Christopher Smart :
How can the US respond to cyber attacks by foreign powers or their proxies? It is an issue that has faced President Barack Obama in the wake of reports of Russian hacking during the United States’ recent election cycle. But it’s not just about Russia or Obama. President-elect Donald Trump will face the same problem. And he won’t have very good options, either.
“Naming and shaming” is pretty unsatisfying, because hackers rarely feel any actual shame. Similarly, criminal indictments – a measure previously taken against Chinese hackers – probably won’t bring anyone to trial. US Vice President Joseph Biden has put counterattacks against Russian computer networks on the table, but that could trigger an escalation, while ceding the moral high ground.
Economic sanctions may seem like a simple and inexpensive way to register disapproval for foreign hacking; in Russia’s case, existing sanctions against its largest banks and Russian President Vladimir Putin’s closest associates could be tightened. But resorting to sanctions too frequently can have far-reaching consequences that eventually diminish the US’s role in the global economy.
Two-thirds of all global reserves are in dollars, and 88% of all foreign-exchange transactions worldwide include dollars. So, America’s most powerful sanctions instrument is its ability to block a criminal or rogue bank from making US-dollar transactions. But every time the US unilaterally tightens sanctions against another country, it risks undermining the dollar’s status as the world’s principal reserve currency, which could also make future sanctions less effective.
To be sure, the US can strike a severe blow against terrorist organizations and drug kingpins by preventing them from transacting in dollars, and legitimate banks’ managers turn pale at the mere thought of losing dollar access. But when sanctions target a country, their effectiveness depends much more on other countries’ participation, which can cost political capital to secure.
For example, US sanctions eventually brought Iran to the table to negotiate a nuclear deal; but sanctions were effective only because a broad international coalition, ultimately backed by the United Nations Security Council, isolated Iran financially. US sanctions against Russia after the latter’s annexation of Crimea in 2014 were amplified by a coincidental oil-price drop, and by the deployment of similar measures by the European Union, Russia’s largest trading partner. Without EU participation, US sanctions would have been far less effective.
But, while international coalitions lend credibility to US sanctions, they are fragile and temporary at best. Just a year after the Iran deal was reached, it is already hard to imagine that China or Russia would back further joint action against Iran, even if the agreement began to unravel. Likewise, European leaders must renew their sanctions against Russia every six months, which means they are unlikely to survive long enough to change Kremlin policy.
Notwithstanding Trump’s evident rapport with Putin, US sanctions will be far more durable. Even when Obama was actively supporting Russia’s accession to the World Trade Organization earlier in his presidency, he had to expend considerable political capital just to repeal the 1974 Jackson-Vanik Amendment, which secured freer Jewish emigration from the Soviet Union as a condition for normal trade relations. At this stage, pulling off another diplomatic reset would be difficult, if not impossible.
Beyond building sanctions coalitions, the US must ensure that it is using its disproportionate influence in the global financial system to advance truly global interests. Few people would argue that punishing criminals and terrorists is illegitimate, even if there are disagreements about specific cases. And while using financial sanctions to boost widely agreed global efforts such as nuclear nonproliferation, or to defend shared principles such as border sovereignty, may not always work, it is a widely accepted tactic.
But the difference between global principles and key national interests is often in the eye of the beholder: what the US considers an outrage may be viewed by other countries as a parochial American interest.
For example, there was little sympathy for North Korea when Obama imposed sanctions against it last year in response to cyber attacks against Sony Pictures. But there were grumbles about American overreach when the US slapped the French bank BNP Paribas with an $8.9 billion fine in 2014, and temporarily denied it certain dollar transactions, for violating sanctions against Sudan, Iran, and Cuba.
Similarly, hacking US political organizations in an effort to disrupt the American democratic process arguably qualifies as behavior all respectable countries should abhor. But some observers will undoubtedly characterize it as yet another chapter in the great-power rivalry between Russia and the US.
There are clear risks for the US if it is too easily tempted to block access to the dollar in defense of interests that appear selfish or parochial. Would the US respond with sanctions if the cyber attack on Sony had come from a foreign competitor in a commercial dispute? Or if an attack were carried out ostensibly to protest controversial US policies in the Middle East?
These are all difficult calls to make, which is why any US administration should pause before shutting individuals, firms, and countries out of the dollar-trading system. Over time, even legitimate actors will find alternative commercial and financial channels if they come to feel that dollar access is conditional on not running afoul of US interests.
Imposing sanctions seems like an easy, costless response to a global outrage, but it is no such thing. The US should scrutinize each sanctions deployment carefully, and make sure it is reinforcing trust in American leadership – and in the dollar – rather than raising doubts.
(Christopher Smart is a senior fellow at the Mossavar-Rahmani Center for Business at Harvard University’s Kennedy School of Government).
Courtesy: Project Syndicate
