Economic Power and Statecraft A critical review By Juan H.

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This weeks readings were regarding the topics of Economic Power and Statecraft. Economic power and statecraft have many things in common. They sometimes go together hand in hand, and other times might not lead to direct correlation as Drezner points out in his article. To better understand how the two might sometimes coincide and other times not so much, I will begin by first defining both concepts. Economic Power is a pretty straight forward concept. Its definition is pretty much defined in the phrase itself. Economic Power means the amount of wealth a state has. This type of power can sometimes be influenced by a states economic status, such as a creditor or debtor, consumer or producer or Innovator or follower. Generally speaking, Creditors, producers and Innovators tend to have more Economic Power than the others. However this is not always the case as the United States is considered both a consumer nation and a debtor in relation to China, but still is by for an economic power house. Statecraft is a term which refers to the decisive actions that state policymakers take in order to pursue national interests. According to Baldwin (1985), statecraft, Depicts government influence attempts directed at other actors in the international system. There are different types of statecraft. Military Statecraft is when a state uses military leverage over other states to advance national interests. This can be done so by forging alliances, promising protection in exchange for resources, or straight up military intervention. Diplomatic statecraft occurs when political policies are used to gain leverage and lastly financial statecraft occurs when financial leverage such as sanctions are used in order to advance a states national interests. State craft when applied effectively can strengthen a states economic power. Likewise a strong basis of economic power can enhance statecraft and its effectiveness. With that being said there are some limitations on just how effective economic power and statecraft can be when a state who is rich and savvy in both attempts to use these resources in order to advance its national interests. Such is the case with China as Drezner points out in his article. Shortly after the financial crisis of 2008, China attempted to use financial statecraft and its economic power to pressure the US into adopting financial policies that would cater to Chinas national interests. China was looking for the US to protect the val ue of Chinese dollar denominated assets because they invested heavily in US bonds and equities. China also wanted the US to guarantee continued free access in the American

markets as protectionism became a concern. China assumed its Creditor power over America (U.S. owes 1.5 Trillion in national debt to China according to Drezner) and the threat of China starting to trade in Euros with the UE would force the U.S.s hand into conceding to their demands. Unfortunately for China this wasnt the case. Drezn er helps explain why not. According to Drezner the statecraft of financial sanctions from a creditor state to a debtor state only work under a limited set of conditions. First the debtor stated cannot access alternative sources of credit. Secondly, target states cannot be able to retaliate with their own costly sanctions. This is especially important when targeting a great power as great powers can usually retaliate in some manner. Third there must be a low expectation of future conflict. Finally the exchange rate of the debtor state must be fixed because if it is floating, the fall of value of the debtors currency will in turn hurt the creditors investment which is in the same currency. Therefore, Chinas statecraft did not work because America has alte rnate sources of securing credit as the US dollar is still strong across the world. The U.S. can also counter sanctions China might impose with sanctions of their own. Since the dollar is on a floating exchange rate, any decline on the value of the dollar would severely hurt China as it holds so much of Americas Debt in dollars. Finally, Should China use harsh sanctions on the U.S., the expectations of future conflict are surely inevitable. Although this particular statecraft China attempted to use on the US did not pan out, Drezner does point out that when the four aforementioned conditions are met, then the same type of statecraft can be very effective. Drezner provides examples of China using the same strategies with success when they vetoed the IMF investigation into the misalignment of Chinese currency, or when they vetoed Asia development bank loans to India because of territorial disputes. Drezner also points out that although Chinas economic power did not influence how their statecraft affected the US directly; the same economic power let them dictate their own statecraft at home without the U.S. being able to influence them. Drezner cites cases where the Chinese allowed the renminbi to depreciate disregarding outside pressures. He also points out that the U.S. hasnt been able to influence Chinas policies regarding human rights either. So through this example we can see that statecraft in its financial form can sometimes be an effective tool of advancing a states national interests, but not all the time. The same can be said for military statecraft. When a state like the U.S. has a strong military advantage over other states, it can sometimes use this advantage to further its own national interests as it did to a great extent during the Cold War. As Mastanduno points out however, the extent of that influence is much more effective in some situations as opposed to others.

During the cold war security was a vital resource and Americas allies would provide the U.S. with whatever privileges requested from them in order to maintain that security. After the security concerns threat of the Soviet Union and its allies dissipated , Americas military leverage over its allies faded along with the threat. Mastanduno explains this shift of power as he states on page 153, U.S. policymakers were able to use the security dependence of their cold war allies as a source of leverage in adjustment struggles. Even though the United States is relatively more powerful in security terms after the cold war, its allies are less dependent. Mastanduno drives home this point by exclaiming, U.S. dominance in the international security arena no longer translates into effective leverage in the international economic arena. Although military security is no longer as much as an advantageous source as it used to be for the U.S., Mastanduno does point out another source of security which the US provides to foreign states that does lead to a statecraft advantage. This is the security the U.S. provides with its large open market to assist its export dependent supporters who rely heavily on the US market to import and consume their goods. This reliance on the American market gives the US an edge in using statecraft in order to obtain privileges from the markets it helps support. Henceforth supporting the idea of Mastandunos argument, the United States is not only a system maker, but also a privileges taker. Kirshner speaks about another type of statecraft which can be sometimes advantageous but at the same time detrimental. In his article he focuses on the statecraft of globalization and how it can sometimes be a useful statecraft to advance U.S. interests and at other times can not only be non-effective, but actually end up hurting U.S. national interests. Kirshner believes we are in a unipolar world where the US is the dominant Superpower. He goes on to explain since the US is in this position as a Hegemon it has great power over the way contemporary globalization is spread throughout the world and can actually use globalization to further advance its economic and political power relative to other states in the world. He goes on to talk about how the US can build on its financial world dominance, informational technological advantages, and push its political and cultural ideas throughout the world using globalization as the tool to do it. Information technology can be exploited; greater economies of scale can be taken advantage of, and soft power can be used as a tool to advance national interests and both political

and cultural beliefs. As he states in his article globalization can definitely be used as a force multiplier for the Unites States. Kirshner is quick to also point out though that globalization can be a double edge d sword and exposes the United States to greater political opposition along with new security concerns. Kirshner explains, Although globalized finance has enhanced the relative power of the United States, America is actually at greater risk for a major financial crisis than at any other time since the Second World War. Kirshner's foresight obviously comes to fruition in the case of the Financial Crisis of 2008. Kirshner further explains the same soft power created by globalized American markets, values and culture, can turn around and cause the U.S. to be the target of resistance or even resentment. He cites an example where Irans government has a conflicting value system with the show Baywatch and also talks about how consumerist values projected by companies such as McDonalds and Nike also cause resistance and pushback in several parts of the world. Since the United States is the Hegemon (according to Kirshner) in this unipolar world, then the advancements of globalization will be seen in many respects as driven by this unipolar power. That being said, the resentment of globalization and its effects will be directed to the same power perceived to be pushing it, namely the United States of America. This resentment can ultimately turn into attacks in the form of terrorism. Globalization has a face and that face is seen as America to many weaker states and non state actors. Kirshner explains that this is mainly due to the uneven distribution of power that comes along with globalization. Since America is the Hegemon, guess who is perceived (and perhaps rightfully so) as attaining the majority of this distributive power? Since non state actors such as terrorists cannot fight American markets and American ideals straight on, this makes Americas homeland, a greater target for terrorist attacks. Not only will terrorists attempt to attack the U.S. as a means to stop globalization or as they see it stop the spread of American values, but weaker states that detest American globalization just as much will provide safe havens for these terrorists to operate. So in summation Kirshner points out very correctly that globalization is another tool of statecraft that can go either way depending on what the situation is. America will have to think very carefully when setting its international policies using globalization as its tool. Theodore Moran also sees U.S. international policies as being the key to advancing our national interests. He however is more concerned about how the statecraft of trade will influence our ability to gain economic power while still advancing our national interests.

Like the authors above Moran sees trade statecraft as a tool which can yield both positive and not so positive results. Depending on the circumstances of how the statecraft of trade is used, will ultimately determine whether it would be successful statecraft or an ineffective one. Moran examines two types of trade statecraft policies, the late 19th century neomercantilism approach (or Realist Approach if you will), and the transnational integration approach (Liberalist). He labels the struggle between these two as the pursuit of power vs. the pursuit of plenty, where one looks at more relative gains as opposed to the other which focuses in on more absolute gains. The neomercantilism approach assumes power politics dictate trade policy. Therefore trade can be used to build up military might, and restrictions on trade can be used as an economic weapon in order to build up a states economic power. Neomercantilism promotes exports while discouraging imports. Its main objective is to increase a states foreign reserves which in turn will grant it greater effective monetary policy and lead to more fiscal responsibility. It would give the country more autonomy and control, but do so at the expense of having a closed foreign market so consumer choices would be limited. This approach is more concerned with relative gains as opposed to absolute ones. Moran states in his article that relative gains cannot be completely ignored because the pursuit of power and the pursuit of plenty will be interconnected as long as the international market can be manipulated, which to me will always be the case. Transnational integration on the other hand is more about the pursuit of plenty. This approach states competition among nations and among firms are not the same. Policy makers should not just be worried about making their nation a winner under the misconception that there can only be winners and losers when it comes to international trade. Nation should rather focus on absolute advantage as opposed to comparative ones. Transnational integration also points out a very important fact that a nation s productive capacity is sometimes more important than its spending power. After all, is it better to acquire between 50 to 100 golden eggs relying on the dependence of having to import those eggs, or is it better to have your own golden goose which can produce 75 eggs for you every year steadily at home? Remember that having your own goose means you dont have to rely on anyone else for golden eggs. Moran gives an example of this in his reading when he points out the dilemma that Europe was having with subsidizing Air Bus. So which one is the correct trade statecraft to use in order to maximize the U.S.s economic power? Well according to Moran it is a bit of both. He feels policy makers should mix and match certain aspects of both ideologies so that together they can create a grand strategy in order to pursue both power and plenty. He believes the U.S.s main focus should be on restoring a balance to its saving and consumption ratio. He further explains his position on page 196 of his reading when he states, My own recommendation for making terribly complex trade-offswould be to follow a rule of minimal activism in the search for national advantage. He is talking

about maximizing the opportunities for mutual gains while at the same time narrowing the pursuit of national advantage to only focus in on matters of high importance such as national security. Ultimately he wants America to focus in on Ikenberrys idea of Domestic Offense rather than International Offense. He is looking for America to consume less and save more. He wants the US to worry about and fix its own domestic structure before it tries fixing things on an international level. In conclusion there are many types of statecrafts that can be used in order to advance a nation like the United States national interests and economic power. I have written about financial statecraft as a creditor nation, military statecraft as a superpower, market security as a means of statecraft, globalization used as statecraft by a Hegemon and strategic international/domestic trade statecraft. As the authors of the readings clearly pointed out, all forms of these statecrafts can be used to a states advantage in order to bolster their economic power as well as advance their national interests. These gains however can be realized only when the statecraft is used in certain ways or in some cases only when certain circumstances are present. The key take away for policy makers in the United States would be to learn from these lessons so they may have a better understanding of when specific types of statecrafts are more efficient than others. If they know the potential pitfalls of using certain statecrafts in certain situations, then perhaps they will be able to adjust accordingly and find a better solution.