Economic Statecraft

Economic statecraft is the use of economic means to pursue foreign policy goals. Foreign aid, trade, and policies governing the international flow of capital can be used as foreign policy tools and are considered the most common forms of economic statecraft. In principle, policies governing the international movement of labor could also be considered instances of economic statecraft if they are intended to promote foreign policy goals; but such measures are not usually included under the rubric of economic statecraft and are not considered here. This entry discusses the forms of economic statecraft, the uses of such instruments, and approaches to the study of economic statecraft.

Economic techniques of statecraft are distinguished from other foreign policy tools, such as the following: (a) military statecraft, which concerns the use or threat of military force; (b) diplomacy, which concerns negotiation; and (c) propaganda, which concerns manipulating verbal or visual symbols. Most foreign policies consist of some combination of these techniques.

Economic statecraft takes many different forms, including both positive and negative sanctions. Negative sanctions are actual or threatened punishments, while positive sanctions are actual or promised rewards. Examples of negative sanctions include the following: refusing to export (embargos), refusing to import (boycotts), covert refusals to trade (blacklists), purchases intended to keep goods out of the hands of target countries (preclusive buying), deprivation of ownership (expropriation), punitive taxation, aid suspensions, and asset freezes. Examples of positive sanctions include preferential tariffs, subsidies, foreign aid, investment guarantees, and preferential taxation of foreign investment.

Neither the study nor the practice of economic statecraft is of recent origin. Although the Athenian use of the Megarian Decree may be the most famous example from ancient times, it was surely not the first. Examples of various types of economic statecraft can be found throughout recorded history. The use of economic means to pursue foreign policy goals has been discussed by a number of thinkers through the ages, including Plato, Aristotle, John Locke, Francis Bacon, Montesquieu, David Hume, Adam Smith, Immanuel Kant, Alexander Hamilton, Friedrich List, John Stuart Mill, Woodrow Wilson, and John Maynard Keynes.

Tools of economic statecraft have been used to pursue a wide variety of foreign policy goals. [Page 707]These include preparing for war, preventing war, fighting a war, promoting democracy, punishing human rights violators, promoting communism, opposing communism, promoting economic development, discouraging economic development, preventing regime change, encouraging regime change, and many other goals. Pericles, Theodore and Franklin Roosevelt, Woodrow Wilson, Adolf Hitler, Joseph Stalin, Winston Churchill, and the United Nations (UN) have used various forms of economic statecraft to pursue goals that were sometimes noble and sometimes nefarious. Like other techniques of statecraft, economic tools can be used wisely or unwisely, justly or unjustly, depending on the situation.

In the first part of the 20th century, the League of Nations generated hopes that warfare could, to some extent, be prevented or replaced by economic sanctions. The League of Nations imposed sanctions on Italy in response to its invasion of Ethiopia in 1935 partly to punish Italy but also to warn Hitler of its members' determination to resist aggression. The failure of the sanctions with respect to both goals generated a widespread belief that such measures do not work. Much of the last half of the 20th century was dominated by the acceptance of this belief as conventional wisdom.

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