I think many sanctions regimes have ended in a kind of impasse. Today, I'm announcing a series of measures that will continue to increase the costs on Russia and on those responsible for what is happening in Ukraine. First, as authorized by the executive order I signed two weeks ago, we are imposing sanctions on specific individuals responsible for undermining the sovereignty, territorial integrity, and government of Ukraine. Can you tell me about what happened in 2014 with Crimea and Russia and then the U.S. sanctions that followed? Yeah, so in 2014, this whole crisis that happened after the Maidan revolution in Ukraine

led to Europe and the United States together imposing sanctions on Russia, because Russia reacted to a new pro-Western government coming to power in Ukraine, and it took over the Crimea. It annexed the Crimea and occupied it, and it also helped separatists in these two regions in eastern Ukraine. And that was a pretty big shock because there hadn't been a major kind of war or conflict like that in Europe, at least since the late 90s, since the Balkan Wars. And a lot of European countries realized

that they had to try and do something to show Russia that you can't just take over territory like the Crimea and annex it, right? That's a breach of international law and it needs to be punished and you need to enforce the norm that you can't simply take territory. Otherwise, we're back in the 1930s, so to speak. But those sanctions were difficult and that brings us to a pretty interesting thing, which is that the success of sanctions depends a lot on the global economy.

So different countries have different kinds of links. Some are much more connected economically than others. And one of the reasons why the United States finds it so easy to use sanctions is that it has a global currency almost everyone uses. But it actually doesn't directly trade with many countries around the world. And also imports and exports aren't that big a part of the U.S. economy. They're only about 25, 26 percent of GDP. But, yeah, the Netherlands, where I'm from, our exports and imports together are 150 percent of our GDP. Wow.

Yeah, and for many European and Asian countries, that's the case. So we have a lot of trade, and that's why they're much more hesitant to use sanctions because when you do impose sanctions, you basically cut in your own flesh. You very quickly impose damage and costs on your own economy as well as on that of the target.

And the U.S. doesn't really have that problem. It has a really big domestic market. it mainly is driven by its own consumption and it finds it much easier to do and i think what you see what you've seen since 2014 and what you see now as well in these discussions between the uh you know different members of nato about what to do about russia and ukraine and the sanctions you see a big divergence between Europe and the United States on how much pain they're willing to impose on Russia. And that has something to do with the fact that Europe is much more directly economically linked to Russia. So if they're going to impose severe sanctions, it's going to hit them much more severely than it will affect the U.S. That's interesting. So the U.S. puts specific

sanctions on Russia in 2014, and yet Russia continues doing what it wants to do. At least that's how it seems to me. Yeah. Have the United States sanctions on Russia actually worked in any fashion? So that kind of brings us back to this question of what's the goal? There are now some people who say the only goal of sanctions on Russia is simply to impose costs on Russia, to weaken their economy. If that's your yardstick, then they have worked somewhat. They've lowered the long-run economic growth rate of the Russian economy. They've reduced the amount of money available for foreign investment. Living standards of ordinary Russians also have been stagnant and even slightly falling in the last decade. So if that's what you think the goal is, then they have worked.

If you think, and I think this is the real goal that we are all hoping for, that Putin and the Russian government will change their behavior, then they've clearly not worked. Right. I'm thinking of the countries you listed, Russia, Syria, Venezuela, North Korea, all places where the U.S. has not gotten what it's wanted. In all of your months and years of research on this, have you thought of a more effective way than sanctions to handle conflicts like these? I think in general, you can say that sanctions

are a very blunt instrument. And if they work, they tend to work very quickly. And sometimes they even work as a threat. So you don't even have to impose them at all. But if you do impose them, and they don't work pretty quickly, then they end up actually worsening the conflict. So I think that in many cases, the United States should be much more open towards diplomacy and negotiation. I think we need to think much more pragmatically about can you actually reassure some of these countries that you're not putting them in front of an existential danger? Are they willing to somehow moderate their behavior in return for you lifting some sanctions as a

concession? And the one reason why I am optimistic that if we try that, we could do something with it is that that's actually the way that the sanctions against Iran have worked in the last decade. So in Iran, the goal was to stop them from pursuing a nuclear weapon. And in 2015, Obama and Kerry negotiated this pretty, really remarkable deal, a pretty impressive diplomatic achievement. And they got international verification from the IAEA, the International Atomic Energy Agency, to verify if Iran was also stopping nuclear weapons development. And in return, the Iranians got sanctions lifting. And right now they're negotiating a new deal right

after Trump withdrew from it. Biden is now trying to negotiate a re-entry into that deal. I think that definitely can be a useful model for thinking about how to use sanctions and how to turn these ineffective long-run policies into something more politically beneficial. It's almost like if you go looking for peace, you find peace. If you do things aimed at peace, you will get there. Exactly. Yeah, it's all about

establishing trust. Yeah. Nicholas Mulder, author of the book, The Economic Weapon, The Rise of Sanctions as a Tool of Modern War. Thank you so much for being with us today. Thank you. Today's show was produced by Amina El-Sadi, edited by Matthew Collette and Sean Ramosfirm, engineered by Afim Shapiro, and fact-checked by Laura Bullard. I'm Noelle King. Just a quick note, we're off on Monday for President's Day. We'll be back on Tuesday with more Today Explained. Thank you.