In 432 B.C., Pericles’ mighty Athenian Empire instituted the Megarian Decree – the first recorded instance of economic sanctions and a boycott as a foreign policy tool. As the Greek city-state world became more divided between the powers of Sparta and Athens, Athens banned Megara, a rival city-state, from doing business with it or any of its allies. Arguably, the Megarian Decree directly precipitated the Peloponnesian War, having forced Megara to choose between direct conflict with Athens and slow economic strangulation. Athens might have been a democracy, but it was ruthless in its pursuit of self-interest. In the 2,455 years since, dominant economic powers have frequently leveraged their trade relations with allies to punish enemies on the individual or national level. None, however, has more exuberantly translated economic into political influence than the United States.
Since the 1990s, the United States has imposed sanctions on more than twenty countries, as well as tens of thousands of politically or criminally involved individuals. These nations span every continent bar Antarctica, and account for one-fifth of global GDP. Increasingly, they are aligning to circumvent economic sanctions and engineer the erosion of the rules-based Western world order which has maintained global stability for nearly eight decades.
Easily the most important player on America’s blacklist is China. Although China isn’t a pariah state-sanctioned to the same extent as Iran, Syria, or North Korea, severe restrictions have been, in my view, rightly imposed on scores of that country’s officials, businessmen, and military leaders. The restrictions on Chinese business activity are being steadily ratcheted up by Western governments. Notably, President Biden recently banned China from purchasing cutting-edge computer chips and manufacturing equipment, in a bid to arrest Chinese development of AI. The ban will severely impair the Chinese economy’s ability to leverage these cutting-edge technologies for military or economic gain. China, cognizant of the impact of U.S. sanctions, is coordinating efforts between nonaligned or U.S.-sanctioned countries to undermine the impact of Western sanctions.
China’s Cross-Border Interbank Payments System (CIPS) suite of technologies, for instance, is a riposte to SWIFT, the established system through which banks send money internationally. America, which monitors SWIFT, uses the system to measure compliance with sanctions, track dirty money, and enforce its economic policy. Most notably, major Russian banks were locked out of SWIFT in 2022 following its invasion of Ukraine. Since, many have reportedly set up secure communications with Chinese banks. China uses its own banking network to buy oil, gas, and other natural resources from sanctioned nations such as Venezuela, Iran, Russia, and Syria, bankrolling those regimes’ abuses. It also pays less for these resources: The crude oil of the Russian Urals sells at a $15/barrel discount to Brent crude, the standard.
China isn’t only seeking to undermine America’s control between banks. It is also attempting to subvert the dominance of the dollar as the world’s reserve currency. China’s central bank is subsidizing access to renminbi by bypassing the greenback in conversions to that currency. It is telling that, despite having more international than Chinese customers, CIPS accounts are denominated in renminbi rather than dollars. State media claims that CIPS is growing at 75% per year: if even 1/3rd of that rate is true, CIPS could boast more customers (if lower-value ones) than SWIFT by the mid-2030s.
The Russian economic ministry has even proposed formally integrating the banking systems of China and Russia, giving rubles and renminbi equal standing within the CIPS system. BRICS, a loose economic confederation of eleven semi-developed and developing countries (some of which, like Iran and Russia, are heavily sanctioned), has also floated the idea of a common currency. While the technical and political divergences between the BRICS nations makes such an initiative unlikely (especially given the election in Argentina, a new BRICS member, of Javier Milei, a libertarian who has described China as leading a global socialist conspiracy), that it has been floated at all is indicative of an increasing backlash against the dollar-denominated world economy.
Regardless of whether a BRICS or Russian-Chinese currency will ever come to fruition, the most potent threat to American dominance is already playing out as autocratic nations collaborate to subvert American sanctions.
North Korea, for instance, has dispatched 100,000 forced laborers to Russia, China, and the Gulf to bankroll its nuclear weapons program, an operation which brings in a reported $500 million per annum. North Korea is also involved in arms-dealing between authoritarian governments. In 2007, the Israeli and American militaries destroyed a site in Syria where North Korean and Syrian technicians were collaborating to develop nuclear technologies. More recently, North Korea has supplied Russia with 1000 containers of armaments for use in Ukraine, for which Russia is thought to have traded ballistic-missile technology. Iran has in turn supplied Russia with Shahed-136 loitering munitions, drones that explode as they fly into their targets. On November 25th, more than 70 such drones struck Kyiv. China is also complicit. Li Fangwei (whose Western name is Karl Lee), a shadowy arms dealer who has the dubious honor of being one of the few Chinese on the FBI’s most wanted list, is accused of exporting missile parts to Iran (China’s government gigglingly insists that Li is a “charcoal entrepreneur”). Finally, Russia’s Wagner mercenary group props up African regimes in exchange for foreign exchange and gold reserves.
Increasingly, autocratic regimes are seeking, through covert dealings with one another and willing partners in the world-at-large, to build a parallel global economy whose transactions are invisible to the West. Further impositions of sanctions by the West – much-beloved for their low cost and – are unlikely to help. Restricting financial participation in the global economy by villainous regimes like North Korea, Iran and Russia is a must. But ultimately, too heavy-handed an application of sanctions threatens to further sow the instability and resentment of global institutions of which Russia and China are so adept at taking advantage. Western governments must not fall into the trap of overexerting their influence: if they seek to most effectively damage criminal regimes, they should take aim at their accomplices – the shell companies, exchanges, and oil freight companies which make trade between autocracies possible – as well as the currencies in which they are increasingly doing business.
