'War by Other Means: Geoeconomics and Statecraft'
NY CFR Fellows’ Book Launch Series Guest Event: War by Other Means--Geoeconomics and Statecraft
Henry A. Kissinger Senior Fellow for U.S. Foreign Policy, Council on Foreign Relations
Senior Fellow, Council on Foreign Relations
President, Council on Foreign Relations
In discussion with CFR President Richard N. Haas, Robert D. Blackwell, CFR Henry A. Kissinger Senior Fellow for U.S. Foreign Policy, and Jennifer M. Harris, CFR Senior Fellow, discuss their new book, War by Other Means: Geoeconomics and Statecraft. The authors explore the history of geoeconomics – what they define as the use of economic and financial instruments of war – why it is so effectual when used correctly, and why it should be reintegrated into U.S. foreign policy. They discuss some of the ways geoeconomics is shaping foreign policy around the world today and what that means for U.S. foreign policy in the future.
The CFR Fellows’ Book Launch series highlights new books by CFR fellows. It includes a discussion with the author, cocktail reception, and book signing.
HAASS: Welcome to the Council on Foreign Relations. Tonight is part of a series of what to me are some of the most important things we do here, which is celebrate the publication of a book done by, in this case, two of our fellows. And it’s a chance to give them a—it’s an opportunity to give them a chance to talk about it and give you a chance to raise questions about it as well.
Tonight’s book has the provocative name of “War by Other Means”—you will understand the origin—and subtitled “Geoeconomics and Statecraft.” The two authors, shockingly enough, are sitting next to me: Jennifer Harris, who is a senior fellow here at the Council on Foreign Relations, and Bob Blackwill, who is also a senior fellow, sits in the Henry A. Kissinger position here for U.S. Foreign Policy. Both have had experience in government, Bob a few decades more. (Laughter.)
And what we do is spend a few minutes—full advertising, this is the book. We’ll talk about it for 20 or so minutes. Then we’ll open it up and all of you will have the not just opportunity but, I think, moral obligation—(laughter)—to go out and buy at least one copy, if not more. I don’t know about you; in our family Memorial Day and July 4th are both major opportunities for book-giving. (Laughter.) And so you can take the pressure off yourselves by—(laughter)—by doing this. It’s too early, though, for Christmas.
OK, let’s start with the obvious question—and I don’t know if you have a preferred sequencing—which is just to make sure we understand what we’re talking about, which is when we use the word—you know, we’re all used to the phrase “geopolitics.” “Geoeconomics,” shall we say, has a more recent coinage or lineage. So when we use it, how do we understand it?
I’m not going to be referee here.
BLACKWILL: OK, I’ll go ahead on this one.
Well, let me just say thank you for hosting us and thank you for all coming. It’s a beautiful day out there and we all wish we were out there. (Laughter.) So—
HAASS: We could move class to Central Park.
BLACKWILL: I have this eerie capacity to look into your inner beings here, especially since I was here last weekend in the rain.
But in any case, geoeconomics, this book emerged from two years of study groups at the Council on this subject. And as Jen and I were doing the initial research we discovered, to our surprise, that the word “geoeconomics” has been used frequently, especially since the late 1970s. Ed Luttwak, the scholar-provocateur, may be the first person to write about it more or less in the way we think about it, but people used it without defining it.
So we set about, ourselves, first to the task of, well, how are we going to define geoeconomics? And how are we going to distinguish it from economics? And how are we going to distinguish it from geopolitics? And we arrived at this definition, which is geoeconomics is the use of economic instruments for geopolitical purposes. So not for economic purposes—not trade for trade—but trade for geopolitical reasons.
And the book is organized around that proposition, that geoeconomics is the use of economic instruments for geopolitical purposes. And we discuss in the book who is good at it now, doing this, who is not so good at it and why, and then—and I’ll just give you a hint. Jen will speak to this in detail, but the Chinese are very good at it and they are the premier practitioners of this—of this discipline—the Russians and the Gulf States and others. And we’re not—we Americans are not now good at it.
And we reach for the military instrument, especially beginning in the period we developed at length during the Vietnam War and thereafter, and especially after 9/11. And that’s anomalous, because for most of our history we were very good at it, using economic instruments, all the way from the Louisiana Purchase—where notice we didn’t send an army to occupy it; we bought it—to the Marshall Plan and so forth. And we used to be very good at it and we’re not any good anymore, or not very good. And this is across administrations.
So that’s how the book is structured and we invite you to have a look at it.
HAASS: I’m going to ask in a minute to talk about such questions about why the United States may not be as good at it as it was or as it should be, but, Jen, let me ask you the question, some of—you know, Bob was there at the time of the Louisiana Purchase—(laughter)—and worked on it, but those of us—
BLACKWILL: Yeah, I was working for you. (Laughter.)
HAASS: OK. Touché. Touché.
What are some more recent examples either by the United States—just so we understand that—Bob gave us the definition, use of economic tools for geopolitical purposes. What are some recent examples, be it by the Chinese, the Russians, the United States, anybody else, just so we make sure we kind of have a good feel for what we’re talking about?
HARRIS: Right. So first things first. I just wanted to add my thanks to Bob’s to both you and to Jim and to the Council for giving us the support and the space to write this book. And I’d be remiss if I didn’t mention my research assistant, Allison Dorey, and Matt Lester as part of the village that it took to write this book.
But as Bob mentioned, if geoeconomics is more or less geopolitics but by reference to a suite of economic tools instead of the more traditional diplomatic and military tools that we think of when we think of states waging geopolitics, what does this look like? It really takes the form of everything from trade and investment to monetary policy to assistance, both economic and military. Military is probably the least interesting of the lot, only there because money is fungible, so the military assistance that we’re giving to Egypt is just freeing up budget space—
HAASS: It’s like economic support funds or something.
HARRIS: —right, just freeing up budget space for them—to even aspects of the cyber domain. Certainly not all of the cyber domain do we count as within the ambit of what we’re concerned about—nefarious goings-on in the nuclear reactors of Iran. That’s going to be military and not something we touch, but where we’ve seen countries like Russia take an opening shot in, say, the 2008 Russia-Georgia conflict by going after Georgia’s banking sector first. They are venting a geopolitical disagreement through economic conduits, and so that does sort of fit within our—
HAASS: Would economic sanctions then be a fairly common tool?
HARRIS: Absolutely. That’s one of the seven that we identify.
HAASS: OK. I knew that because I read the book—(laughter)—but I just wanted to—it’s like “60 Minutes.”
BLACKWILL: Can I just chime in?
It’s not only one. These days it’s really the only one that the United States routinely reaches for, sometimes with good effect, sometimes with not. We tend to sanction, as you know, many more governments than any other country on earth. But it’s the one that is used and the rest of the instruments, the ones that Jen mentioned, have fallen into disuse.
HAASS: Bob, you began with the idea that several countries seem to do it better than we do it—we, the United States. What are some examples where other countries have used geoeconomics successfully, and why—what do you think accounts for their success?
BLACKWILL: China—which I suppose a third of our book is about China, which over the last couple of decades has used these economic tools for geopolitical purposes most effectively. Let me say the book stresses—we stress in the book they don’t have a perfect record and they make mistakes the way governments do, but let me give you some more specific examples to give some texture. I’ll give you three.
If the Philippines acts with respect to the South China Sea in ways that Beijing doesn’t like, Philippine fruits and vegetables rot on the ports—in the ports of China. If Japan does something in the East China Sea that China doesn’t like, Japan’s exports—automobile exports to China substantially decline. China, to do the other side—the incentive side, China has built something like 35 large soccer stadiums in Africa, curiously most near the tribal homeland of the presidential leader of those countries.
So there’s an incentive part of this too, and we develop this at length, but I’ll try to vivify it. Lee Kwan Yew put it like this, that China says to us in Singapore that all countries are created equal and need to be treated equally, but then if we do something China doesn’t like it says: You have just offended 1.15 billion Chinese. Have you noticed the size of our market? Know your place.
So this is quite systematic on the part of the Chinese all around the world. The Norwegians discovered that when the leader of Norway—prime minister of Norway saw the Dalai Lama, Norwegian trade with China tanked. And how can they do it? Well—and Jen can develop this, but they can do it because they’re an autocratic government. They have no countervailing pressures on them and so they pull a trigger and do it.
HAASS: Let me push back on that because—I’ll get ahead of myself. One of the things I was going to ask you about is U.S. vulnerability to geoeconomic pressures. We’ll take China sitting on—it’s the largest single foreign holder of American Treasurys—whatever, one-point-something trillion worth. So technically they could do certain things like they could either stop buying them or start selling them or whatever in a crisis. On the other hand, their own holdings would presumably lose value, plus they are vulnerable to a loss of access to the American market.
So it seems to me that do we not have a form of—I don’t know if it’s mutual assured destruction or, I guess, more positively, in the old days we would have called it economic interdependence, that the Chinese in some ways are pretty needy as well as—you know, they’ve got to worry, if you will, about their own vulnerability as much as their ability to use this against others.
HARRIS: Sure. So your question is increasingly timely. As of last week or so, it became not academic when the Saudis threatened to do exactly what you’re describing, dump U.S. Treasury bills if, indeed, Congress went through with some legislation that would pin liability for 9/11 on the Saudis, as Congress did.
And so then the question becomes, how credible of a threat is this? And normally I think the conventional wisdom goes very much along the lines that you describe. This is economically irrational. Therefore, because they would take heavy economic losses on the remaining value of whatever they don’t dump, they wouldn’t do it. That’s true if you were looking at the world through the lens of economic rationality, you know, with those interests at the fore.
But if you are, you know, Xi Jinping and the U.S. has escalated tensions around some maritime claims that you feel are first order to your national security and you are looking for a way to underscore your displeasure with Washington, and you have, say, I don’t know, $2 billion that you want to budget for this, where are you better off putting that $2 billion? In some fraction of your next aircraft carrier installment when the U.S., even after that, will remain hyper-dominant in the military realm? Or might you want to, I don’t know, short the U.S. housing recovery and your holdings of Fannie and Freddie?
So I do think that once you take off the lens of economic rationality and begin to look at it through a geopolitical lens, it’s not so clear.
HAASS: Let’s talk about—
BLACKWILL: Could I—
BLACKWILL: Could I just use what you asked, the mutual assured—we remember that, despite the doctrine of mutual assured destruction, we worried a lot about such crises getting out of control and mutual assured destruction falling by the wayside in crisis decision making.
BLACKWILL: And so even though we thought, well, neither country was crazy enough to start a nuclear war because of mutual—we nevertheless spent, whatever, thousands and thousands—tens of thousands of man and woman hours worrying about it and figuring out what we would do if it broke down, and just what—imagine that, in a crisis over the South China Sea, the Chinese don’t sell Treasury bills; it’s just that there’s a backgrounder from the central bank out of China that they were considering it. What would happen to the stock market? And would China say, why don’t we send these Americans a little signal that there are wider implications of these actions they’re taking out in the South China Sea than simply the military demonstration of the fleet?
HAASS: Yeah. Where mutual assured destruction failed was in the decades right up to World War I. There was the Richard Cobden and John Bright school, that economic interdependence—
HAASS: —would make war unthinkable because everyone would pay a price. People seemed more than prepared to pay the price—
HAASS: —when push came to shove. So I think you’re on to something there.
Let’s talk about trade. I mean, right now you’ve got TPP sitting there. We don’t know for how long. You defined geoeconomics at the outset as economic tools for strategic geopolitical purposes. Wouldn’t TPP qualify then, because whatever its economic benefits, at least as important if not more important is strategic ties to friends and allies. And conceivably, if China were involved in phase two or three, it could be a form of economic interdependence. So is TPP a geoeconomic tool that we are allowing to go unused?
HARRIS: It could be. And I think the U.S.’ treatment of this question of TPP as a foreign policy tool is reflective of our broader discomfort with flexing economic muscle today. And I think our basic sense—Bob, hopefully we agree—is that you see a kind of schizophrenia with the U.S.’ relationship with TPP.
On one hand, we’re quite comfortable marketing TPP as a national security imperative. You saw Secretary of Defense Ash Carter come to this very building and call TPP as important to the U.S. military as an aircraft carrier. President Obama has called it an explicit referendum on U.S. leadership in Asia. The only problem is that’s not the agreement that we designed. In fact, I think we’d argue that if indeed TPP were an answer to the strategic challenges that the U.S. is facing in Asia, you’d have a very different agreement than the one that you have on your hands.
And so it’s really a matter of whether or not U.S. officials are prioritizing U.S. geopolitical interests in the design choices that they’re making as they’re negotiating these deals, separate and apart from when it comes time to market them after the fact. And the effect of our marketing trade as a national security imperative is not something unique to the Obama administration. This really goes back to NAFTA. You saw Colin Powell take the floor of NAFTA and suggest he was going to have to raise divisions on our southern border if we didn’t pass it.
BLACKWILL: Richard, could I just—
HAASS: Yeah, call out your—
BLACKWILL: Just to be—a moment, just one specific point.
For example, I mentioned earlier—and the book develops this in length—Chinese used coercively of its economic instruments virtually against every country in Asia. Well, if the TPP had a geoeconomic strategic purpose, surely you would say, among the countries negotiation, what are we going to put in the TPP about this because we’re all suffering? But the TPP was negotiated by trade experts, and so there is, of course, not a word about it. But as Jen said, after the fact, when—with an agreement negotiated entirely by trade experts on our side, entirely under trade criteria, when they wished to sell it to Congress they discover a strategic purpose tacked on to the end.
HARRIS: And the problem is not so much that—I mean, Bob and I didn’t get our way on this question, that we did not build in defenses to help steel U.S. allies against the sort of geoeconomic coercion they’re facing in Asia. The problem is that it wasn’t even considered. I was there, you know, sort of negotiating and sort of drafting some of the early chapters, and this didn’t even cross the minds of people in the State Department, let alone—
HAASS: Can I say I don’t understand? So what would be—because if TPP doesn’t pass, it will clearly have geopolitical consequences that are measurably adverse to the United States. So what would be in a geoeconomic TPP that is not in the TPP we have? How would it look different?
HARRIS: So I think—three quick examples.
One, you want truly sort of first-in-class disciplines bringing state-owned enterprise to heel. And yes, it’s true that we have a chapter in TPP on state-owned enterprises. This is the first-ever named chapter on SOEs a treaty agreement has ever had. But in point of fact, we have provisions in the Singapore FTA on SOEs that are very bit as—actually far stronger than what we’ve managed in TPP.
And when we see the Chinese using their SOEs as the main conduit through which they’re changing facts in the water, the way in which they’re building islands in the South and East China Seas through their state-owned enterprises—they use their state-owned oil company rigs as mobile territory.
HAASS: Even though China is not a party to TPP at this phase, do you still think we should have anticipated it and put in an SOE claim—
HARRIS: Is this about sort of building global norms for the 21st century, that would be—
BLACKWILL: Because of their behavior, because we know what their behavior has been.
HAASS: I’m trying to understand. OK.
BLACKWILL: We don’t have to guess.
HAASS: I’m trying to understand.
BLACKWILL: There’s lots of empirical evidence.
HAASS: Look, implicit then in what you’ve both said, it could or maybe should have done that. And, Bob, you basically, I think, made the argument a minute or two ago that the USTR—not just Mike Froman but all of his predecessors—they have a group of, largely, lawyers and trade experts, very talented.
So is there something there for—I’m reading into what you said but let me just guess that you think we need an approach to formulate, in this case, trade policy but more broadly geoeconomic policy where non-economic considerations or players are brought more centrally into the process. Is that a fair reading?
BLACKWILL: Yes, absolutely. And we know that when there are discussions—interagency discussions on this, those issues do not arise. And why is that? Well, there’s a history to this.
The Congress became anxious two-and-a-half decades ago that trade and American jobs was not being sufficiently defended by the foreign policy wonks at the State Department. So they created a separate entity, the trade rep, and gave that entity such superintending powers that today the State Department’s influence on those negotiations is minimal—minimal, with the fear—if I can put it like this—those weaklings over in the State Department are going to trade away American jobs for some fuzzy-wuzzy geopolitical purposes.
And so we’ve gone all the way down to the spectrum. No fuzzy-wuzziness on our part, but we’re on a playing field or spectrum, or whatever metaphor you want to use, in which the Chinese use a hundred percent of the field and we use about 35 (percent). And they understand this very well and exploit it, and we’re not in the game.
HAASS: Let me ask a question I never thought I was going to ask, but I’m going to ask it. And just hear me out. It will be my last question, you’ll all be relieved to know, then I’ll open up, which is some of the candidates—in particular Mr. Trump and Mr. Sanders—have highlighted trade, and particularly their opposition to it. Secretary of State Clinton has also come out against TPP.
In their own way—I’m clearly in favor of it, but in their own way, are they practitioners of geoeconomics in their—in what it is they’re—well, I’m not sure they are, given your definition, but I just want to put that out there because I expect they might say yes, but I’m curious whether you think, in fact, they are. And if not, why not?
BLACKWILL: Well, let me chime in here, which is—rock-ribbed Republican as I am, it’s this: The arguments mostly that Mr. Trump and Senator Sanders makes are trade for trade purposes. We’re getting bad deals and we need to improve the quality of our deals. With Mr. Trump in particular, it has an inverse relationship to geopolitics, because what he proposes we can lose our alliances; that is to say, confronting the Japanese and saying, if you don’t do what we want we’ll withdraw from the alliance.
So our proposition about geoeconomics is—and we have 20 prescriptions in the penultimate chapter of the book, which says, here is what the next administration ought to do with respect to geoeconomics, but none of it is to threaten our closest allies with termination of our alliance systems on which we have depended since the end of the Second World War for promoting stability around the world.
So Mr. Trump and Mr. Sanders both say we need to have better deals. Well, we don’t—Jen and I don’t reject better deals, but better deals at the expense—a methodology of which ruptures our relationships with our closest friends and allies is exactly the opposite of what we think geoeconomics ought to produce.
HAASS: OK. I could ask a lot more questions, but I’ll show uncharacteristic restraint. (Laughter.) We have microphones, I expect, in the room, so just raise your hand and I’ll call on you. If you keep it short, they keep it short, we’ll get quite a few in.
Sir. Just let us know who you are.
Q: Thank you. Scott Helfstein, BNY Mellon.
Appreciate the work you guys have done and the time you’ve spent tonight. Taking into account what you said about China’s success in this space, from a conceptual standpoint is it possible for an advocate—a country that is an advocate of free trade to put together a strategic framework that is consistent with geoeconomics that you’re saying could be practiced?
HAASS: Good question. Go ahead, please.
So I think a lot of the discomfort with a more assertive brand of American geoeconomics comes from a tendency to put laissez-faire liberal economics on one end of a spectrum and sort of mercantilism on the other end of the spectrum.
Richard mentioned Richard Cobden earlier. Actually, to me this is a false equivalence and it turns on a misreading of the early economic liberals. Richard Cobden, you know, said: No free trade in cutting throats. Adam Smith also looked at sort of laissez-faire economics as a theory about how to best serve national interests and national power writ large. And so their disagreements with mercantilists really turned on how, not whether, to practice geoeconomics. So I think kind of rereading our economic history as Americans today is probably step one.
But absolutely I think, you know, there’s a lot of room on the table for a more assertive brand of American geoeconomics that is consistent with our values and our—the fact that we were founded as a nation begun as an experiment in limited government, and we are going to be constrained in some of the activities in this geoeconomic space that the Chinese and the Russians are just simply less constrained in.
But I think, in fact, a lot of the things that we could put into TPP that would make it a more geoeconomic sort of savvy trade deal are things that also row in the direction of enhanced U.S. economic stability. So I mentioned SOEs earlier. Currency also comes to mind. There is a fairly robust bipartisan consensus in the Congress to include currency within the realm of a trade concern.
And it’s also the case that China is financing a lot of its going-out strategy right now—its new One Belt One Road initiative that some of you might have heard of—through its state policy banks, which happen to be financed through its current account surplus, which is—you know, it’s U.S. Treasury bills by another name.
And so whether you are, you know, concerned about this question of currency on a sheer economic vein or view it as economic security, or more on the geopolitical rationale, I think both sort of lenses will get you to, you know, a really sensible position in putting currency as a trade issue.
HAASS: But coming back to the question, there is a tension between, if you will, unadulterated pure free trade and geoeconomics. You’re basically saying whatever possible strategic upsides we may get through free trade through interdependence in many cases will be overwhelmed by other considerations, so we ought to choose to use trade as a principle—as an instrument of statecraft, even if it means we’re not pure free traders. That’s fine.
BLACKWILL: Yeah, but not—yes, but not the dominant unitary instrument. It’s just we plea in the book, factor the geopolitical into your policies over trade; not that it dominates necessarily but just have, in the process, the assurance that you’re addressing these issues—addressing them, and then let’s see how the interagency process balanced out. In the last—pick a number—30 years, that consideration, which would have been odd to George Marshall, has disappeared.
HAASS: Just so I understand—sorry to interrupt—so when we, for example, gave the original instructions for TPP, which was, what, about 15 years ago—
HAASS: —I don’t know; I lost my sense of time—there was not an NSC kind of interagency meeting saying that we—that it was basically done simply in the—through an economic kind of—
HARRIS: Larry Summers, I think it was, called it a trade agreement with Brunei—(laughter)—in the first instance. You know, it has grown into, you know, a different animal altogether from its early origins.
HAASS: Oh, interesting.
Sure. You guys fight it out. (Laughter.)
Q: Ruben Jeffery, Rockefeller.
Bob, Jennifer, thank you. This is a great subject. Thanks for taking it on.
You know, the United States, we’re neither a centrally planned economy nor a dictatorship, at least not yet. And in fact, when it comes to these economic matters, we couldn’t be more diffuse in terms of our organizational structure. You know, you’ve got the USTR, you’ve got Treasury, you know, the financial market regulatory agencies, you’ve got the Department of Energy, all this stuff, and there’s economic opponents of every—just about every branch of the federal government.
Are there any sort of organizational prescriptions you make in the book as to how to better kind of structure ourselves for economic diplomacy, if you will, and statecraft? You know, we’ve got a Defense Department, we’ve got, you know, a Foreign Service, and they’re all very structured, but on the economic side it’s so diffuse. How do you sort of bring it in so you get a more holistic approach?
HARRIS: Never an easy question. I could go on longer than you probably would want to hear, so let me just give you a couple of kinds of things that we could begin to move on.
Absolutely, you know, you know the inside of the Situation Room better than I do. And it’s the case that I think what it means to be qualified for a lot of the jobs that sit at the intersection of economics and foreign policy tend to involve pedigrees from, you know, investment banks and a command of the financial sector. And often with that comes a set of—not always, but a set of priors about whether markets should be subjugated into a tool of foreign policy or not.
So I think, you know, where you stand on any given issue in U.S. foreign policy apparatus is a product of where you sit and we need to create a mandate for the use of economic tools in this way.
HAASS: Well, sure, but aren’t certain—but weren’t certain people dual-hatted to be both in the National Economic Council and on the National Security Council exactly for this reason?
HARRIS: They are, but I think often they are coming from a background that lends itself to an expertise in finance, and that tends to—they gravitate towards, you know, planning the G-20. And there’s more than enough work to be done and these people are stretched thin, but I think what gets left out are, you know, the more strategic use of—the sort of transactional use of those tools.
HAASS: Just out of curiosity, has anyone from State or Defense ever been seconded, almost like pol ads are seconded to every joint command? Do you ever have the equivalent of a foreign policy ad or strategic ad who would be seconded to USTR? Has that ever come up?
HARRIS: Transaction costs. It has happened but it usually involves so much negotiation that it’s more of a one-off and, you know, it’s not like a routine, systematic thing. But just two more quick points on this, because this is important.
I think Congress also has to be brought into this. And when you look at a lot of the failings or our Arab Spring policy, it’s not even so much a dollars-and-cents issue, although that is there. When I sort of—when the president first came out with his sort of theory of the case in May 2011 on the Arab Spring, it sounded a lot like what we were calling for. It was a billion-dollar debt swap for Egypt. It was enterprise funds for Egypt and Tunisia, modeled after ones that had worked pretty well in early post-Soviet days in the ’90s. It was loan guarantees.
The only problem was that when I left the State Department three years later, those enterprise funds had yet to cut their first checks. We as an administration were still arguing with ourselves about how to spend this billion dollars, long after the Egyptian counterparts on the other side of the table had begun to rotate, meaning new facts on the ground had begun to outpace the U.S. government’s ability to respond. And a lot of that came down to congressional authorization to spend the money that we already had and do those appropriations.
BLACKWILL: Could I say one other thing about the Congress, which is just an empirical point?
If you were to catalogue, in the last 20 years, the number of congressional hearings on security issues and the number of congressional hearings on economic instruments as a tool of American strategic purpose, there are basically none in the latter. Our Congress is preoccupied—and I’m not saying that it shouldn’t be, but it’s almost exclusively preoccupied with how many special operators are there in Syria? And, oh, well, there are 250. Well, we want to have a hearing to make clear it should be 375.
Meanwhile, next door, Jordan, a key to the future of the Middle East, an American ally, is breaking apart economically because of Syrian refugees and the enormous pressures on Jordan. And what are we helping economically to try to buttress the Jordanian regime? It’s pitiful. And so you’re not going to find hearings over this long period along the lines that we recommend.
HAASS: So I’m just going to offer 2 cents there.
In 1990 or ’91, the United States forgave $7 billion in Egyptian debt at the beginning of the—and there were hearings. David Welch actually was the person who handled it at the NSC. And then more recently Bob Corker was credited to hold hearings slightly different on the strategic implications of the U.S.—of U.S. indebtedness and taking a long-term look about what—almost because we—and one of the issues they came up was whether we were making ourselves strategically vulnerable because of our dependence on the influence of money.
Q: Thank you. Thank you very much for addressing this topic.
Talking about vulnerability and playing better defense—and I want to couch it in the European Union because is that structure something that makes them more vulnerable? They have diffuse political goals and decision making, but economically it’s a big group that, you know, from far it looked like the Russians really take advantage of that, for example. Can you comment on that and maybe what could be done to make that a better player defensively?
BLACKWILL: It’s a telling point because the Ukrainian crisis vivified what has long been a suspicion of mine, that outside EU headquarters in Brussels there is an electronic means of establishing whether the people who try to enter the building have a strategic bone in their body. (Laughter.) And if they do, they get a mild shock if they try to enter, because look at the package that they offered the Ukrainians, which caused—started the series of events that caused the revolution and everything that has ensued thereafter.
So the commission seems incapable of thinking of geoeconomics the way we have argued when it deals with foreign countries. And I don’t know—since Europe is now maybe the primary sick man anywhere—there’s chaos many places but Europe is sick—I’m not—I’m not optimistic they’re going to fix this problem.
HARRIS: I think a lot of it is chalked up to first principles and constitutional constraints that you see some of to a lesser extent in the American context, that you’re not going to fix with the Europeans, but they do a lot of it to themselves.
There’s no constitutional reason in Europe why they have set—they have come to a default setting around sanctions that requires them to affirmatively re-up the European side of the U.S.-EU sanctions on Russia right now, just as one example where that would be the kind of thing that I would hope we would prioritize in the next administration, beginning to develop an economic relationship with the EU that there’s some resemblance to the military relationship that we have in NATO.
HAASS: There may be time for two more.
BLACKWILL: Richard, could I just say—
HAASS: One more. (Laughter.)
HARRIS: —one, that I liked the question—okay, but I want to—now, we stress the need—if the next American president were to be sympathetic to the ideas, we really have to proselytize them, not just in the Congress and home but we have to go to our alliances and our friends, who mostly don’t think in this way now, and try to persuade them that this is a powerful potential instrument of alliance solidarity and purposes.
After all, we have the biggest economy in the world. We’re the richest country in the world. We have Japan, and we go through the size of these economies. But they don’t think like that and we would have to, led by the president—and it would have to be led by the president—say, let’s not just talk about the security dimensions of the U.S.-Japan alliance or NATO or whatever you want to talk about on the military side; let’s talk about how geoeconomic instruments can strengthen these relationships.
HAASS: I’m going to take very quick questions, John and Jen (sp). I’m going to collect these two questions—quick questions, quick answers. And I apologize.
Q: Thank you. And thank you, Mr. Ambassador and Ms. Harris, for writing the book. John Sakowicz, KMEC Radio in Mendocino County.
In speaking with Senator Feinstein and Representative Mike Thompson, both of whom sit on Intelligence Committees, they have been thinking long and hard about the prospect of China dumping Treasurys and also Saudi Arabia dumping Treasurys, but their view is that it’s not really—it’s really more of an asymmetrical comparison to a nuclear mutually assured destruction because, in the swaps—in the area of swaps and derivatives you can short—you can make money shorting markets. So China or Saudi Arabia can hire Goldman Sachs and be on both sides of the trade. And in fact, Goldman Sachs was on both sides of the Greek default trade.
So my question is, do you agree that there’s a certain asymmetrical nature to this new era of geoeconomic warfare?
HAASS: Hold your answer. Let’s get Jen’s (sp) last question. And we’ll give you a chance—you can choose whichever question is easier.
So my question is, how do we protect our country from the devastating geoeconomics effects on our economy when the unprecedented money printing and debt since 2008 inevitably comes home to roost?
HAASS: Related questions. Rare.
HAASS: Okay. Take it away, Jen, Bob.
HARRIS: I think both of your questions touch on something important, which is the—a lot of what’s new here. You know, certain people, other books, have written about aspects, singular dimensions of what we’re talking about, but the pace and the depth and the liquidity of global capital markets is acting as a force multiplier across all of these instruments.
And so my short answer to your question on vulnerability and whether it’s asymmetric is, absolutely. And I haven’t seen nearly enough thinking go into, you know, what sort of prophylactic protections we could be putting in. And again, I think it derives from this discomfort of even thinking in these terms, point one.
And then, you know, certainly our monetary policy has had to do some unprecedented heroics. And I would call them heroics. It probably depends on which side of the political aisle you fall on this. But how this redounds to U.S. economic health I think is the broader question and, you know, by several measures. You’ve seen, you know, U.S. deficits actually as a percentage of GDP—which to me is the more salient reference point—actually come down.
So I think we are—both by virtue of what we averted in the monetary policy positions that we took and by some more conventional measures like deficits as a percentage of GDP—in stronger terms certainly then we were eight years ago.
HAASS: Bob? OK.
So, look, let me again congratulate Ambassador Blackwill and Professor Harris. This is an important book. It actually—I think you got the taste for it. It takes a big idea and it really develops it. And it does it in a way that’s accessible. If you saw the piece in Foreign Affairs, you’ll know what I mean. But it’s an interesting combination of conceptual work with practical and applied histories.
So again, I commend the authors. I thank them for it. It’s a real important contribution to the literature, and I would recommend that those of you who have not bought it do so. And if you do do that, then read it. You’ll gain a lot from it. So again, thanks to you both. (Applause.)
More from this series
CFR President Richard Haass will discuss A World in Disarray: American Foreign Policy and the Crisis of the Old Order with David Remnick of the New Yorker
Edward Alden discusses Failure to Adjust: How Americans Got Left Behind in the Global Economy.
Sebastian Mallaby discusses The Man Who Knew: The Life and Times of Alan Greenspan, a new biography of former chairman of the Federal Reserve Alan Greenspan.