WASHINGTON — President Trump’s increasing reliance on economic sanctions to solve foreign policy problems is fueling concern that the United States is abusing its financial power and prompting some governments to seek ways to evade American measures.
In recent months, the United States has increased pressure on Iran and Venezuela, dangled the removal of North Korean sanctions and, in only a few days, imposed, then reversed, sanctions against Turkey.
Now, American allies and adversaries alike are stepping up efforts to protect themselves in ways that could, over time, erode American power by undermining a key national security tool and diminishing the world’s reliance on the dollar as the global reserve currency.
In October, Turkey and Russia agreed to a new system for international transactions that would use their local currencies instead of the dollar, which President Vladimir V. Putin of Russia said in October is being employed by the Trump administration as a “political weapon.”
Russia has been holding similar talks with Iran and China about an alternative system that, according to Russian state media, could allow the countries to engage in transactions while evading the arm of United States sanctions. And the European Union moved ahead this year with developing an alternative system that would allow countries to bypass the existing infrastructure for international financial transactions.
Mr. Trump’s scattershot approach to sanctions was on display this week with the visit of President Recep Tayyip Erdogan of Turkey to the White House. In October, Mr. Trump threatened to “destroy” Turkey’s economy after its military incursion into Syria. He then withdrew the sanctions after brokering a cease-fire. Now, officials are considering new measures because of Turkey’s purchase of a missile defense system from Russia.
“They are throwing sanctions at everybody for everything,” said Richard Nephew, a scholar at Columbia University’s Center on Global Energy Policy and the author of “The Art of Sanctions.” “The administration seems to think that sanctions are a surrogate for foreign policy.”
Mr. Trump’s use of sanctions has far exceeded those of his predecessors’, both in scale and the scope of his targets. In 2018, the Trump administration added about 1,500 individuals and entities to its sanctions list, a total that is 50 percent more than in any prior year, according to a tally from the law firm Gibson Dunn. Through late October of this year, another 606 sanctions designations had been added.
The United States has steadily broadened its use of sanctions since the Sept. 11, 2001, attacks, using its place at the center of the global financial system to stifle the economies of adversaries and disrupt the flow of illicit funds to terrorist organizations. The Trump administration has used sanctions to try and combat money laundering and other terrorist financing activities. But Mr. Trump has expanded the punitive measures, targeting them at NATO allies like Turkey and expanding the use of secondary sanctions against countries and companies that continue to do business with adversaries like Iran.
That is prompting warnings from experts who say the administration’s haphazard use of tools that freeze assets and cut people and countries off from the world’s banking system could undermine the entire program by spawning new workarounds.
“Sanctions alone will never solve your problem unless they are used in tandem with other tools,” said Matthew Levitt, a fellow at the Washington Institute for Near East Policy. “We tend now to be seeing sanctions as the nonkinetic, nonmilitary tool for everything.”
Mr. Levitt, who served as deputy assistant secretary for intelligence and analysis at the Treasury Department during the George W. Bush administration, added, “I do worry about a time when overreliance on sanctions, absent the use of complementary diplomatic and other tools, could undermine the U.S. position in the world economy.”
There have been early signs of such a shift.
Over the past year, the European Union has rolled out the Instrument in Support of Trade Exchanges, or INSTEX, as an alternative to the Swift financial messaging service, which facilitates the majority of international financial transactions. It would allow European countries to complete transactions with Iran through what is essentially a bartering system. While Europe has said that it would use this only for sales of humanitarian goods, which are acceptable, the United States has expressed concern that the payments vehicle could be used to evade sanctions.
Venezuela and North Korea have also increased their interest in cryptocurrencies, which could be used to circumvent the traditional banking system, according Peter Harrell, a sanctions expert at the Center for a New American Security. And Russia has shifted billions of dollars’ worth of sovereign reserves, which are held in American banks, into gold as a way to reduce the potential effect of additional sanctions.
“The question is are we now reaching the point where both adversaries and allies will invest in the kinds of tools that will let them fundamentally get out from under our leverage,” Mr. Harrell said. “We are seeing signs that they are pursuing these investments.”
The future of such investments could hinge on Mr. Trump’s re-election. John E. Smith, who was the director of the Treasury Department’s Office of Foreign Assets Control until last year, said that other countries would most likely move to further distance themselves from America’s teeth if Mr. Trump wins a second term.
“While Europeans are still working on INSTEX, people recognize this administration is being aggressive and tough on implementation and enforcement of sanctions, and there’s nothing they can really do in the short term,” Mr. Smith said. “They’re incredibly frustrated and angry, but they are resigned to waiting this out for the next year to see what happens.”
The United States is watching such efforts warily and is seeking to reinforce alliances to exert pressure on Iran and other adversaries. Treasury Secretary Steven Mnuchin recently embarked on a 10-day, five-country trip across the Middle East and India where he sought to reinforce connections with gulf nations.
In an interview with The New York Times on Oct. 30 in Saudi Arabia, Mr. Mnuchin defended the administration’s use of sanctions, saying they were inhibiting the flow of terrorist financing around the world and keeping the United States out of military conflicts.
“The president realizes the power of these sanctions and they are very important for national security and they are a great alternative to military operations,” Mr. Mnuchin said.
At the beginning of his presidency, Mr. Trump was essentially extending sanctions that had existed under previous administrations. But he has since ramped up his own efforts, in part because of his dislike for other types of warfare.
Unlike some who have advised Mr. Trump in the national security arena — most notably John R. Bolton, the former national security adviser — the president is not a hawk in favor of military intervention, instead preferring to focus on his own negotiation skills, according to two former senior administration officials with direct knowledge of the sanctions process.
One of them, who spoke on the condition of anonymity to describe the president’s thinking, said Mr. Trump had brought up the idea of sanctions to curb malign behavior because he “likes the idea of maximum pressure” without “firing one shot.”
Another person familiar with his thinking said that Mr. Trump — who enjoyed attacking and pressuring competitors in the business world — tended to use the same sort of pugilistic language when describing sanctions, and enjoyed that “all he has to do is sign a piece of paper” to enact them. That was evident in October when Mr. Trump threatened to decimate the Turkish economy as Turkish troops advanced into northern Syria.
“As I have stated strongly before, and just to reiterate, if Turkey does anything that I, in my great and unmatched wisdom, consider to be off limits,” Mr. Trump wrote on Twitter, “I will totally destroy and obliterate the Economy of Turkey (I’ve done before!)”
But that and other instances have raised questions about the effectiveness of Mr. Trump’s threats. In October, Mr. Erdogan agreed to a temporary cease-fire against Kurdish fighters after meeting with Vice President Mike Pence and Secretary of State Mike Pompeo. But Mr. Erdogan did not agree to a troop drawdown, and the crippling sanctions the Trump administration had threatened were eased.
This year, the administration relied heavily on placing sanctions on individuals close to President Nicolás Maduro of Venezuela. In the months since, the White House has faced criticism for further weakening a fractured Venezuelan economy but not ultimately removing Mr. Maduro, who has given little indication that he will cede control to Juan Guaidó, the Venezuelan opposition leader favored by the United States.
Mr. Trump has at times questioned the effectiveness of the Venezuela strategy, but his aides continue to roll out an aggressive suite of sanctions.
Iran also continues to be defiant in the face of stiffer measures that were imposed after the United States’ withdrawal from the 2015 international nuclear agreement known as the Joint Comprehensive Plan of Action. In September, Iran launched an audacious attack against Saudi Arabia’s oil infrastructure, and this month, it announced that it would begin injecting uranium gas into centrifuges at a fortified nuclear facility.
Mr. Mnuchin has defended the White House’s approach, saying Iran would be even more emboldened to destabilize the Middle East without a squeeze on its financial resources.
“There has been a change in behavior in the sense of there’s no question the Iranian regime does not have access to the same amount of money,” Mr. Mnuchin said. “The fact that we’ve cut back as much money as we have had prevented them from funding what would have been a much bigger terror operation. Quite frankly, we do think it’s been very impactful.”
The United States has made clear that it will not stand for any form of sanctions evasion without a fight, warning allies and adversaries that it will impose secondary actions against them if they do business with Iran. Mr. Mnuchin acknowledged that over “a long period of time” there was a risk that the rest of the world could shift away from the dollar as the reserve currency and that the United States must be responsible with how it wielded sanctions.
But he suggested that, for now, other countries have little choice but to comply.
“The reason why they are so effective is because the dollar is the reserve currency of the world,” Mr. Mnuchin said. “Other countries may not like adhering to our sanctions, but because the dollar is the reserve currency and their banking systems are attached to dollars and dollars are a major component of trade, that’s why people have to cease activities.”
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