8 | FTReports FINANCIAL TIMESThursday 30January 2020

Trade SecretsSanctions

W

hen Steven Mnuchin

stood in the White

House press briefing

room three days

after Iran had fired

missiles at two bases hosting US

forces in Iraq, in retaliation for the

assassination of a top Iranian military

commander, the Treasury secretary

was there to lay out a crucial element

of America’s response.

President Donald Trump had cho-

sen to ramp up economic sanctions

on Tehran rather than hit back with

military action that might have pre-

cipitated all-out war. “The goal of our

campaign is to deny the regime the

resources to conduct its destructive

foreign policy,” said Mr Mnuchin as

he extended sanctions on members of

Ayatollah Ali Khamenei’s inner cir-

cle, as well as the country’s metals

and mining sectors. “We want Iran to

simply behave like a normal nation.”

Mr Mnuchin’s comments, made as

he stood alongside US secretary of

state Mike Pompeo, reflected the

extent to which economic sanctions

have become the stick of choice in US

foreign policy under Mr Trump — just

as tariffs are its preferred punitive

tool on trade. The US Treasury

department says it has imposed sanc-

tions on some 2,800 individuals, enti-

ties, vessels and aircraft under Mr

Trump, and subjected more alleged

terrorists to the restrictions in 2018

than in any of the past 15 years.

Even as it imposed more economic

constraints on Iran, the US has this

month also threatened to impose new

sanctions on Iraq if it expels Ameri-

can troops, moved to impose restric-

tions on a senior official from South

Sudan for alleged involvement in

human rights abuses, and slapped

more sanctions on current and

former members of President Nicolás

Maduro’s government in Venezuela.

The Trump administration’s predi-

lection for economic sanctions comes

despite criticism. There are doubts

about their effectiveness, in that they

often reinforce regime hardliners.

There are concerns over their moral-

ity, in that they often damage the

most vulnerable citizens. There is

also disquiet about their long-term

effects, particularly the danger that

they could accelerate moves away

from the dollar as a reserve currency

and could force US companies to irre-

deemably lose market share abroad.

Mr Mnuchin is fully aware of the

latter concern. “The dollar is strong

because of the US economy and

because... of the safety of the US

dollar,” he said in Qatar’s capital Doha

last month. “So because of that, we

take sanctions responsibility very

seriously — as a matter of fact, I per-

sonally sign off on every single piece

of sanction that we do.”

There is no sign of a flight from the

dollar for now — in the third quarter

of last year, 62 per cent of the world’s

allocated reserves were in US dollars,

a far cry from the 20 per cent held in

euros. The figure is lower than in the

middle of the last decade but higher

than in the aftermath of the financial

crisis. Sanctions, if sustained and

expanded, are considered only one

factor that could precipitate a more

significant drop in the influence and

use of the dollar; another could be

financial mismanagement in Amer-

ica, such as a debt crisis.

Iran is the main focus of the Trump

administration’s sanctions, which

US shows no sign of

giving up its favourite

foreign policy tool

AmericaZeal for economic restrictions comes despite concern they

will cause long-term damage to status of the dollar, writesJames Politi

“We will charge them

sanctions like they’ve never

seen before ever,” Donald

Trump said earlier this month

as he threatened to punish

Iraq if it dared to expel US

troops. “It’ll make Iranian

sanctions look somewhat

tame.”

Never mind that Baghdad

had already suffered from

crippling US sanctions under

Saddam Hussein, or that

successive American

administrations, including Mr

Trump’s, had vowed to

provide economic support to

the country’s fragile

government. With this tweet

Mr Trump signalled that, in

the aftermath of the killing of

Iranian military commander

Qassem Soleimani, he was

willing to jeopardise the US’s

commercial relationship with

Iraq, in addition to its

diplomatic and military

alliance.

An economic freeze on

Baghdad would not be an

earth-shattering event for the

global economy, and Mr

Trump may not follow

through with it.

But the mere threat of

sanctions suggests the US is

willing to disengage

economically from another

crucial country in the Middle

East. Such a move could create

a void in the region that China

and Russia might fill.

Iraq threats signal willingness to

disengage from another key country

Commercial ties

Middle East retreat

would create

opportunities for

Russia and China,

saysJames Politi

“This is a remarkably

different economic

relationship between the US

and the Gulf than it was at the

start of the Trump

administration,” says

Elizabeth Rosenberg, a

former US Treasury official

and senior fellow at the

Center for a New American

Security.

“In the vacuum China

and Russia will certainly

move by offering reassurance

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