The Western sanctions that were supposed to weaken Russia’s military resources have had an unexpected effect: the birth of a “parallel” global economy, with China at the centre, and the growing integration of other pariah states under sanctions, in addition to Russia also Iran, Venezuela, North Korea. Plus more. It is the inevitable paradox of a sanctions system boycotted by China. The People’s Republic being the second economy on the planet, the first ever in terms of manufacturing capacity, and a dominant power in many sectors (from rare minerals to electric cars), Beijing has become the world center of what the Wall Street Journal defines the Axis of Evasion or a new “shadow-economy”. With the result of greatly weakening the impact of the sanctions on Putin.
The “sanctions theorem” has always been quite fragile, we know this. I have written in the past a history of this instrument, from antiquity (for example the embargo used by both sides in Napoleonic wars) until the punishment that the League of Nations inflicted on Mussolini’s Italy after the imperialist aggression against Ethiopia. As I mentioned, to summarize the impact of the “unfair sanctions”: my grandmother was forced to convert from coffee to chicory, but Mussolini’s foreign policy did not change. More recently, decades of sanctions have not budged either Fidel Castro’s Cubanor the Iran of the ayatollahs, nor the North Korea of the Kim dynasty.
Imagine if they could tame Putin, whose economy, although small and backward, is still superior to that of Iran or North Korea. Furthermore, Russia has a lot to sell (gas, oil, grain) so that even countries that are friends and quasi-allies of America, such as India, they do not participate in our sanctions at all because they prefer to take advantage of Moscow’s contractual weakness to obtain supplies at discounted prices. Finally, this lesson emerges from past history: even if sanctions impoverish a country, it is not certain that the population’s discontent with the deprivations suffered will lead to the overthrow of the regime authoritarian. To overthrow a despot and replace him requires an alternative, some form of structured opposition. Precisely the one that does not exist neither in Moscow nor in Tehran nor in Pyongyang.
Yet sanctions have always had an enormous fascination for us in the West. The main reason is that they give us a fantastic illusion: that of being able to win wars without fighting them. By leveraging only our economic strength, our access to our markets, we hope to bring despots and their criminal regimes to their knees. In doing so we practice a form of unconscious Marxism, we think that the economy is everything, that money commands everything.
Instead in history there are forces even more powerful than economic interest: among these ideologies, such as nationalism or religion. So much so, we continue to insist on sanctions hoping that they will be a cure-all, and in doing so we ignore all the lessons of history. This is not to say that sanctions are wrong. I believe they are morally and politically right, that they send a signal. But to think that they win wars means ignoring a massive historical case study that demonstrates the opposite.
To the general Western naivety on this issue, Americans add an almost religious faith in the omnipotence of the dollar. It’s true, the dollar remains the only truly universal currency. Despite the proclamations of those who would like to oust him from his throne, it is unlikely that he will lose his centrality in the short or medium term. Consequently, when America isolates a nation from the dollar circuit, the harm to those sanctioned is real. Many transactions must pass through that circuit. However, this does not mean that it is completely impossible to circumvent the dollar as a means of payment or as a store of value. Relying on other currencies or means of payment – such as the Chinese renminbi, or gold, or cryptocurrencies – involves additional costs and risks much higher. There are substantial disadvantages to not being able to use dollars, but it’s not impossible.
In addition to all the reasons why sanctions have never been the very powerful tool we would have liked, in the case of the war in Ukraine there is also an important factor: it is China’s decision to get in the way. Even if Xi Jinping has never said it explicitly, his support for Putin’s military aggression is decisive. For the size of China’s economy, its failure to participate in our sanctions system has an enormous impact.
Xi Jinping must be cautious. Given that China has many more economic relations with the West (trade plus investments) than it has with Russia, companies and banks in the People’s Republic must be careful not to incur so-called “secondary” sanctions themselves. This is the name of those that affect not the sanctioned person, but those who violate the rules and trade with him.
So far Xi Jinping has won this bet. And because many Chinese companies have been able to use a thousand tricks to appear respectful of the sanctions: for example by selling to Moscow “dual” technologies that can have civilian use, even if we know very well that they end up killing Ukrainians (for example drones, or semiconductors that are incorporated into Russian bombs or fighter-bombers or tanks). If America and Europe have so far supplied Ukraine with weapons with “use restrictions”, China is careful not to impose those kinds of limitations on the technologies it sells to Russia.
The other reason why Xi Jinping blew it is that Joe Biden didn’t want to exercise full control and pressure. The People’s Republic continues to be an excessively important supplier of many goods that America buys. Going to a showdown with Beijing, punctiliously contesting everything it does to help Putin, would raise US-China bilateral tension to a level that is not considered desirable in Washington.
All this leads to the current state of the world, described in the Wall Street Journal investigation into the parallel globalization of our enemies, namely the Axis of Evasion. “The bloc of sanctioned nations – we read in the investigation of the economic newspaper – collectively it has achieved an economy of scale that protects itself against Washington’s financial warfare, and can trade in everything from drones to missiles, gold to oil.” Dana Stroul, an expert who worked at the Defense Department and is now an analyst at the Washington Institute for Near East Policy, said China is acting as “a strategic competitor determined to reorganize the global order, and capable of doing so”. High acrobatics, the Chinese one. On the one hand, it is configuring the Axis of Evasion as a laboratory for the global order to come, with Beijing at its center. Immediately profits from enormous benefits: like India, China also gets Russian gas and oil sold at formidable discounts compared to market prices. Since China, despite its green transition, continues to be the world’s largest consumer of fossil energy, the gain for its balance of payments and the competitiveness of its companies is considerable. On the other hand, however, its relations with the West are so intense and profitable that China must keep its feet “in two worlds” simultaneously. So far the exercise is succeeding, in the best tradition of Chinese acrobats, an art that has its roots in a very ancient past. China is not the only one to gain. Iran has found an outlet for its drone manufacturing, which it sells to Putin’s army for its attacks on Ukraine. Ditto North Korea, which has become an arms-exporting mini-power: with the proceeds Kim can continue to finance his nuclear weapons plan.
By relying too much on sanctions so as not to have to rely more on weapons, the West has given China the opportunity to extract “the best of both worlds”. By avoiding exercising rigorous and stringent oversight of Chinese behavior, the Biden Administration itself has ensured that the Axis of Evasion can thrive.
However, something is wearing out, as demonstrated by the new wave of US protectionism, which the European Union is preparing to imitate in some sectors.
