With China Sanctions, America Pushes the Limits of Its Financial Power

U.S. diplomacy has developed an unhealthy dependence on sanctions.

«Never waste the opportunity offered by a good crisis.» The quote, first attributed to Renaissance philosopher Niccolo Machiavelli, clearly has adherents among the U.S. political class.

Punitive Diplomacy

U.S. overreliance on financial power began after the 9/11 terror attacks, when Washington leveraged the dollar’s role as a global trade and reserve currency to make sanctions a key component of national security.

Diminishing Returns

As these technical levers of state for finance and trade have been pulled more often, they have been used in more nakedly political ways. For example, the U.S.

Why China Is Different

More broadly, China’s size and integration with the world economy, while highly imperfect, is too advanced for purely punitive diplomacy to work.

Outlook

Over the long term, serious overreach with allies and trading partners has the potential to degrade the dollar’s role as the world’s trade and reserve currency.

This article was written by Andrew Rennemo

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