Biden’s Biggest Foreign Policy Legacy Will Be in Economic Warfare

Joe Biden’s foreign policy will be remembered for many things: the humiliating exit from Afghanistan, the stalwart response to Russia’s invasion of Ukraine, the struggle to contain the fallout from Oct. 7 in the Middle East. But Biden has cast his longest shadow by shaping a new era of economic warfare likely to intensify in the years ahead.

Economic warfare has figured in great competitions and conflicts since the ancient age. As every reader of Thucydides knows, the Megarian Decree — a trade embargo imposed by Athens — was a signpost on the road to the Peloponnesian War. In 1941, a US oil embargo against Japan helped to trigger the attack on Pearl Harbor and globalize World War II. During the Cold War, the free world contained the Soviet Union in economic as well as military terms.

After the Cold War, the US mostly used sanctions against rogue states and terrorist groups, while hoping that economic integration could lead to great-power peace. But amid escalating geopolitical rivalries, first Donald Trump and now, more systematically, Joe Biden, have increasingly wielded economic weapons.

After Vladimir Putin’s invasion of Ukraine, the US and its allies blitzed Russia with a stunning array of sanctions. Biden’s China strategy has featured domestic investments to keep the US ahead in key sectors of the 21st century economy — and targeted restrictions, from investment curbs to export controls, to keep Beijing from catching up.

These measures are reshaping the global economy. They can serve to avert devastating military conflicts — or to prepare for them. And this contest is hardly a one-way affair: Autocratic powers, namely China, are racing to blunt the impact of Western sanctions even as they sharpen their own economic knives for the long struggles ahead. So, navigating this new era will require learning 10 lessons from the Biden years.

First, economic warfare is back for a very old reason: Economic strength is the wellspring of global power. A country’s military prowess reflects its economy’s heft and dynamism. Even in peacetime, economic influence helps to win friends and punish enemies. As strategic competition sharpens, economic rivalry becomes a cut-throat business.

For a generation after 1989, America had no real competitors. Even as the US sanctioned tin-pot dictators and lethal terrorists, it sought to draw potential great-power rivals into the global economy in hopes of making them satisfied members of an American-led world. It didn’t work out as planned.

Russia used access to the international economy, as well as the post-2001 oil boom, to rebuild its military. It cultivated European dependence on Russian energy, in hopes of neutralizing resistance to its own broader ambitions. China’s access to foreign markets enabled a decades-long, export-driven boom — and a record-shattering, increasingly disruptive military buildup. Beijing also made a mercantilist push to dominate industries both old (e.g., steel) and new (e.g., advanced telecommunications).

China and Russia were using economic statecraft to weaken the very system that had assisted their rise. Now, the US is pushing back harder, and with more potent tools.

This relates to a second lesson, which is that the toolkit has expanded, and its tools have become sharper. My Johns Hopkins colleague Adam Szubin makes this point — and he would know, having been a top Treasury official in the Obama years.

Traditionally, economic warfare featured blockades and trade embargoes. These measures were potentially powerful, but also difficult and costly to impose. If Britain wanted to crush Napoleonic France, for instance, it had to physically blockade Europe — and even then, the results were disappointing.

Over the past quarter-century, however, the US has honed a sharper, more targeted set of sanctions that exploit its control of chokepoints in the global economy. They inflict outsized damage on an adversary by barring it from key sources of innovation and prosperity in the modern world.

Biden’s team didn’t invent these tools, many of which emerged in earlier fights against Iran, North Korea and al Qaeda. But it did refine them and apply them more extensively — especially against great-power rivals — than any prior administration.

History will record that the US-China tech war began in earnest in October 2022. That’s when Biden rolled out far-reaching export controls that used the primacy of the dollar in global finance, as well as America’s role in a specific supply chain (designing high-end semiconductors), to curtail China’s access to the advanced chips that power economic and military innovation. Under Trump, Washington had used those tools to target a single company, Huawei. Biden expanded the restrictions to target China as a whole.

This strategy built on what the US had done earlier to Russia following its invasion of Ukraine, exploiting the centrality of the dollar, and America’s influence in key financial messaging systems, to disconnect Russian banks from the world. Washington cut off Russia’s access to the most sophisticated semiconductors — a preview of what would soon happen to China.

The US and its allies also used their financial dominance to freeze Russia’s huge foreign reserve holdings — and their preeminence in maritime insurance markets and other crucial services to cap the price of oil that Russia exports to the globe. “No one could have predicted” the severity of those sanctions, Russia’s Foreign Minister Sergey Lavrov said.

In the world’s two most important rivalries, Biden has aggressively — and creatively — wielded America’s asymmetric economic advantages. He has also subtly shifted the purpose of those sanctions.

Indeed, a third lesson is that attrition is displacing coercion. The point of modern economic warfare is more often to weaken an opponent’s capabilities than to change his mind.

That hasn’t always been the case. For decades, the US viewed sanctions primarily as tools to modify weaker adversaries’ behavior — to persuade Iran, for instance, to negotiate a nuclear deal. Even the tariffs Trump slapped on China were intended to change Beijing’s approach to development and trade. Yet Biden’s strategy has often had a different aim.

Almost no one expected the sanctions imposed on Russia in February 2022 and after — whether tech restrictions or Germany’s cancellation of the Nord Stream 2 energy pipeline — to compel Putin’s withdrawal from Ukraine. The goal was merely to weaken a dangerous rival in a protracted struggle — to “impair their ability to compete,” as Biden explained.

Similarly, Biden didn’t make any specific asks of Beijing when he imposed semiconductor curbs or restricted US investment in China’s high-tech sector. That’s because these sanctions are strategic, not transactional: Their primary purpose is to hinder China’s innovation in areas essential to economic and military power.

Coercive sanctions persist: Biden threatened China with harsh penalties if it exported weapons to Russia in 2022-23. But since America probably can’t fundamentally change the behavior of its rivals, keeping them behind will have to be good enough.

Doing so requires heeding a fourth lesson: Building up one’s own capabilities is as important as holding down those of the other side.

The counterpart to Biden’s chip curbs on China was his administration’s investment in expanded domestic chip production. Biden’s tariffs on Chinese-made electric vehicles, and his subsidies to bolster America’s EV industry, are two sides of the same coin.

Granted, industrial policy’s track record is uneven — and as the international reaction to the Inflation Reduction Act shows, protectionism can annoy America’s friends. But the measures America has used to prevent rivals from ruling key supply chains will only buy time unless they are paired with a more positive agenda in the US and the larger democratic world.

Thus, a fifth lesson: Even a superpower needs lots of help. America has an unmatched ability to squeeze its competitors. But effective economic warfare work still entails bringing allies along.

Freezing Russia’s foreign reserves required the cooperation of the European countries in which Putin had stashed so much of his loot. Enforcing semiconductor controls requires working with countries — Taiwan, Japan, the Netherlands, and others — that make advanced chips and the equipment used to manufacture them. Starving China’s high-tech industries of foreign capital will be much easier if allies in Europe and Asia join the fight.

America’s financial power and alliance networks give it leverage: It’s hard for Taiwan or Japan to tell their primary security partner to take a hike. But the process isn’t always pretty.

The run-up to the Ukraine war saw protracted transatlantic wrangling over how harshly to penalize a Russian invasion. Securing Japanese and Dutch collaboration on semiconductor curbs was (and remains) a fraught endeavor. The Biden team has tried to win cooperation through engagement and persuasion — with the implicit threat that it might just use the same sanctions to compel allies if they don’t play ball.

No matter how targeted, sanctions inflict pain on the countries that impose them; not every democracy sees the world as America might like. Economic warfare is waged against one’s enemies; it also requires some rough bargaining with one’s friends.

Sixth, economic warfare can be a substitute for military warfare — or a means of waging it. The appeal of sanctions is that they allow Washington to jostle for advantage without getting into a physical fight. That’s especially important given that conflict with China or Russia could lead, as Biden has said, to “World War III.”

But the line between military and economic issues isn’t always bright and clear. One reason the US is so concerned about China’s access to high-end semiconductors is that those chips could end up in Beijing’s nuclear arsenal or other military capabilities. And one reason Washington triggered those curbs in October 2022 was that a high-profile crisis over Taiwan two months earlier had raised concerns that America and China might be headed for a shooting war.

If Washington and Beijing do end up in a more dangerous Taiwan crisis, the US might threaten to employ stronger trade, tech and financial sanctions to deter a Chinese attack — or ratchet up the price it incurs. Economic statecraft isn’t just some enlightened alternative to military conflict; it is a way of shaping the battlefield in intense, bloody fights.

Seventh, economic warfare is powerful, but it’s not a wonder weapon. Just look at what sanctions have and haven’t achieved against Russia.

Sanctions have strained Russia’s finances, restricted its access to Western technology and caused deep economic imbalances. But contrary to some premature crowing by Biden, sanctions haven’t brought that economy crashing down. Russia continues to find large sums for defense; its war industries are churning out tanks and shells. Its ability to do both tells us a lot about the limits of modern economic warfare.

A Russia isolated by the West pivoted toward trade with the East, especially China. Moscow rapidly learned the art of sanctions evasion — just witness how much Western tech still ends up in Russian arms — with assists from Beijing and Tehran. It skirted the oil price cap by building a shadow fleet of tankers that carries illicit crude.

Not least, Russia benefitted from Western skittishness. The US and its allies tried to limit the price Putin gets for his oil. But they haven’t really tried to remove it from the global market, by aggressively sanctioning its buyers, for fear of roiling relations with swing states such as India and causing widespread economic disruptions.

The implications for a Taiwan crisis are worth pondering. Perhaps, as some US analysts hope, a sanctions blitz will bring China to its knees. Or perhaps greater interdependence between the US and China will simply make it too hard to blast Beijing without causing ghastly collateral damage. And surely a key lesson of the Ukraine war is that strangling a major power isn’t easy — especially if that country is preparing for the assault.

An eighth lesson is that America’s tactics are inspiring insulation and imitation. US adversaries, principally China, are trying to protect themselves from economic pressure while developing economic arsenals of their own.

Beijing is hoarding fuel, food and other commodities that could be cut off in a crisis. It is building a payment system to get around the Western-dominated SWIFT and striving for technological self-reliance to blunt US export controls. Meanwhile, the autocratic quartet — China, Russia, Iran and North Korea — is developing geographically protected trade routes to foster a Eurasian economic bloc that is beyond America’s wrath.

China isn’t just playing defense. In recent years, Beijing has restricted trade and tourism with South Korea, Australia, Lithuania and other disobedient democracies. It has announced (largely symbolic) restrictions on the export of key minerals. Now, China is assembling a larger arsenal of export controls, asset freezes, financial restrictions, and many of the same measures Washington uses, so it can deter the use of foreign sanctions or take the offensive against its enemies.

China’s toolkit still doesn’t rival America’s: That’s a key reason Beijing has refrained from responding too strongly to Biden’s tech squeeze. But China is preparing for the future because it doesn’t want economic warfare to be a one-way street.

Of course, bad actors aren’t the only ones that worry about the reach of US sanctions. Friendlier countries also fear that the US might turn the same tools against them someday. A ninth lesson, then, is that the danger of overuse is real, even if the damage is still mostly hypothetical.

India, for instance, may be the biggest winner from Western sanctions against Russia, which have allowed it to buy oceans of Putin’s oil at bargain prices. But it simultaneously wants to ensure, as Fareed Zakaria has reported, that America “could never do to India what it has just done to Russia.”

It’s a common sentiment. As US sanctions have skyrocketed, more countries are looking to limit their vulnerability. A BRICS summit last month buzzed with talk of “de-dollarization.” During the Trump years, even close allies in Europe experimented with alternative financial mechanisms meant to evade US influence.

The barriers to diversification are high because the dollar remains ubiquitous in global finance. De-dollarization is still more of a catch-phrase than a reality. But the more aggressively the US uses sanctions, the more it risks undermining the advantages, and alienating the allies, that make them so potent in the first place.

That’s worth remembering, in view of a final lesson: The new age of economic warfare is only beginning.

The US and China are playing a cat-and-mouse game in which Beijing tries to evade one set of sanctions, causing the US to adapt and tighten them. And while Washington has moved against Beijing on the most advanced chips, another battle — to ensure China doesn’t dominate production of widely used “legacy chips” — now looms.

Moreover, a whole suite of new technologies — chips, quantum computing, AI, advanced robotics, synthetic biology — will shape the global economy. The campaigns for supremacy in these areas are now unfolding. For all the Biden team’s declarations that it is pursuing a “small yard, high fence” strategy to safeguard US technological advantages, the yard just keeps getting bigger.

The next president, in fact, will surely reach for the same weapons Biden has wielded. If Donald Trump is elected, America will have an economically pugilistic president who — if his first term is any guide — will pressure allies as well as enemies in the quest for US advantage. If Kamala Harris prevails, she may persist with the more targeted, multilateral approach she inherited from Biden. Even so, she will likely expand the use of these economic tools, as US-Russia tensions remain high and deteriorating US-China relations turn points of interaction into vectors for vulnerability.

Today, economic statecraft is at the very core of the struggle for global power and influence. That won’t change, no matter how the coming election turns out.