The writer is a non-resident senior fellow at the Peterson Institute for International Economics. She is a director of the International Affairs Program and vice-president for foreign policy at the Kyiv School of Economics
In recent decades, the US has increasingly wielded financial sanctions as a foreign policy tool, leveraging its position at the heart of the global financial system to ensure compliance, all at a fraction of the cost of military action. With Russia’s war in Ukraine and the more competitive relationship with China, America is experimenting with new economic policy weapons, such as a price cap on Russian oil sales and controls on technology exports to Russia and China. But so far, these measures have yielded mixed results. As it confronts a daunting set of geopolitical challenges, the US needs a comprehensive framework for economic statecraft to alter the private sector’s risk calculus.
America functions as the central node in the global financial architecture, granting it the power to threaten to disconnect uncooperative actors from access to the US dollar and international payment systems. For example, when the US unilaterally pulled out of the Iran nuclear deal in 2018, the threat of American sanctions shattered all European efforts to stay engaged with Iran.