Geopolitical Chess or Checkers? – Richard Nephew | The Open Mind

Geopolitical Chess or Checkers? – Richard Nephew | The Open Mind


HEFFNER: I’m Alexander Heffner,
your host on The Open Mind. Today we
discuss sanctions, tariffs, American energy,
and national security. My guest is
Richard Nephew, senior research scholar
at the Center on Global Energy Policy at
Columbia University. He’s the author of “The
Art of Sanctions: A View From the Field.” He
was previously Principal Deputy Coordinator for
Sanctions Policy at the Department of State and the lead
sanctions expert for the U.S. team negotiating with
Iran from May 2011 through January 2013; Nephew
served as the director for Iran on the National
Security staff where he was responsible for
managing an expanded array of US sanctions
against Iran. He also served in the
Bureau of International Security and
Nonproliferation at the State Department
and in the Office of Nonproliferation and
International Security at the Department of Energy. Welcome, Richard, a
pleasure to meet you. NEPHEW: Thank you.
Good to meet you. HEFFNER: To begin with
I wanted to ask you, that birds-eye view of
American foreign policy and national
security today, what are your expectations
today having listened to the Trump inauguration in
which he set the terms of what his vision was for
a more nativistic and nationalistic
American policy? NEPHEW: Well, I think
the President when he was being inaugurated kept
true to his campaign, which was a viewpoint that
America had come second too many times and that
all the powers that we have as a country need
to be applied for our own self interest. So what have we seen? We’ve seen a tariff policy
that is fully dedicated towards securing the
American economy no matter what damage it does
both to other economies, to our foreign policy
interests more generally and frankly to our own
economy if you have a much broader view of things. We’ve seen a sanctions
policy that is very aggressive and willing
to use tools in ways that we’ve never seen before,
breaking a lot of the different rules and
approaches that we’ve had to how we separate foreign
policy from economic policy. And then last of
course we’ve seen an unwillingness to use force
and to use a whole lot of diplomatic effort to try and
address international problems. Instead the President
has kind of relied on the minimum necessary both of
the Middle East and Latin America and beyond. And so it’s very much a
withdrawn foreign policy that’s still has
pretentions of international
engagement, pretentions of international pressure
but really is much more distant from their
previous approaches. HEFFNER: A new
protectionism is that how you might describe it or
how would we identify this brand of foreign policy,
employing tariffs and sanctions to incentivize
national security imperative and improve
relations around the globe? NEPHEW: Yeah, it’s a, it’s a
weird combination of things. You almost want to
call it neo isolationism, you know, in that
we are not isolated. We’re still doing
things internationally. But we’re only using the
minimum necessary tools. And, frankly we’re
using tools like economic pressure as
much as possible, both trying to address
trade issues and tariff disputes and you
know, economic debates. But also trying to address
foreign policy issues. Take, Iran as an
example of this. Iran was described by both
the last administration and the current
administration as a problem that’s broad
and regional needs to be addressed in a broad
regional strategy. What has this
President have done? He’s primarily used
economic sanctions. He’s really done nothing
much in Syria and Yemen and so forth. And that’s because
ultimately he doesn’t want to project U.S.
power abroad. HEFFNER: Also, there’s not
a human rights criteria that’s applied equally. It’s disproportionate and biased
in favor of North Korea. Who would have thunk,
right, and against Iran? Now it may be that
Iran has intensified it’s abuses of human
rights since the Obama Administration
left office, and that that accord did
not fundamentally alter civil society or promote civil
society in that country. But I wanted to start from the
very basics, Richard. You’re an
expert on sanctions. The idea of the sanction
in application in 2019 verses 1919 or 1819. What is the idea in 2019
and is it different from the historical understanding
of how sanctions would work? NEPHEW: It’s
definitely different. If you go back a
hundred years ago, there was a very clear
sense that sanctions were used against
big trade things. You would
boycott countries, you would
blockade countries, you would prohibit raw
materials and so forth from getting
into a country. If you think back
to World War One, you think back
to World War Two, that’s the kind of blockade
we’re talking about. Germany is isolated from
the rest of the world. Naval ships are preventing
goods from getting in. And in that context,
sanctions were part of a continuum of war and
they were kind of part and parcel of that continuum. In the more modern era,
sanctions are much more targeted, much more narrow
and there are a lot less focused on individual goods
getting from point A to point B. They’re focused on what
we’d call the linkages between activities, things
like financial services, things like insurance,
shipping and so forth. And that’s both because
those are vulnerabilities that don’t necessarily
displace international industry and international
trade as much. But it’s also because
there are places where the United States in
particular as the biggest user of sanctions, has a
disproportionate advantage sitting at the center
of a large part of these service based economies. HEFFNER: So specifically
you mean there is a greater financial onus on
a nation for whom or for which sanctions are applied, meaning it is cutting off
part of their circulation towards commerce,
their ability to function. And in the United States
you have a potentially robust trading partner and
to limit the scope of your commercial availability
means it can’t work. But sanctions have been
applied first by the Obama Administration in the
lame duck session against Russia, acknowledging
the interference and disinformation campaign
and then the United States Congress continued a
sanction policy against Russia, Iran from
the very beginning. How do the sanctions
differ from the Russia situation to
North Korea and Iran, those seem to be the three
hotspots where sanctions are relevant right now. NEPHEW: Yeah, I would say there
are two primary differences. The first lies in the
targets we’re talking about. You know, when we
looking at North Korea, we’re not seeing a major
supplier of anything, right? The North Korean economy
has basically been a target because it’s been
isolated for 50, 60 years. And so cutting
off North Korea, you don’t damage the
international economy if you were to try and just
cut it off wall it off from the international
economy in general, Russia’s the
complete opposite, you know, not withstanding
the fact that it’s smaller than the United States,
the Russian economy is an important part of
the global economy. It’s supplies oil; it’s
supplies, natural gas. It’s a vital part of the
European general business scene. And so problem one is that
amongst those different targets, there are
different global vulnerabilities in
addition to the country vulnerabilities that
need to be managed. And I think that’s
a core difference. The second core difference
is that in the Russia case, we have attempted
to use what I call micro targeting tools, where
we’re not just going after financial services, we’re
going after specific types of financial services,
debt for instance, in very targeted,
very specific manner. HEFFNER: Or
individual oligarchs. NEPHEW: Exactly. Exactly. And the idea being
that because Russia is important, you can’t just
take a sledgehammer to it, you have to take a scalpel
and you have to try and do minimum damage necessary
to the rest of us while doing the maximum amount
of damage to the Russians. And I think Iran frankly
lies in between of those, where we’ve got a broader
kind of global approach with things like the oil
sanctions that we did, with financial
sanctions that we did. But still we’re not
talking about the kind of heavy-handed sanction on
everything connected with Iran that you’d
have with North Korea. And that’s because Iran
is comparatively much more important to the global
economy than North Korea and less than Russia. HEFFNER: So in Iran
and North Korea you have statewide
sanctions in effect. In Russia, you
have some statewide, but also specific to
threats that we think may pose danger to
our economy. For instance, an oligarch
who is the benefactor to disinformation campaign
or is helping aid an anti- American initiative. But how do we, one thing
I’ve wondered that you can shed light on,
this administration specifically the Treasury
Department has withdrawn some of those
sanctions on oligarchs. So you know, Amy Knight an
expert on Russian affairs was here within the last
year or two and she said that that sanctions had really
decimated the Putin economy. But do we know if
those sanctions really are continuing in earnest,
what’s the way for the American people to actually
understand and track that? NEPHEW: Yeah, yeah. The sanctions are still in
place and they are still limiting the
Russian economy. But one of the interesting
things about sanctions, they have to have momentum in
order to have a lot of efficacy. And in the Russia case,
aside from what happened in 2017 with the new
law that Congress passed, you don’t see a
lot of momentum. You don’t see a lot of
movement from 2015 when a ceasefire was negotiated
between the Europeans and the Russians in Ukraine to
where we are today in 2019. And so the result is that
there’s been atrophy in the sanction system. The Russian economy is
adapted as all economies do when they encounter
a kind of problem. And so this is part of
the reason why there are members of Congress now
who are contemplating the next step in sanctions. They see that lack in
momentum and they see people like Oleg Deripaska
now being able to try and find new ways to conduct
his business, so forth. And what they
say is, listen, if we’re going to have
sanctions have any kind of foreign policy effect, we’ve
got to make them adaptable. We have to adapt to the
circumstances we have at
present. HEFFNER: And the reality
is that those sanctions have not
normalized America, Russia relations in the
way that we should want, which is that they’re
not actively undertaking disinformation campaigns
and troll farms are not promoting the doctored
Pelosi Facebook video that went viral and these
social media platforms refused to remove. NEPHEW: Right. HEFFNER: They’ve
normalized them maybe in Donald Trump and his
compatriots’ bank accounts, but not fundamentally
in the area that we ought to be concerned for
our national security. NEPHEW: Right. And look, I think
this goes to a kind of fundamental problem we have in
Russia policy right now. We don’t have one Russia
policies in the United States we have maybe three. We’ve got a congressional
one, it’s very hawkish. We have a Donald Trump one
which is very dovish and then we’ve got the,
what I would call the administration,
the foreign policy establishment approach,
which is kind of doctrinaire, where it’s between both
the congress and the president. And the reality is if
you are the Russians, you are not entirely sure
it’s worth your while to make a lot of concessions
to the United States. Donald Trump doesn’t
necessarily demand them. And it’s certainly not
part of his mentality. And I think so long
as they see things are working, the Russians are
going to continue to play this game that they think
is effective and certainly has been in the
election of Donald Trump. HEFFNER: Let’s turn
to the other penalty. We talk about the
penalty of sanctions, but now let’s talk about
the penalty of tariffs. So Donald Trump professes
he is the tariff man, NEPHEW: Right. HEFFNER: In actuality,
how do you compare the economic impetus and the
circumstances that will result from tariffs in the
application of tariffs to what might be the
application of sanctions against our enemies now,
with some allies at least security allies we’ve
contemplated as a country and now the Trump administration
has enacted tariffs. What do those tariffs mean
for national security? NEPHEW: Well, I
think, you know, first and foremost, we
need to correct this misimpression that the president
and others may have. Tariffs are not paid
by the foreign country. They are paid by the United
States importers of goods. And so if there are
billions of dollars that are coming into the U.S. Treasury, those billions
are not coming out of China. Those billions are coming
out of Americans who are still paying to
import goods. And this goes to a
very important point. The tariffs that are being
used are predominantly being used against
major trading partners, which has a direct
economic security implication for us but there
also happens to be foreign policy partners, whether
they’re in Canada or in Europe for instance. And that general sense of
tension and pressure that is created on our foreign
policy partners through economic pressure, it can
be very damaging to our ability to get them to
work with us on other priorities, especially
when you add sanctions in. Most of the time when
we’ve use sanctions, we’ve targeted countries;
we don’t have very strong trade relations with anyway, whether they’re North Korea
or Iran or even Russia. But others do, including
some of our key U.S. allies like Europe with Russia. And so when we make
demands of them for U.S. economic
purposes via tariffs, at the same time make
demands on them for U.S. foreign policy reasons,
like with sanctions, we actually create a lot of
pressure on that relationship. We can be very damaging
to our national security. HEFFNER: The cost factor
for consumers is one thing to consider and that is
why tariffs by free traders had been
considered taxes on commercial goods when
the policy results in increased inflation in prices at the
pump or in the supermarket. The argument historically
for tariffs has been to potentially exclude
foreign products from the marketplace and to
promote American products. NEPHEW: Right. HEFFNER: So when the
president says that the foreign countries
are paying for it, the translation into
something logical from illogical is that the
possibility of foreign companies taking a hit
financially is there, NEPHEW: Right. HEFFNER: I mean, that’s
what a tariff scheme is intended to trigger so
that American products are back in competition. Why is that logic,
which he doesn’t express, but why is that logic
not applicable in 2019, or is there any
merit to that logic? NEPHEW: Well look, there
is absolutely some merit to the idea that if
you have foreign trade practices that are
discriminatory towards the United States or are
prejudicial to the United States, then tariffs
exists to address that, right? The World Trade
Organization has a concept that permits retaliatory
tariffs for violations of your trade agreements
and trade provisions. And so tariffs
exist as a policy tool. They need to exist as
a policy tool for US industry and for US
economic reasons. The problem is when you
just simply apply tariffs against, say, imports
of goods from China, and you make an assumption
that applying that tariff means that you’re now
going to build U.S. industry you’re
forgetting a few things. You’re forgetting the global
nature of business today. Companies that were going
to do business in China are going to not necessarily
shift back to Michigan. Instead, they’re going
to shift to Malaysia. They’re going to
shift to India; they’re going to
shift to Africa. And that’s because we
have a global economy and they can do that. Second, even though
those companies are going to move their
operations someplace else, it doesn’t mean that
they’re going to be paying higher taxes, which allows
for the kinds of more protectionist
subsidization that the president has also
encouraged to try and make farmers for instance, who
are hurt by trade policy with China, whole. And so what you end up having
is a scenario in which U.S. industry doesn’t change
its behavior in terms of where it bases operations,
either here or abroad. You also don’t actually
have this income stream that allows you
redistribution inside the United States that
actually helps U.S. workers. And so what do you have instead?
You have stagnant wages. You have companies that
are in fact basing a lot of their activities abroad
and you don’t have the ability to address those problems
through trade agreements. And this is the last point
I’d make is look, at the end of the day the
Obama administration and predecessor administrations
recognize the problems of discriminatory
treatment for U.S. companies. They tried to negotiate
trade agreements that would actually drop
barriers and help the U.S. compete, instead by
raising barriers. If you’re
going to do that, you have to add some
degree of redistribution. And that is not
something that the U.S. has traditionally liked doing
and certainly not Republicans. HEFFNER: So right now
the tariffs are a moving target from
China to Europe, Canada, Mexico; the idea
of moving from country to country with
application of tariffs, does that make any
strategic sense? NEPHEW: Well, HEFFNER: Because of
what you describe of China going
to Malaysia, in the most recent case, the
President’s using the tariffs not to address
discriminatory practices in Mexico, but to try
to address that what he perceives to be a border
crisis in that region. So there are security
motivations in his mind for pursuing that. NEPHEW: Right. And this opens up a
whole new can of worms. I mean of course there are
strategic issues if you dart around the world
imposing tariffs on Europeans,
Canadians, Mexicans, and Chinese, you know,
business drives without having a more
comprehensive trade approach that addresses
the totality of U.S. economic interests. But then kind of more
fundamentally when you look at, for instance,
tariffs against Mexico, the President has
decided to invoke the International Emergency
Economic Powers Act, which allows us to declare
an emergency requiring the imposition of sanctions. It’s traditionally been
done for national security purposes and the President
has said that this would be done here, but
usually the tools used our sanctions tools, not
tariff tools and there are sanctions tools for
instance you know, prohibiting visas for
officials in a foreign country or asset freezes
or things like that. When you mix these two
things up and combine tariffs with
sanctions policy, first of all, you
create confusion in the marketplace because
tariffs are supposed to be about trade, you know,
disputes and addressing trade disputes. Second, you create problems
in the foreign country. They’re not entirely sure
what it will take for them to resolve the problem. If, for instance, the
Mexican government were to clamp down on
illegal immigration as the president of put it by 5
percent does that mean the tariffs of five
percent go away? What’s the percentage? What’s the relationship
that exists between these two things, which is
especially complicated by the fact that he
just negotiated a new agreement, you know, to
build on NAFTA with Mexico raising all sorts of
questions of whether or not the trade policy is
the important thing or the border security policy. So I think there’s a
mismatch here between tools and policy decisions
that are being made by the president, some
capriciously. HEFFNER: Do you think that
there is merit to those critiques of
NAFTA and CAFTA? NEPHEW: Sure. Look, I think there is a
simple economic reality. In this country our
wages are much higher and expectations for our
workers are much higher. And the products that we
are producing are much more substantial, meaning
that you are going to have displacement of economic
activity from workers in the United States
to other places. You know if we’re paying
people double what they could potentially make
in Mexico and if U.S. companies are free to
base their operations in Mexico, why wouldn’t they? You know, it’s
simple capitalism. Simple economic principle,
reduce your costs. The problem is the
solutions that are being suggested don’t actually
address raising wages in the United States. HEFFNER: You could very
well have that scenario that you have in this country
with unfettered capitalism, NEPHEW: Right. HEFFNER: Independent
of NAFTA and CAFTA. NEPHEW: Right. HEFFNER: That was the
trend we were on moving from the Reagan years
through the Clinton administration and still. NEPHEW: Right. HEFFNER: In the minutes
we have left Richard, thinking about the stress
on farmers in Iowa right now, why is that happening
because of the new tariffs? NEPHEW: Well, look, I mean
I think it’s very straight forward if you raise the prices
of Chinese goods coming in. The Chinese in particular,
and this is where soybeans tend to be talked about,
raise the prices of U.S. goods by establishing
retaliatory tariffs. And what does that do? It’s like putting a rock in the
middle of the street. It diverts the
water, right? And some of that water is
diverted to other people who can be
providing goods to China, not coming from
the United States. And what that all adds
up to is a hard time for those farmers in Iowa for,
you know, folks even in U.S. industry who are now
going to find it much more difficult to sell their
wares to places where they previously, were, they
got to find new markets. But markets are difficult
to establish and find, especially if the
president is also pushing tariffs in other places,
whether they’re Europe, or whether they’re
in Canada or Mexico. And so I think part of the
problem here is there’s this idea that you impose a
tariff and somehow this brings money in and allows the United
States to transform itself. The reality is, you
know, post a tariff, you mess with the price
signals and you mess with the, the current flows of
business activity which have to go elsewhere. And when they
go elsewhere, if you don’t have any
kind of plan to be able to address the losses that
are made to those farmers and anyone else who’s
trying to export goods that are now subject
to foreign tariffs, you have real problem. And this goes to a fundamental
point that ultimately the U.S. government is losing sight
of the fact that we’re not the only ones who
make decisions; that when we
decide to act, whether it’s in
sanctions or in tariffs, other countries get a vote. HEFFNER: In this climate is
there any correction course? Are there historical
examples of where tariffs were applied and the
result was a positive for the country in
transitioning to a new period of nondiscriminatory
or fairer economic practices? NEPHEW: Yeah. Look, and this is again
where I say within the WTO and the
international system, there are rules for
how one uses tariffs. And you could imagine
the selective discreet and limited use of terrorists
to address particular problems or even better
the threat of tariffs to prompt negotiations that
would allow for a dropping of trade barriers resulting
in more positives. And I would say if you’re
looking for examples, there are probably
millions of examples of smaller discrete instances
in which the United States has used tariffs or the
threat of terrorist to negotiate with
foreign partners. The problem is, is that,
that’s not the approach we’re taking right now. Instead, what are being
announced are massive tariffs against
sweeping jurisdictions, without really a plan
for how that’s going to be used to achieve the
diplomatic economic activities and diplomatic
economic interests of the United States thereafter. And so it’s much
more of a means, ends problem than we have
than whether or not the use of terrorists itself is
something that shouldn’t happen. HEFFNER: So you don’t
see a conceivable end game here other than some
more capricious withdrawal of the tariffs. It’s not really, that doesn’t
have a rhyme or reason to it? NEPHEW: Well, certainly
there could be an end game. We’ve gotten negotiations
ongoing right now with China. We’ve had negotiations
ongoing with Europe to address our trade
disputes there. We saw what happened
with the USMCA or whatever we’re going to
call it today. And we’ve also seen some
people in administration talk about maybe there
should be some sort of Trans Pacific partnership
where we address trade just like the Obama
administration negotiated. So there is a way out. The problem is, is
as I understand it, that the President’s
become convinced that tariffs are a solution to
the problem ‘cause it puts money in the
United States’ pockets. And so long as he’s
got that vantage point, as long as he can make
these decisions unfettered by Congress, I think we’re going
to see a lot more of this. HEFFNER: Do you think,
last question, do you think any part of
that view stems from the idea that Chinese business
and Chinese government are one and the same and
therefore when he says he’s burdening the
Chinese with new costs, it’s not
individual citizens, but it’s the
business sector, and that is really at
one with the government? NEPHEW: Yeah. I think
there are definitely some fundamental imprecisions,
in how the President looks at foreign activity and
foreign economic activity, China being a
case in point. Well look, there’s
something to that. At the end of the day
there are a bunch of closer relationships
between the Chinese government, Chinese
economy than there are in, you know, free market
systems like what we’ve got. But I think
more importantly, the President’s viewpoint
on tariffs was formed in the 1980s where he saw
that if you want to try and win trade wars and you
want to try and improve the situation in
the United States, you use tariffs and you
use tariffs aggressively and boldly and the U.S. is so attractive, people
will have to do business with us, that’s the
fundamental proposition I think he gets wrong
that the United States is absolutely, irreplaceable. We may be today, but we are
not irreplaceable always. HEFFNER: Thank you for your
time today, Richard. NEPHEW: Thank you. HEFFNER: And thanks to
you in the audience. I hope you join us again
next time for a thoughtful excursion into
the world of ideas. Until then,
keep an open mind. Please visit The
Open Mind website at Thirteen.org/OpenMind to
view this program online or to access over 1,500
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