US President Donald Trump is not known for his political tact. So it is not surprising that a blunt weapon has become the favorite in his foreign policy arsenal: sanctions. At a time when the White House is upsetting the world order, the latest imposition of sanctions on Russia and Iran is injecting only more uncertainty into the international environment – at the expense of Washington’s global standing and relations with traditional allies.
In response to accusations that Russia used a chemical agent to poison former double agent Sergei Skripal, the Trump administration handed down a raft of new sanctions against Moscow, with the promise that, should the country not change its ways, further sanctions are to follow in three months’ time.
While the reasoning behind the sanctions may be defensible, whether they are the best way to bring Moscow back to the table is highly questionable. The measures were imposed a full five months after the 60-day window stipulated by the 1991 Chemical and Biological Weapons Control and Warfare Elimination Act, under which they were imposed, had passed. Their enactment took no less than a letter from an elected member of Trump’s own party to bring to fruition.
Next, Trump’s reckless and erratic behavior in the international arena has severely eroded support for sanctions in general. After bashing G7 allies and NATO members at recent summits, and sparking trade wars on industrial metals and – possibly – cars, there is little appetite outside of Washington to support more punitive measures. Without buy-in from partner countries, the latest measures will achieve precious little.
The first tranche comes into effect 22 August and will ban the export of material deemed sensitive on national security grounds (such as avionics equipment). So far, sanctions have only served to exacerbate the already precarious state of bilateral – and international – relations. But the second wave’s effects would be more tangible: multilateral bank assistance would be curbed, dollar transactions from Russia’s leading state-owned banks would be blacklisted, and diplomatic relations downgraded.
But slapping such far-reaching measures on Russia would more likely backfire – as markets learned from the first wave of sanctions earlier this year, decades of globalization and liberalization have rendered Moscow a key part of global supply chains. It’s no wonder that Barclays was among the first to raise alarm bells in the event the second wave of sanctions would ever come to pass.
Indeed, in early April, the Treasury Department announced a raft of sanctions on several Russian business tycoons and their companies, arguing they are responsible for attempting to destabilize events around the world. The sanctions are strict and extensive – no blacklisted party is allowed to handle any kind of business in the US, nor is any American citizen permitted to knowingly conduct business with them. For the first time, the measures also included restrictions on non-Americans dealing with the sanctioned persons and business, subjecting them to punitive measures if they do.
Much to the surprise of Treasury officials, American and European companies were the loudest voices speaking against the sanctions. This is because the most significant recipient of Washington’s sanctions is Oleg Deripaska, majority shareholder of Rusal, the second-biggest aluminium producer in the world. With Rusal supplying a fifth of Europe’s aluminium consumption, the company is essential to many European companies. But due to the extraterritoriality clause, these supplies are at risk of being severely disrupted. Without relief, Europe’s aluminium smelters and downstream industries like car manufacturing could either run out of material to continue their operations or be forced to cut production due to higher costs. As one producer confessed, replacing Russian aluminium was only possible by accepting a 20% mark up.
The effects on the wider industrial environment could be severe. Especially small and medium-sized enterprises (SMEs) will be unable to absorb supply shocks as Europe’s traditional supplier cannot be easily replaced. With SMEs looking down the barrel, leading industry association European Aluminium warned that “If a cluster of this value chain is disrupted it has consequences for the whole value chain.” As a result, the Treasury was forced to walk back on the move: it extended the implementation period of the sanctions by several months and is working with Deripaska to delist the aluminium company entirely.
However, Russia is not the only battleground where Trump has slain more allies than enemies. Another issue many European governments are still smarting over are Trump’s scuttling of the Iran nuclear deal and subsequent re-imposition of sanctions against Tehran – although there is no evidence that Tehran has broken the terms of the 2015 nuclear deal.
And just like the April move against Russian aluminium, the Iran sanctions come with the same extraterritorial effects, effectively forcing American allies to go along with the measures. This explains why Daimler quickly suspended all activity in the country to avoid losing access to the lucrative US market. But in a rare show of unity, Britain, France, Germany and the EU published a joint statement expressing their determination to “protect European economic operators engaged in legitimate business with Iran”.
Triggering the so-called blocking regulation, the EU has made it clear that it will stand up to Washington’s policy – despite the State Department cautioning that those failing to adhere to US sanctions may be blacklisted as well. The statute is a godsend for Europe’s SMEs with no U.S. exposure, as it effectively shields them from potential secondary sanctions applied by the U.S. It’s no wonder that the Federica Mogherini even encouraged SMEs to increase trade with its Persian counterparts.
What the recent wave of sanctions show is that the Trump administration has caused tension and turmoil, with more looming on the horizon. Trump’s tough negotiating approach went far to endear him to a segment of the American electorate and likely helped win him the White House. But that approach has manifestly resulted in seriously damaging the relationship between the US and its allies. The White House will soon learn that unilateral actions lead to isolation.
*Nicholas Kaufmann is a public affairs consultant based in Brussels.