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How effective has the US been at using economic diplomacy to advance its national security?
Introduction
National security is a significant concern for the US. Protecting the homeland from attacks, ensuring prosperity, and safeguarding the American way of life are essential to America’s national security. Henceforth, the government has used various strategies to advance the state’s safety, among them economic diplomacy. Economic diplomacy utilizes multiple tools, such as free trade agreements, to enhance national security. Economic diplomacy tools deter threats to the US’ safety by crippling the enemy’s access to resources and the market. At the same time, the diplomacy tools promote US powers in global activities, since the country influences decisions to its benefits. Undoubtedly, the US has used various approaches to be ahead of other countries. Nonetheless, these techniques have not always had the expected results. If anything, some measures like sanctions, have proven counterproductive to US strategy as the rivals plot retaliation. Forthwith, the paper outlines four tools of economic diplomacy: sanctions, free trade agreements, direct foreign investment, and international organizations, to gauge if the US has been successful at using economic diplomacy. Except for trade agreements, economic diplomacy tools are not entirely effective as some strategies like sanctions are counterproductive, while others like FDIs only offer temporary advantage to the country.
Tools of Economic Diplomacy
Sanctions
Economic sanctions are a powerful tool that deters US enemies. The US has been using economic sanctions as guided by the cost-benefit approach. The idea is that the losers will perceive the losses as too great to bear and adhere to the US’ standards to minimize the impact (Nejad, 49). Accordingly, for the US, the heavier the cost, the greater the likelihood of conformity. However, as North Korea and Iran demonstrate, sanctions are not impactful to the US’ enemies. If anything, they strengthen the enemies’ resolve to increase armament.
North Korea
The US has widely used sanctions to minimize North Korea’s threats and illustrate its power. The sanctions have proven successful for the country in the past. For instance, the US has used sanctions against North Korea since the 1950s, when the latter attacked South Korea (DeThomas, 7). Sanctioning North Korea was based on security concerns over terrorism and nuclear warheads and weapons of mass destruction. Nuclear agreements between the two states boosted the power of the sanctions. In 1985, the US protected its rights as a nuclear state when North Korea signed the treaty of the nonproliferation of nuclear weapons (NPT) (Davenport). With the NPT, the US legitimately had more power than North Korea, an advantage that helped the US in its interaction with North Korea, as any defensive strategies would be justified. Further, in 1994, the sanction worked when North Korea promised to stop producing raw materials for nuclear bombs in exchange for financial assistance. Lack of finances had rendered North Korea desperate as their economy failed, poverty rates hiked, and the government could not run effectively. Further, with a weak economy, North Korea would not have resources to fund its nuclear activities. DeThomas (7) notes the benefits of the sanctions to the US. For one, the US succeeded in adapting its non-proliferation legislation, regulations, and operational ability against North Korea, limiting arms shipment and possible attacks on the US. By punishing North Korea, the US also sent a stern warning message to North Korea’s allies that they would be punished severely if they threatened the US. By destroying the economy of North Korea, the US was able to avert a nuclear crisis that would have potentially destroyed the homeland’s infrastructure and massive loss of lives.
Nonetheless, US sanctions against North Korea have had a dismal impact and have been counterproductive to the security issue. DeThomas (8) admits that the sanctions have not deterred Pyongyang in making nuclear weapons. If anything, the sanctions have encouraged North Korea to increase its nuclear weapons and technology for fear of US attacks. Further, even when North Korea promises to stop making nuclear weapons in exchange for economic aid, it still has secret labs, away from US scrutiny, where nuclear testing and manufacturing were ongoing. Worse yet, as Carbaugh and Ghosh (8) note, North Korea has been able to survive the sanctions because of China’s support. If China were to cut off economic activities with North Korea, the impact would be immediate. However, China is unlikely to stop trade activities because it does not want to deal with refugees and other political upheavals that would ensue. Again, smugglers, including military equipment suppliers, have exploited the weak sanction enforcement to import products to North Korea through the Middle East, Africa, and Southeast Asia (Carbaugh and Ghosh, 8). Even with sanctions, the economy of North Korea continues to grow and registered a 3.9% increase in 2016 (Carabouggh and Ghosh, 8). Evidently, the US sanctions are meaningless against North Korea, which is not only a healthy economy but has reasons to continue with its nuclear weapons. As the relations between the two countries become more strained, the US would likely be at war. Since North Korea left the NPT, the US cannot control its nuclear manufacturing. The US is still under threat by North Korea as the sanctions have little impact on its nuclear activities.
Iran
The sanctions against Iran have been useful, guaranteeing homeland safety from terrorism and nuclear attacks. Since 1980, the USA has accused Iran of supporting terrorism against it (Nejad, 49). The government is also convinced that the nuclear weapons that Iran is developing would be used to harm the US. Henceforth, sanctions against Iran aim to weaken the country’s military and weapon capabilities, to the advantage of the US. For example, in 2015, the US sanctions caused economic depression in Iran (Nejad, 51). Not only did this worsen the living conditions of the citizens, but it stopped any funding to nuclear activities. In fact, then Iranian President Hassan Rouhani agreed to stop any nuclear activities in exchange for sanction lifting. Iran signed the JCPOA (Joint comprehensive plan of action) by 2015, in which it promised to minimize its nuclear programs. The sanctions against Iran forced the nation into agreements that halt any nuclear manufacturing. Without nuclear weapons, the US retains a superior position in arms and military capabilities and can pursue agendas that maintain and further its safety campaigns.
Iran’s sanctions, nonetheless, were temporary victories, which put the US security at risk. For one, the Iranian regime continued to support terrorism and continued with its nuclear weapons as early as 2014 (Nejad, 50). Moreover, among the political elite, according to a 2013 study by Khajehpour, Marashi, and Parsi, the sanction increased consensus instead of division on issues concerning nuclear and terrorist support (Nejad, 51). Even the private sector did not dissent to nuclear programs. Further, the US’ efforts are hampered by other non-supporting states. To illustrate, Iran’s sympathizer and supporter, North Korea continues to engage Iran in making weapons of mass destruction and nuclear missiles (Katzman, 53). North Korea also buys Iran’s oil, which helps sustain the country’s economy. Other countries like Taiwan, Singapore, and India are active trade partners with Iran. For example, India and Iran agreed to have rupee accounts to promote their bilateral trade and buy Iranian oil (Katzman, 54). This was after Trump’s administration withdrew from the JCPOA, and imposing heavier sanctions. Again, Iran refused to renegotiate a revision of the JCPOA, which is aimed at reducing Iran’s nuclear program. If anything, Iran has resolved to increase and upgrade its nuclear performance, and retaliate as was the case of Ayn al-Asad base in Iraqi that is used by the US military (Katzman, 58). The directors of US military intelligence admitted that Iran was now advancing towards the naval mines, submarines, and attack craft. Sanctions have been inadequate in addressing Iran’s threat. The sanctions have not crippled Iran as the US anticipated, and the threat of terrorist attacks persists.
Free Trade Agreements
Free trade agreements (FTAs) have been instrumental in guaranteeing and prolonging the economic safety of the US. To illustrate, increasing trade exports has led to growth in different sectors of the US economy (“US Chamber of Commerce,” 1). With export, the US has access to more markets and helped improve the balance of payment, which is a concern to the state. The NAFTA and MEFTA Agreements demonstrate the influence of FTAs on US security.
NAFTA
NAFTA (North Atlantic free trade agreement) boosted US exports. For instance, NAFTA has heightened agricultural export to Mexico and Canada. Since 1993, the agricultural exports to Mexico have doubled, as Mexico exports $6.5 billion worth of agricultural products to the country (Villarreal and Fergusson, 15). NAFTA saved the US agricultural sector by forcing Mexico to disregard its protectionist policies on agriculture (Villarreal and Fergusson, 4). NAFTA also opened doors for the USA to directly invest in Mexico, resulting in more than $100 billion worth of investment in Mexico. On its part, the US has gained over $80 billion in revenue from exports to Mexico and Canada. Exports also increase the demand for US products, as in the case of Mexico, where for every one dollar that Mexico makes, 50 cents are used to purchase US goods (“US Chamber of Commerce,” 5). Comparatively, imports are also essential to the country’s market. Imports avail cheap raw materials that are used by US manufacturers to make products. At the same time, there is more variety of goods and services, which improves the living standards, and creates affordability of items. As the trade with Mexico intensified, the US was able to reduce the import-export imbalance as the exports were worth $31.5 billion, while imports were worth $21.9 billion. Exporting more improves the US economy and strengthens the US currency in international markets.
Again, the US’ position in NAFTA gives it the power to demand terms that protect the Americans. Villarreal and Fergusson (20) note Mexico’s continued dependence on the US as an export market at 81% share. This heavy reliance benefits the US, as the nation can control the quality and type of products imported by Mexico. The fact that China has displaced Mexico as the second leading supplier makes Mexico more willing to comply with the US’ trade terms, even if the latter might find them oppressive. Comparatively, Canada is keen to maintain the US as a trading partner, given that its imports to the US had declined to 52.1% in 2015 (Villarreal and Fergusson, 22). Again, as the largest single foreign direct investor (FDI) in Canada, the US has ensured that Canada has sound economic policies that would protect US investments. The NAFTA agreement has cemented the US’ financial future in Canada and Mexico as the state experiences economic growth.
MEFTA
The MEFTA (Middle East free trade agreement) permits the US access to vast amounts of oil, which fuels its economy. Interestingly, the Middle Eastern countries are not among the most significant trade partners with the USA, and often, their ideologies clash with US expectations (“US-Middle East Trade,” 5). However, being part of the MEFTA deal guarantees the country a primary role in world oil markets (“US-Middle East Trade,” 5). As the US economy still heavily depends on oil, which is plagued by volatile prices, the US can negotiate better prices for the country. Moreover, being able to control oil prices gives the US global powers in national affairs. Setting prices that are cheap enough for the US to buy means that the cost of production and prices of goods and services will be low in the country. Again, the control protects the internal producers of oil within the US. That is, the US will not lose internal and foreign oil market over price variations. Consequently, Americans can enjoy high-quality products, while the US oil market remains robust.
Additionally, MEFTA is a strategy to help spread US influence and power in resolving Middle Eastern conflicts. As part of MEFTA, the US has been involved in Arab-Israeli conflicts, drawing praise and criticism for its efforts. As a critical player in the Palestine-Israel conflict, the US advanced its safety ambitions by partnering with Israel. With Israel as an ally, the government has lucrative export-import deals that improve US economic and political security. Israel imports agricultural and technological products from the USA (“Israel FTA”). Again, the two countries have military cooperations aimed at eliminating common enemies. The US also exerts influence on foreign policy. The country gives guidelines and ideals for the warring nations to settle disputes and promote peace (“US-Middle East Trade,” 8). At the same time, it justifies any military intervention or assistance to quell unrest in the region. The MEFTA also helps eradicate poverty in the Middle Eastern countries, which is expected to promote peace in the region. With peace, the likelihood of immigration into the US. Low immigration helps protect the country’s borders from illegal immigrants who pose terrorist threats to the country.
Foreign Direct Investments (FDIs)
FDIs have been instrumental to the economic security of the US through internal growth. Susilo (51) admits that the USA has been the best country for FDI in the world, which has proven advantageous to the state. In 2011, the US received $43.8 billion from Belgium, $29.2 billion from Switzerland, and $19.4 from Luxemburg, which was injected into the economy, providing job opportunities to Americans, as well as essential goods and services (Susilo, 54). The information sector gained the most from FDI, as evidenced by the 38.3% growth (Susilo, 59). Select USA adds that by 2018, the US had gained $4.3 trillion in the capital in 2018 from FDIs. Comparatively, the total FDIs flows to the USA in 2018 was $253.6 billion. In effect, over 7.4 million jobs were created by the FDIs. Further, these workers make an average of $81,000 annually from the foreign-owned firms as at 2016 (“Benefits of FDI). The FDIs also pay tax, which helps the government to provide essential services to the Americans. With a robust economy, the government is capable of protecting its citizens and homeland from a financial crisis.
Moreover, the interests of US firms are protected by agreements with other countries. The OPEC (organization of the petroleum exporting countries) agreement, which has 34 member states, ensures that OPEC multinationals would treat the US workers fairly and give them preferential treatment within the US (Masters and McBride). As such, there is a restriction on importing laborers, which could lead to low employment rates in the country. The US has also strengthened watchdog bodies like CFIUS (committee on foreign investments in the United States) to protect sensitive industries like technology. The CFIUS ensures that foreign acquisitions favor the domestic country. Accordingly, the US president has extensive powers in CFIUS, which are exercised to shut down any companies that would threaten the national security of the nation. In this case, foreign companies should not try any mergers or acquisitions with local firms in industries that are key to US growth, especially technology and innovation. Again, Congress, under the National Security Act of 2007 (FINSA), also adjusted CFIUS’ process to protect critical infrastructure from foreign investment over national security concerns. This, after a Dubai-based company, almost controlled major US port operations (Masters and McBride). Notably, the Dubai firm had a deal with President Bush and CFIUS to control the port. The CFIUS is important as it protects sectors that give the US competitive advantage and protect the local workers from exploitation.
Further, the US has FDI programs in foreign countries, which are critical in sustaining economic growth and influence in a global capacity. The US, for starters, can export its products to other countries. For instance, in 2014, US exports to other countries was worth $1.6 trillion, thanks to the intrafirm trade (Jackson, 4). US-based firms established affiliates with firms in the foreign market. Additionally, the presence of multinationals in developing countries has given US power in these markets. For one, there is a higher demand for US companies in developing markets. Henceforth, these companies have dominated the manufacturing, extractive, and processing sectors in these markets (Jackson, 5). Similarly, the US companies dominate developed states in finance, technology, and service industries. Annual investment in these fields has increased annually, giving the US power in economic policies with the countries. The developed and advanced nations comply with US demands with regards to corporate benefits, in exchange for the essential goods and services.
The growth of US investment in other countries has fostered the Americanization of the globe. Globalization is often referred to as Americanization, given that American values and culture have overshadowed indigenous industries and culture (Daghrir, 19). With globalization, the US controls ideas and information, creating the perception that the US is the most powerful country in the world. Consequently, the American influence has been beneficial to the country in creating a favorable balance of power, as the trade partners share the same values as the USA (Trump, 39). Common interests have also fostered a friendship with the developing nations that is expected to overcome Chinese and Russian influence in the growing market (Trump, 39). The investment opportunities into these countries creates grounds for the US to further their ideologies in terms of leadership, the rule of law, and development activities. The reforms also adhere to the policy needs of the US, which then leverages its power for economic and political gain. Direct investments in fragile states also gives the US more control over these states, lowering any terrorist attacks, as is the case with Iraq and Afghanistan (Trump, 39). Securing power over developing nations is key to the financial and political safety of the USA.
The US, however, is threatened by its adversary, China, which has been increasing its foreign investment in the country. US lawmakers are increasingly concerned by Chinese investments in US companies that have totaled to $100 billion since 2013 (Masters and McBride). The possibility of Made in China 2025 being a reality, would damage the US’ technology industry, as this is a field China wants to dominate by 2025. Should China succeed in acquiring US tech firms, the security of the country would be at stake. Even so, the US government passed the Investment Risk Review Modernization Act (FIRRMA), which allows CFIUS to monitor transactions and lengthen the review process, and ability to suspend transactions to protect sensitive US technology (Masters and McBride). The FDI by China is a potential threat to the US economy and security, which is worrying for the leaders.
Comparatively, the expansion to developing nations is also at risk, as other powers take control of these nations. The biggest adversary is China, which has invested in infrastructure in these states. The US has lost its power in developing countries in Africa because of the President’s derogatory remarks and attitude towards the continent (Ursu). Without the US presence, African nations like Ghana, Senegal, and Tanzania, have lost enthusiasm for Americanism, and opt for China. On its part, China has taken advantage of this discontent to promote cooperation and solidify its legacy.
International Organizations
World Trade Organization (WTO)
The WTO has furthered the economic interests of the US, guaranteeing its national security. Through WTO, the US has protected and advanced the economic interests of its businesses and population through favorable trade terms. The US also has accessed markets like Korea, Colombia, and Panama through agreements under the WTO (“US WTO”). WTO has lowered trade barriers and tariffs, among the member states, which eases the US’ ability to enter these counties, raising availability of jobs and better living standards to Americans, who can export their products easily.
That the US is a permanent and original member of the WTO works in the country’s favor. Notably, the US creates policies that favor the Americans. As such, any deal that disadvantages the country would be reviewed, and compromises would be made by the other country to accommodate American interests. The US, based on its financial power and position within the organization, can dictate the terms of trade. In the process, not only will the US have economic dominance, but it can exert its political and soft powers. Spreading the American influence is good for business and propaganda uses. Again, the US can control judicial processes, guaranteeing judgments in its favor. Notably, the US has veto powers over judicial appointments, which is handy in defeating disputes when they arise.
However, the country should remain in WTO to maintain and advance its security. Pulling out of the WTO, as President Trump threatens, would jeopardize the benefits that the US currently enjoys, such as the most favored nation status, which has been instrumental in penetrating different markets. Moreover, erecting trade barriers to other nations, such as China, would be disastrous because of retaliation. Without the WTO, American companies would not have market for their products, harming the US economy. Without the WTO, the US economy would be fragile.
International Monetary Fund (IMF)
The US has used the IMF to propel its growth and influence. As a founding member and the largest contributor to the IMF, the US has pushed to protect its national agenda. Gray and Wade note that the US has veto powers in the IMF, and votes for decisions that protects its interests. The US has more than 16% voting share, the largest single voting bloc, that benefits the country in major decisions like adjusting quotas, compulsory withdrawal of a member nation, and amendments to the IMF’s articles of agreement. Weisbrot argues that the IMF served two US purposes in developing countries: the role of gatekeeper of funds and the veto position of the US Treasury Department in decision-making. As a gatekeeper, the US ensured that the countries adhere to conditions like privatization of certain economic sectors. As expected, these sectors are lucrative, and open doors for US companies to invest (Weisbrot). The US commercial banks also benefit from their country’s power over the developing counties, who service their debts through the banks. Consequently, the market capitalization of these banks increases in international lending. The deal is also lucrative for the American banks, who receive high interest on the loans given. Even better, the developing economies have no say over the loan conditions, even though the gatekeeping arrangement is not formal.
Concerning its second role, the veto powers have been unchallenged even by developed nations. It is noteworthy that the veto powers mostly apply to developing countries. Even with its allies, Europe has hardly ever used its power to control the US (Weisbrot). For one, the US has more board members in the IMF than any other country, which tips decisions in the nation’s favor. The US’ veto powers means that the developing nations either do the US biddings or miss out on much needed funds. In effect, the US has influenced the politics of these states and fashioned them to favor American corporations and political agendas.
The US’ has been successful with developing nations, but the developed countries are hard to dictate. The IMF’s influence in developing countries has slowly waned, which also affects the US’ powers. Currently, the IMF’s major debt holders are European countries at $90 billion in outstanding loans (Weisbrot). With European countries, the US engages the European authorities and their directors in the IMF, a stark contrast to veto decision-making by the US Treasury. The trade terms also hinder the US from imposing its economic agendas at the expense of the borrowers. Moreover, the European countries have shunned IMF policies for its favoritism towards the US. That these nations were sidelined for so many years, has resulted in the states seeking a country-based solution or relying on one another, leaving the IMF out. Without cooperation from Europe, the US loses its hold over their economies, unless through other means, like tariffs, which would alienate the US even more.
Conclusion
Economic diplomacy tools are not entirely reliable as some strategies like sanctions are useless, while others give temporary advantage to the country, except for trade agreements. The US has used sanctions to force countries like Iran and North Korea to minimize security threats. The sanctions are a result of nuclear activities by the two states, which are viewed as dangerous to national security. However, the sanctions have not been impactful because these nations still trade with other countries and support one another. Again, the states have trading partners, such as China and Taiwan, undermining the efforts of the US. In contrast, free trade agreements (FTAs) have benefitted the country. For one, the US is able to export to other markets, which improves economic stability. Besides, the agreements also improve the US’ position in global politics, as in the case of the MEFTA agreement. Not only does the US access oil at negotiable prices, but it can partake in conflict management in the region. In the case of FDIs, the US has excelled in protecting its national security objectives, although not permanently. The FDIs inject capital into the country, creating millions of employees, and improving the living standards of Americans. At the same time, the US has spread its influence to other countries through its multinationals and investments, especially in developing countries. However, other economies, such as China, threaten its hold on developing states, which reduces the US’ influence. Finally, regarding the international bodies, the US has been successful in advancing its interest, especially among the developing nations. The IMF and WTO are mainly controlled by the USA, which has veto powers in decision-making. Economic diplomacy has not been entirely fruitful for the USA.
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