Image via the Council on Foreign Relations
Throughout history, there have been significant examples of economic power used in foreign policy to advance objectives and prevent escalating conflicts. Whether used as a sanction or a resource, it can provide an upper hand for countries that utilize this strategy. Famous examples of the use of economic power include the Zimbabwe Democracy and Economic Recovery Act of 2001 and the Marshall Plan, created by the United States in 1948. Economic power exercised through sanctions, without careful parameters, can present peril rather than success. Therefore, economic power is most valuable when used as a positive incentive.
According to Richard Cooper, an American economist, “Economic power is the capacity to apply economic instruments to punish or reward another party.” When using economic power as a sanction, the intention is to change behaviors and policies for the country being punished. It can influence regimes to stop the wrongful acts that caused them to be sanctioned in the first place. Over time, economic sanctions have been used as a diplomatic strategy to express disapproval of the activities of the offending countries.
The United States passed the Zimbabwe Democracy and Economic Recovery Act (ZDERA) in 2001 to sanction Zimbabwe because of concerns regarding the violation of human rights, as well as economic and political fraud. Zimbabwe was cut off economically; as a result, the government could not access international financial support. According to Congress, the “Government of Zimbabwe has rendered itself ineligible to participate in the International Bank for Reconstruction and Development and International Monetary Fund programs, which would otherwise provide substantial resources to assist in the recovery and modernization of Zimbabwe’s economy. The people of Zimbabwe have thus been denied the economic and democratic benefits envisioned by the donors to such programs, including the United States.”
The Zimbabwe Democracy and Economic Recovery Act of 2001 consisted of four components. The first was that the United States could not provide bilateral assistance to Zimbabwe. Second, targeted sanctions were allowed to be enacted for anyone involved in the corruption. Some examples of targeted sanctions are the freezing of assets, individual financial sanctions, and travel restrictions. The third was that the U.S. Executive Director at international financial institutions, such as the International Monetary Fund, must vote to oppose financial aid that is given to the Zimbabwe government unless a specific group of circumstances were met. Finally, Zimbabwe’s ability to attain debt relief was constrained.
ZDERA is a significant case of the use of economic power as a punishment, and the United States‘ intention for imposing these sanctions was to encourage the Government of Zimbabwe to: “1) restore rule of law; 2) hold free and fair elections; 3) commit to equitable and transparent land reform; and 4) subordinate military and national police to civilian government.” Through limiting the Zimbabwe government’s access to financial resources, Congress was able to express its disapproval of the human rights issues in the country sanctioned and utilize economic power as leverage to influence the reform of Zimbabwe’s civil unrest.
Similar to the Zimbabwe Democracy and Economic Recovery Act of 2001, the Marshall Plan (1948), officially known as the European Recovery Program (ERP), is another case of the United States utilizing economic power. However, rather than being a punitive measure, this program was intended to serve as a resource to aid postwar Europe. “When World War II ended in 1945, Europe lay in ruins: its cities were shattered; its economies were devastated; its people faced famine.” In order to restore the economy in Europe after World War II, the U.S. created the Marshall Plan to stop an economically weak Europe from becoming allies with the Soviet Union and succumbing to Communism.
When United States Secretary of State George C. Marshall planned the program, he had several guidelines in mind: “It would be a European plan funded by the United States; all countries in Europe could participate; help would be for a specified time; once immediate physical needs of people were met, the focus should be on rebuilding infrastructure, and all participants had to trade equally with each other.” The Marshall Plan, once implemented, was a notable aspect of the United States utilizing economic power as a resource to combat international crises, and this program paved the way for several nations to take note of the benefits of this action.
Economic power is effective as both a sanction as well as a resource. However, it is most beneficial when used as a positive incentive. At times, there are risks associated with economic power as a form of punishment, as it requires several parameters. Firstly, when a country is being sanctioned, the sanction requires extensive support from other parties, as the lack of interdependence may cause the government to seek alternative options from different countries to escape the punishment. If needed, desired resources can be accessible from several countries and sources, given the increasingly developed and globalized world. Barry Eichengreen, Professor of Economics and Political Science at the University of California Berkeley, states, “Consider the Trump administration’s tariffs on Chinese exports, which were imposed solely by Washington and produced no significant changes in Beijing’s economic behavior. The Biden administration surely had that failure in mind when it enlisted the support of a broad coalition of like-minded governments before imposing sanctions on Russia. Going forward, U.S. economic power will depend more and more on Washington’s ability to foster unity in an increasingly fractured world.”
Considering the instance of imposing ZDERA, sanctions are not a completely reliable method for expressing disapproval of offending countries. In this case, many political differences were created between both countries, as Zimbabwe saw the sanctions as interference from the United States. Additionally, economically sanctioning countries decrease the quality of life for civilians, as they are impacted by fluctuations and negative hits on their country’s economy. Barry Eichengreen asserts, “Economic power can be effective when it has a very specific focus.” When there is a lack of clarity regarding the intended target, the sanction created by the economic power can affect a broader region and “hit the wrong targets.” For example, after the sanctions in Zimbabwe, “some Zimbabwean companies have faced difficulties when trying to do business in the United States and EU countries.” This impairs the opportunities for civil society to prosper financially, as there are limitations placed on those who were not involved in the issues that led Zimbabwe to be sanctioned.
As mentioned previously, the Marshall Plan was a successful strategy to use economic power positively. The main advantage of using economic power as an affirmative resource rather than a sanction is that it develops the opportunity for mutual benefit for all countries involved. Through this initiative, the United States was able to have reliable trade partners, as the European countries were able to recover from the lasting effects caused by the war and contribute to supporting the United States. Additionally, the stable economy in Europe, created by the Marshall Plan, allowed for an easier path to unification for European countries. Overall, it is noted that the Marshall Plan directly stimulated the “political development of some European countries and on U.S.-Europe relations. European Recovery Program assistance is said to have contributed to more positive morale in Europe and to political and economic stability, which helped diminish the strength of domestic communist parties.” The Marshall Plan has proven to be an incredibly beneficial initiative that helped stabilize Europe in a time of economic and social distress while also supplementing the foreign policy initiatives of the United States by strengthening ties between all countries involved.
Throughout history, economic power has proven to be a beneficial resource for foreign policy objectives. Whether used as sanctions or for supporting countries in need, the management of monetary resources has been utilized to send a message. Although economic sanctions may seem to be a reasonable method to express disapproval of countries facing international or national disputes, it is not an effective way to bring change through economic power. It is through economic power as a form of support or positive incentive that money can prove to be a valuable asset to advance foreign policy aims. The benefits of economic power through positive incentives outweigh any possible advantages of sanctions due to its tendency to serve as mutually beneficial and historically successful.