On Jan. 11, the Senate Foreign Relations Committee will quiz President-elect Donald Trump’s nominee for secretary of State, Rex Tillerson.
As CEO of ExxonMobil, Tillerson already knows world leaders on a first-name basis and has successfully navigated business in the world’s trouble spots. But the confirmation hearings will focus less on his distinguished credentials and more on ExxonMobil’s dealings in Russia, particularly Tillerson’s well-publicized opposition to U.S. sanctions launched in retaliation for Russia’s annexation of Crimea and meddling in eastern Ukraine.
First imposed in early 2014, and subsequently renewed and augmented by both the United States and Europe, the sanctions have neither induced Russian President Vladimir Putin to desist from Russifying the Crimean Peninsula nor withdrawing from eastern Ukraine.
Tillerson viewed those sanctions not only as a hardship for ExxonMobil (they probably cost the firm more than $1 billion), but also as costly for other American companies like Ford, John Deere, General Electric and Boeing. The pain to European firms was much greater because of Europe’s deeper financial and industrial engagement with the Russian economy. That’s the nature of economic sanctions: They hurt the sender countries as well as the target.
In effect, Tillerson was acting as a spokesman for the transatlantic business community. But if confirmed as secretary of State, Tillerson will become the spokesman for America, no longer voice of the business community.
{mosads}How might he view a continuation of sanctions against Russia from this new and very different perch?
One way to evaluate sanctions is through the prism of punishment, akin to how society judges criminal behavior. The problem with that prism is that sanctions, even aimed at Russian oligarchs or Russian companies in Crimea, seldom inflict hardship on individuals or firms at the top of an autocratic society.
Western sanctions did indeed punish Russia via a sharp drop in foreign investment, bank loans and trade, but the pain was largely absorbed by ordinary Russians who have no influence on foreign policy.
Another way to evaluate sanctions is through the prism of rehabilitation, again with echoes of penal practice. Unfortunately, long experience with sanctions shows that trade and financial tools are not effective reform measures when directed at large autocratic nations.
This lesson applies to Putin’s Russia, especially if “reform” is interpreted to mean returning Crimea to Ukraine and withdrawing support from the separatists in eastern Ukraine.
A third way to evaluate sanctions is through the prism of deterrence, another chapter in the penal handbook. In this light, Western economic sanctions have arguably been most successful.
In 2014, after Putin’s intrusion into Crimea and eastern Ukraine, expert observers feared that Russia would occupy a much larger slice of Ukraine, and possibly move into the Baltic states and Moldova. The Minsk accords, coupled with Western threats of far more draconian sanctions and stepped-up military assistance to NATO allies, may well have stifled Russia’s imperial ambitions.
Tillerson recognized at the outset — and said so publicly — that sanctions would be ineffective as punishment and rehabilitation. Those views are perfectly consistent with a deterrence role that Secretary of State Tillerson might envisage for future sanctions.
Giving past sanctions partial credit for deterrence does not automatically mean that they should be applied at the same level going forward. The history of sanctions shows that target countries adapt over time, find ways of working around deprivation, and blame the “foreign devil” for hardships to the general population.
With these lessons in mind, and aware of sanctions fatigue in France and other European powers, Tillerson might conclude that a new approach offers better prospects for curtailing Putin’s latent expansionist tendencies.
A new approach might combine staged relaxation of existing sanctions with a strong commitment, conveyed privately to Putin, that fresh Russian imperialism will be met with draconian sanctions and substantial military assistance to Poland, the Baltic states and other NATO allies. The promise of future shock, triggered by meaningful red lines, could represent more effective diplomacy than the maintenance of shopworn sanctions now in place.
As secretary of State, Tillerson will need to puzzle out these difficult choices. Fortunately, his long experience in the top echelons of business, together with his personal knowledge of world leaders and world trouble spots, have prepared Tillerson to be an outstanding proponent of American interests.
Gary Clyde Hufbauer is the Reginald Jones Senior Fellow at the Peterson Institute for International Economics and co-author of “Economic Sanctions Reconsidered,” third edition.
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