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Economic Warfare

Economic Warfare

In The Economic Weapon, Nicholas Mulder traces the high hopes of those using sanctions against Russia today back to World War I.

Chris Miller
The Economic Weapon: The Rise of Sanctions as a Tool of Modern War
by Nicholas Mulder (Yale University Press, 448 pp., $32.50)

When Kremlin Press Secretary Dmitry Peskov complained earlier this week that the United States was waging “economic war” on Russia, he had a point. The financial sanctions and technological restrictions the United States and its allies have imposed on Russia have caused the ruble to crash, Russian living standards to sink, and industries like car manufacturing to stop work due to an inability to acquire crucial components.

Unlike the unguided rockets Russian forces are lobbing into Ukraine’s cities, sanctions haven’t killed any Russians directly. Yet as historian Nicholas Mulder shows in his illuminating new book The Economic Weapon, sanctions are a weapon and they do impose costs, measured not only in dollars but also in lives. Today we think of sanctions as alternatives to conflict. Mulder’s history shows, though, that we ought to see sanctions and other economic restrictions as weapons in a no-holds-barred struggle for power. They are less bloody than weapons but no less deadly.

Sanctions, Mulder argues, emerged out of the wreckage of World War I as U.S., British, and French leaders cast about for tools to deter and punish aggressors without risking another great-power war. Blockades and asset seizures have always been part of war, but Mulder argues that modern sanctions are unique forms of economic punishment because they are intended for use in peacetime—a substitute for war, rather than a supplement to it. Their emergence in the 1920s, Mulder says, produced “a momentous shift in the meaning of war and peace,” because wartime economic measures were now deployed outside of war zones.

The U.S. and European leaders who crafted the post-World War I order thought sanctions could deter aggression because they knew how terrible blockades could be. During World War I, the allies imposed a devastating blockade on Germany, implemented thanks to the power of the Royal Navy and of Britain’s financial bureaucrats. When war broke out, the United Kingdom was financing 60 percent of the world’s trade and British ships carried 55 percent of sea-born trade, so it had the clout to coerce other countries to comply with its trade restrictions—just as America’s powerful “secondary sanctions” work today.

The World War I blockade of Germany drastically reduced its access to key industrial products like manganese, which was needed to make steel. However, the primary impact of the wartime blockade was to cut trade in food, causing starvation across Central Europe. Mulder estimates that the wartime blockade killed at least three hundred thousand people in Europe and five hundred thousand in the Ottoman Middle East—orders of magnitude more than were killed by new weapons of war like mustard gas or aerial bombardment.

Having seen this terrible weapon in action, it is no wonder that some leaders thought sanctions could deter future aggression. The idea was simple: if one country was poised to attack another, the League of Nations would declare sanctions on the aggressor, imposing economic ruin or even starvation unless it changed course. Legalistic liberals like U.S. President Woodrow Wilson and British intellectual John Hobson were among the most optimistic about sanctions’ ability to shape how states behaved.

In the hands of the League of Nations, sanctions were intended to preserve peace, but even though the aims were noble, the logic of economic warfare was grim: “It is the starvation of the general population … which is likely to cause such trouble in the aggressor country that it must give way,” one League of Nations expert explained. However, the experience of world war had been grim, too. And anyway, given the League of Nations’ lack of a military deterrent—and given that key powers like the United States refused to join—what other hope for peace did Europe have?

Did sanctions achieve their aims during the interwar period? Only sometimes, Mulder argues. Sanctions scored a success in toppling Béla Kun’s revolutionary government in Hungary but failed to oust the Soviets in Russia. Several conflicts in the Balkans were defused by sanctions, including a potential Yugoslav invasion of Albania in 1921 and a Greek attack on Bulgaria in 1925.

Facing larger challenges, however, the League was reticent to use its sanctions weapon. When Japan fabricated an attack in Manchuria in 1931 and invaded the region, turning it into a Japanese puppet state, the League of Nations barely mustered the strength to send a commission to investigate. Four years later, when Italian armies marched into Ethiopia, the League of Nations deployed its economic weapon again. But though three-quarters of the world’s states severed commercial ties with Italy, the United States did not. With American oil flowing to Italy, the League’s sanctions simply weren’t tough enough to change Mussolini’s calculus or to drive him from power.

The sanctions campaign directed at Italy was a turning point, Mulder believes, in pushing revisionist powers like Germany and Japan toward policies that would result in world war. Mulder blames advocates of sanctions for mission creep, as sanctions shifted from a tool to deter aggression and toward a weapon of economic attrition. “To the most hard-nosed internationalists, the value of sanctions did not depend on whether they could save Ethiopia,” he writes. “In their view the question was if they could break Italy.” Mulder implies that this was misguided, though “breaking Italy” in the mid-1930s would have been a strategic success for the Western powers, knocking out one of the three aggressors that would eventually launch World War II, and sending a message to the Germans and Japanese that the Western powers would not tolerate aggression. Mulder concludes that the sanctions against Italy were unwise, but surely the West’s error was being too weak against fascist powers, not too tough.

The fascists learned lessons from the terrible blockades of World War I that the sanctions power of the United Kingdom and United States reinforced. “I need Ukraine,” Hitler reportedly declared, “so that they cannot again starve us out like in the last war.” Knowledge that the next war would be coupled with a potent and deadly blockade encouraged Germany, Italy, and Japan to grab territory and resources in preparation. If the urge to seize territory was deeply woven into the ideologies of German and Italian fascism and Japanese militarism, Mulder is nonetheless right that knowledge of the Western powers’ sanctions tools encouraged this aggressive impulse.

In his conclusion, Mulder suggests that a policy of “expansion and solidarity”—like Lend-Lease aid—would have been a more effective tool against fascism than the “negative” economic weapon of sanctions. British economist John Maynard Keynes, who was deeply involved in interwar debates over sanctions, argued at the time that punitive economic measures “always ran the risk (1) of not being efficacious and (2) of not being easily distinguished from acts of war.” Keynes supported programs to aid victims of aggression instead. The League of Nations did consider a fund to provide financial aid automatically to any country suffering aggression, though the idea never took off. Whether a package of economic aid could have helped Poland in 1939 seems unlikely.

Today, in Ukraine, the most egregious act of aggression in Europe since 1945 is testing the efficacy of both sanctions and aid programs as they are mobilized to confront Putin’s Russia. Mulder’s account of the origins of modern sanctions amid the famine-inducing blockades of World War I is a reminder that severing trade causes suffering and, ultimately, death. Western powers have sanctioned Russia’s central bank and its state-owned firms, but the crash in the ruble will drive up the price of food and medicine, too. Sanctions may feel bloodless, but the “economic weapon” brings a body count of its own.

What are the alternatives? The West has used “positive” economic tools in Ukraine, providing billions of dollars in economic aid since 2014. But even all the helmets in Germany wouldn’t be enough to defend Ukraine from Russia’s rocket and artillery barrages. For Ukraine to have successfully deterred Russia’s invasion it needed more than cash—it needed weapons. However, for years the United States declined to provide sophisticated weapons like air defense systems, fearing that this might provoke Russia. Transferring weapons that might have strengthened Ukraine by letting it hit back against Russia, like intermediate-range missile systems that could strike Russian cities, was an idea that was never seriously considered. Rather than armaments, Ukraine got an IMF deal.

The type of solidarity that might genuinely have helped Ukraine is the exact same kind that was missing in interwar Europe: security guarantees. The reason the League of Nations had to rely so heavily on economic sanctions is because it didn’t have a credible set of military guarantees—and, above all, because the United States, with its enormous military potential, was absent. The French, Poles, and Finns were the most vocal supporters of economic measures against aggression during these years precisely because they were so vulnerable to revanchist neighbors. As The Economic Weapon shows, sanctions are a scattershot tool. Sometimes there is no alternative. But they are no substitute for security guarantees.

Chris Miller is assistant professor of international history at the Fletcher School, Tufts University, and a Jeane Kirkpatrick Visiting Fellow at the American Enterprise Institute.

EconomicsU.S. Foreign PolicyEuropeBook Reviews