What I Am Reading About Economic Statecraft This Week

Staying up on the current literature

Photo by Towfiqu barbhuiya on Unsplash

One of the enjoyable aspects of teaching my economic statecraft class this semester had been catching up on the literature. I have obviously read a fair amount of the literature on economic statecraft already, but there have been nooks and crannies that escaped my attention until now. Teaching is a great way of turning a specialist into a generalist. Or, as Scotty might have put it, I’m enjoying catching up on my technical journals.

The other exciting thing about the economic statecraft literature is that new material is coming out at a pretty rapid pace. To see what I mean, consider three pieces that have come out recently — two of them in the past month — that speak to the practice of economic statecraft.

First, Kathleen Claussen’s Virginia Journal of International Law paper, “Trade’s Mini-Deals,” is both refreshingly brief (by law journal standards) and informative about the proliferation of “trade executive agreements” (TEAs) that the United States has been inking in the past few decades. The phase one deal with China is one example; the more recent critical minerals deal with Japan is another. As Claussen explains in the abstract, “The data show a growing reliance by the executive on mini-deals to achieve foreign commercial goals in the last thirty years and a significant expansion of their scope in the last five years. They are not so ‘mini’ anymore.” Later on in the paper she argues, “TEAs challenge the dominant conversations about distributions of authority and the incorporation of foreign commitments into U.S. law.”

I am looking forward to processing both this article and Claussen’s follow-on work about the effect of TEAs on the existing international trade regime. When looked at in the aggregate, TEAs can be significant. I have long had my doubts, however, about the sustainability of executive-only agreements in areas where Congress has a vested interest in the outcome. And based on how Congress reacted to the recent critical minerals deal with Japan, we might see the limits of TEAs.

Second, the good folks at AidData have published another fascinating paper on Chinese economic statecraft entitled, “China as an International Lender of Last Resort.” It examines the People’s Bank of China swap lines and other bailout loans that have come from China’s official and state-owned commercial banks. The paper reveals a pretty sizeable set of loans: “In total, more than 20 debtor countries have received 240 billion USD in Chinese rescue lending since 2000. The scale of China’s global bailout lending program is also growing fast. More than 185 billion USD was extended in the past five years alone (2016-2021).”

The paper also stresses that Chinese lending differs from, say, IMF or World Bank lending in three ways: China’s lending is more opaque, China charges higher interest rates, and the overwhelming majority of Chinese lending goes to debtors involved in China’s Belt and Road Initiative.

The press coverage of this paper has a dark-edged tinge to it; the implication is that this lending is an example of China’s “debt-trap diplomacy” that has exercised so many Beltway analysts. My read is very different. What this lending suggests is that China does not want to acquire strategic assets in exchange for debt cancellation. If Chinese officials were interested in using debt traps for strategic purposes, they would not be extending these bailout loans. Rather, they would be calling in their outstanding loans and demanding collateral. These bailout loans are a sign of failed economic statecraft, of throwing more money after bad money and hoping it all works out. As Christina Lu noted in Foreign Policy back in February, BRI itself seems to be winding down.

Finally, Daniel McDowell is out with a new Oxford University Press book entitled Bucking the Buck: US Financial Sanctions and the International Backlash against the Dollar. McDowell asks a question that many of us have been pondering for quite some time: will U.S. financial sanctions threaten the dollar’s status as the world’s reserve currency? There are nascent signs of such a transition taking place, but this ain’t the first time the dollar’s doom has been predicted.

McDowell’s book suggests a middle course between “the end of the dollar” arguments and “the dollar is here to stay” counterarguments. He writes, “sanctions generate political risk, provoke anti-dollar policies among targets, and in some cases correlate with de-dollarization.” The more the U.S. abuses its privilege, the less likely future financial sanctions will have much bite. That said, McDowell also concludes, “despite growing complaints about how the United States wields the dollar as a weapon, the currency retains considerable economic (and political) advantages over all all potential rivals. Those circumstances are unlikely to change anytime soon.” Although I still need to read the empirical chapters, this sounds like an eminently sensible hypothesis.

It’s an exciting time to be studying economic statecraft; it’s good to see that the literature is keeping pace with changes in the real world.