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Backfire: How Sanctions Reshape the World Against U.S. Interests
"Sanctions are in fashion. But do they work? And what are their side effects and long-term impact? Agathe Demarais's excellent, clear-headed book has uncomfortable answers." - Daniel Franklin, The Economist
"Balanced, fast-paced, and often surprising." - Paul Hannon, The Wall Street Journal
Sanctions have become the go-to foreign policy tool for the United States. Coercive economic measures such as trade tariffs, financial penalties, and export controls affect large numbers of companies and states across the globe. Some of these penalties target nonstate actors, such as Colombian drug cartels and Islamist terror groups; others apply to entire countries, including North Korea, Iran, and Russia. U.S. policy makers see sanctions as a low-cost tactic, but in reality these measures often fail to achieve their intended goals--and their potent side effects can even harm American interests.
Backfire explores the surprising ways sanctions affect multinational companies, governments, and ultimately millions of people around the world. Drawing on interviews with experts, policy makers, and people in sanctioned countries, Agathe Demarais examines the unintended consequences of the use of sanctions as a diplomatic weapon. The proliferation of sanctions spurs efforts to evade them, as states and firms seek ways to circumvent U.S. penalties. This is only part of the story. Sanctions also reshape relations between countries, pushing governments that are at odds with the U.S. closer to each other--or, increasingly, to Russia and China.
Full of counterintuitive insights spanning a wide range of topics, from Russia's invasion of Ukraine to Iran's COVID response and China's cryptocurrency ambitions, Backfire reveals how sanctions are transforming geopolitics and the global economy--as well as diminishing U.S. influence. This insider's account is an eye-opening, accessible, and timely book that sheds light on the future of sanctions in an increasingly multipolar world.
"Balanced, fast-paced, and often surprising." - Paul Hannon, The Wall Street Journal
Sanctions have become the go-to foreign policy tool for the United States. Coercive economic measures such as trade tariffs, financial penalties, and export controls affect large numbers of companies and states across the globe. Some of these penalties target nonstate actors, such as Colombian drug cartels and Islamist terror groups; others apply to entire countries, including North Korea, Iran, and Russia. U.S. policy makers see sanctions as a low-cost tactic, but in reality these measures often fail to achieve their intended goals--and their potent side effects can even harm American interests.
Backfire explores the surprising ways sanctions affect multinational companies, governments, and ultimately millions of people around the world. Drawing on interviews with experts, policy makers, and people in sanctioned countries, Agathe Demarais examines the unintended consequences of the use of sanctions as a diplomatic weapon. The proliferation of sanctions spurs efforts to evade them, as states and firms seek ways to circumvent U.S. penalties. This is only part of the story. Sanctions also reshape relations between countries, pushing governments that are at odds with the U.S. closer to each other--or, increasingly, to Russia and China.
Full of counterintuitive insights spanning a wide range of topics, from Russia's invasion of Ukraine to Iran's COVID response and China's cryptocurrency ambitions, Backfire reveals how sanctions are transforming geopolitics and the global economy--as well as diminishing U.S. influence. This insider's account is an eye-opening, accessible, and timely book that sheds light on the future of sanctions in an increasingly multipolar world.
Hardcover
First published November 1, 2022
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October 14, 2022
The United States has worn out its most powerful nonmilitary weapon – sanctions – to the point where it is backfiring on the USA. This is the essence of a powerful new analysis from Agathe Demarais in Backfire. It means a total rebalancing of the world, as she explains with perfectly clear examples. The worst fears of American administrations are coming to fruition thanks to their own actions. They are achieving exactly what they sought to prevent, and a lot more they never even considered. This book clarifies a lot of things that didn’t seem to need much clarification. They, and it, make a big difference in how the world looks.
Sanctions are restrictions that the most powerful country in the world can impose on others to get its way. Because other nations need it more than it needs them. For the United States, the reason for sanctions always seems to be “national security”. But while most readers might think of national security as a potential attack on the country, the USA uses it as an excuse for any and all kinds of actions, based on little or even nothing. Donald Trump claimed Canada’s manufacture of American cars (by American companies) was a national security threat, for example. He suspended the Free Trade Agreement and imposed punitive tariffs on Canada. Ronald Reagan was another who saw events on the other side of the world as national security threats to the USA, and imposed sanctions on both nations and individuals.
Demarais traces the history deeply, largely because it has mostly been in this lifetime, when a lot has been written about them, they have been studied from numerous angles, and they are at least vaguely familiar to most readers. She traces them back to the more primitive embargoes, which require a lot of work to ensure they’re kept up, to the newer financial sanctions, which largely police themselves. Sanctions have become so common that Demarais says “Washington has around 70 sanctions programs (currently), targeting more than 9000 individuals, companies and economic sectors in virtually every country in the world.” Iran and Russia are the most targeted, but plenty of other countries are in the line of fire.
American sanctions do not expire and can be in place forever, like names on no-fly lists for which mere death is not sufficient reason for removal. In the sanctions world, the Office of Foreign Assets Control (OFAC) keeps on seizing assets, both physical and financial. Retrieving assets? Fougeddaboudit. It doesn’t help that fully half the government’s job openings in sanctions remain unfilled, according to Demarais. She says some sanctions simply have no one dedicated to managing them at all. This is how foreign policy is run in the USA.
But what this book is really about is that only 13% of unilateral US sanctions ever achieve their goal. Even worse, they backfire on America, its economy, and its position in the world. Demarais says 200,000 American jobs are lost annually thanks to its sanctions on others.
The rules that come with these sanctions get more complex by the day, and administering them has become a nightmare for banks and industrials alike. Every year, Demarais says, a thousand authorized regulatory bodies issue some 60,000 new sanctions rules. This works out to 240 new rules every business day. At Citigroup alone, 30,000 people work in the Compliance department, to give readers an idea of the waste involved in trying to steer clear of OFAC, the SEC and the Fed.
American sanctions are forever trapping the wrong targets. In some cases, the mere fact that say, a Russian oligarch who holds no position in government, owns a company that holds shares in another, is enough to name that last company in sanctions. Or that even the customers of that third company become subject to sanctions themselves. It’s a drive-by shooting all over the world. The result is abandonment of business at the slightest mention of sanctions. No one wants the aggravation and the legal costs. And they especially don’t want the hassle of working without access to banks. It is extraterritoriality gone wild. The USA should not be ruling over the internal affairs and policies of the business community in other countries (and European nations in particular detest it and devise workarounds). And if the US lifts the sanctions only to reimpose them a few months later (as has happened), how much does that affect the reliability of the US as a partner, even if only as a customer? The world, Demarais discovers, doesn’t need the hassle of American sanctions and is finding ways to cut America out of its business.
All this interference not only doesn’t achieve behavior change in foreign government policies (think stopping nukes in North Korea in 2003, ditching the government of Cuba in 1960, stopping nuclear research in Iran in 2015, …), but it is also causing business to shift to America-free supply chains. American companies are being left out of deals so that a sudden inexplicable new sanction doesn’t ruin the project for everyone. Sanctions are causing America’s enemies to band together to trade among themselves, and causing them do their own R&D in order not to rely on US technology, which is supposedly what the US government is desperately trying to protect.
The Russia sanctions were meant to cripple that country, but Vladimir Putin can be seen weekly shaking hands with the leaders of Myanmar, North Korea, China, Syria, Iran and many others, as new trade blocks form without the USA. Russia long ago created its own electronic payments networks, ready for the time when the Visas and Mastercards of the world would be forbidden to operate there. Stores are filled with goods despite the sanctions. Oil and gas are being delivered to new customers, and arms continue to be sold, sanctions notwithstanding.
Cuba has refused to bow and scrape before the American embargo, instituted sixty years ago. Canada long ago stepped in to replace US interests there.
Iran, justifiably furious that Donald Trump reneged on its hard-fought nuclear deal to cancel sanctions, is busy developing nukes along with new relationships among those who have no contact with the USA.
North Korea took a different path in order to keep developing its nukes. It became expert in hacking, stealing money from financial accounts, and turning off transponders so that goods could be shifted from ship to ship without global authorities knowing. The drug trade has also proved profitable. And any time a small bank gets nailed for trading with the North Koreans, they just move on to another.
America’s sudden and often not even explained sanctions go against agreements that energy projects must be co-ordinated with allies. The US is forever reneging on that commitment too, leaving allies to scramble, and then defend their businesses against the almost inevitable sanctions which can appear without warning, let alone consultation. As in every facet of global power, the biggest threat to national security in the world is the USA. Add untrustworthiness in contracts, treaties and agreements, pop-up irrational sanctions, and extraterritorial acts, and the US is ripe for being isolated from the rest of the world. Which the USA is unconsciously pushing for with unrestrained sanctions and tariffs.
In recent years, all kinds of countries from India to Iran to China to South Korea have been getting into the Space Race. It is a puzzlement. Most never seemed to care about going to the moon, until America refused to sell them computers or telecom equipment. Now they’ve developed their own. With all that new expertise, they were able to launch their own space programs, something they would never have bothered with when the US was their reliable partner. The US has gone from owning 75% of the market in 1998, to less than 50% now, Demarais says.
Everyone wants their own satellites, and thanks to restrictive policies in the USA, they developed the ability to build and launch them by themselves. China has had to develop a technology that replaces wi-fi, and is busy deploying it in dozens of countries in its Belt and Road Initiative to lock in trading partners to its technology. The US no longer leads in sectors like telecom, as Finnish, Swedish, Korean and especially Chinese firms now dominate. The Nortels, General Electrics, Westinghouses and such have all but completely disappeared, never mind dominating. For telecoms, Nokia, Samsung, and Huawei and their networks are the major sources. And ironically, the USA is totally reliant on them. Another sanctions victory for national security.
Demarais describes the Nordstream pipeline fiasco, in which America put sanctions on Russia’s largest aluminum maker, Rusal. Globalizations and total vertical integration meant that Rusal’s network was so dense, it threatened the entire supply chain in metals commodities globally, with horrific effects on American producers. The US sheepishly rescinded the sanctions before they caused massive unemployment at home. But the embarrassment ran even deeper. Trump’s Treasury Secretary Steve Mnuchin proclaimed the research into who to name in sanctions for Nordstream was “extremely thorough.” But it turned out the sanctions list was composed of the Forbes magazine list of Russian billionaires, plus the telephone directory of the Kremlin. And Congress never even bothered to specify what those sanctioned had to do to get off the list. Putin mockingly pouted that his phone was not on the list because it is unlisted. That is how much of a joke US sanctions appear to the rest of the world.
And the US continues to push for more, completely oblivious to what it is doing to itself. The current obsession is with semiconductors. The US is trying desperately to block chip design and manufacturing in China, forcing the Chinese to build their own and dominate yet another field themselves. It’s a time-tested model. Instead of co-operating with them, the US is forcing its trading partners to do it all themselves, which tends to work out very well for them. And not so well for American business.
Even the dollar is losing its position thanks to sanctions, as countries like Russia no longer stock it in their reserves as much. They have diversified to include the currencies of dependable trading partners instead, helping to make them into world-class currencies. Oil was never quoted in anything but dollars until the US set up sanctions to prevent the Nordstream pipeline from Russia directly to Germany. Suddenly, the world now unconsciously looks to the euro and the renminbi as liquid and valid alternatives to the dollar. This had been unthinkable until now.
None of this was ever intended or desired by the USA when it began its sanctions binge.
Backfire is an object-lesson in shooting yourself in the foot, repeatedly, right on the world stage. I don’t know if this is the first time anyone has done as thorough an analysis of the success of sanctions, but if not, it is high time. It puts a lot of the news in new perspective. It solves a lot of mysteries for the non-governmental reader. The best analogous story I can cite is when the FBI arrested a Chinese woman at Mar A Lago. She was carrying a suitcase full of electronic spying equipment and tools. The media all focused on her as a mystery woman, a Chinese national caught in the act. But viewers and readers were left wondering: why Mar A Lago? Well, as of August, everyone now knows Mar A Lago is actually America’s least secure depository of Top Secret government documents. The light bulb went on; that was the missing link in the Chinese spy story. Backfire gives readers that same kind of Aha! moment, again and again, connecting sanctions to news.
This book is important too, because Demarais explains everything so easily and thoroughly. No stint at the Federal Reserve required. It’s just one long and varied disaster, as the USA adds further pressure to itself to lose the crown of world leadership. It seems to be dead set and determined to fail in this new way, in addition to all the others.
David Wineberg
(Backfire, Agathe Demarais, November 2022)
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December 26, 2022
Prior to reading Backfire, I had not given much thought to use of sanctions and their unintended consequences. I found the author provided a solid footing for those outside the realm of international relations to consider this tool we hear so much about in the news.
I appreciated the clarity, depth of research as well as the multiple case studies used. The early chapters that describe the ways in which sanctions have changed over time anchored the book and I found them to be particularly insightful.
Overall, I thought that Backfire was a thoughtful, engaging, and easily accessible read. Definitely recommended!
I appreciated the clarity, depth of research as well as the multiple case studies used. The early chapters that describe the ways in which sanctions have changed over time anchored the book and I found them to be particularly insightful.
Overall, I thought that Backfire was a thoughtful, engaging, and easily accessible read. Definitely recommended!
December 24, 2022
This is very readable and highly informative. I have zero economics background but saw this on a “best of” list this month, and was intrigued. For me sanctions had been a subject that I knew no deeper than what’s described in news headlines. The power of the book is in describing the unanticipated effects of sanctions, hence the title. Both the subtleties and the complexities of the unanticipated and unwanted effects are laid out in a manner that kept me turning pages and not able to put the book down for a break. I even got up at 6 am on a frigid New York Xmas eve to finish the last two chapters. The unplanned consequences change the world, both at the superpower and nation level, and at the level of people’s jobs and lives. Thank you to the author for such a compelling read.
November 16, 2023
Since the middle of the 20th century, sanctions have been one of the main US foreign policy instruments. Agathe Demaris guide us in this book along the history of US sanctions, and how this instrument in spite of its pervasive usage has been inefficient for achieving its goal. Furthermore, usually sanctions have backfired against the interest of the private companies, and therefore the US economy.
The author starts the essay with a brief history of the inception of the instrument as a low-cost foreign policy tool to punish bad behavior, developed following the model of the embargoes imposed by the French and British Empires in the XIX century to achieve their colonialist goals. Instead of other costly instruments such as military interventions, sanctions only need to be drafted and published, although its effective enforcement may need more human resources than policymakers thought. Nevertheless, history shows that sanction rarely there achieve their goals. Sanctions demands to be effective previous requirements as a close commercial and financial relationship between US and the fined country and also some kind of incentive for this country to change its behavior, both conditions rarely goes hand in hand. Besides these requirements, the growing complexity of trade and international networks and the diminishing power of the US imply that sanctions are rarely effective without building a broad coalition of sanctioners.
Many examples appeared in the book of failing sanction schemes. From Cuba half century resistance to change its political system to Iranian maintenance of its nuclear program and Russian continuous pursue of restoring the Soviet Empire. Different kind of sanction models have been tested by the US government without success in these cases, from trade curbs to financial restrictions, sometimes not only towards the country which are considered as an enemy but also against third parties who have relationships with it, scooping not only private companies but also individuals. The last kind of sanctions, those focus on technology access are looking also ineffective with China.
Definitively, a book to be read in order to understand the geopolitical issues that is shaping the future of the world. Some quotes that I liked in this link.
The author starts the essay with a brief history of the inception of the instrument as a low-cost foreign policy tool to punish bad behavior, developed following the model of the embargoes imposed by the French and British Empires in the XIX century to achieve their colonialist goals. Instead of other costly instruments such as military interventions, sanctions only need to be drafted and published, although its effective enforcement may need more human resources than policymakers thought. Nevertheless, history shows that sanction rarely there achieve their goals. Sanctions demands to be effective previous requirements as a close commercial and financial relationship between US and the fined country and also some kind of incentive for this country to change its behavior, both conditions rarely goes hand in hand. Besides these requirements, the growing complexity of trade and international networks and the diminishing power of the US imply that sanctions are rarely effective without building a broad coalition of sanctioners.
Many examples appeared in the book of failing sanction schemes. From Cuba half century resistance to change its political system to Iranian maintenance of its nuclear program and Russian continuous pursue of restoring the Soviet Empire. Different kind of sanction models have been tested by the US government without success in these cases, from trade curbs to financial restrictions, sometimes not only towards the country which are considered as an enemy but also against third parties who have relationships with it, scooping not only private companies but also individuals. The last kind of sanctions, those focus on technology access are looking also ineffective with China.
Definitively, a book to be read in order to understand the geopolitical issues that is shaping the future of the world. Some quotes that I liked in this link.
January 7, 2023
A great book, timely, entertaining and well written. I especially liked the bits on how the US-China tech war will reshape the world in the coming decades. The book has a modern feel and is very useful to make sense of geopolitics.
July 1, 2023
The books is a great overview on the history of sanctions as a geopolitical tool. Given the scarce literature on the topic, it’s a fantastic guide into how the US came about using non-military ways to advance its geoeconomic interests. In the context of Russia’s war against Ukraine and rising tensions with China, this is a timely read!
April 12, 2024
In my energy economics era so basically the section on the pipeline was so interesting I started foaming at the mouth
August 31, 2023
thorough takedown of the utility of sanctions, by which she seems to mean mainly economic sanctions, as a tool of US foreign policy. Timely in that front page of today's paper reports that sanctions against Russia in wake of Ukraine invasion are beginning to bite harder in terms of impact on their economy.
Still, her empirical/historical look at whether USA's stated objectives have usually been met is sobering. Goes into detail on a few cases (Cuba, North Korea, Iran) and acknowledges successes. I particularly appreciated the effort, made challenging by the impossibility of doing controlled studies in this area, to sort out what factors seem to be correlated with success -- e.g., sanctions work better if executed consistently, in collaboration with allies, subject to effective surveillance, targeted to a focused/concrete goal that is realistic (decidedly not the case with hoping an autocrat will decide to give up power), with clear specifications of how the target can obtain release from the sanctions.
Not to say that we're the parent of other countries, but it did strike me that a lot of it paralleled the conditions under which a parent's effort to manipulate consequences in order to shape child behavior is effective.
One aspect I could have used more of is consideration of alternatives. In other words, if we stipulate that this tool often has unintended consequences or just doesn't work, what's the track record of other tools (war, watchful waiting........) that might be considered its alternatives? As is, it reads like an analysis showing that when the Commanders throw deep it's usually incomplete, sometimes intercepted, and leads to more sacks than touchdowns, so they should stop throwing deep so much.....without reviewing how the run game or the short passing game is working.
Still, her empirical/historical look at whether USA's stated objectives have usually been met is sobering. Goes into detail on a few cases (Cuba, North Korea, Iran) and acknowledges successes. I particularly appreciated the effort, made challenging by the impossibility of doing controlled studies in this area, to sort out what factors seem to be correlated with success -- e.g., sanctions work better if executed consistently, in collaboration with allies, subject to effective surveillance, targeted to a focused/concrete goal that is realistic (decidedly not the case with hoping an autocrat will decide to give up power), with clear specifications of how the target can obtain release from the sanctions.
Not to say that we're the parent of other countries, but it did strike me that a lot of it paralleled the conditions under which a parent's effort to manipulate consequences in order to shape child behavior is effective.
One aspect I could have used more of is consideration of alternatives. In other words, if we stipulate that this tool often has unintended consequences or just doesn't work, what's the track record of other tools (war, watchful waiting........) that might be considered its alternatives? As is, it reads like an analysis showing that when the Commanders throw deep it's usually incomplete, sometimes intercepted, and leads to more sacks than touchdowns, so they should stop throwing deep so much.....without reviewing how the run game or the short passing game is working.
May 11, 2023
Agathe Demaris, the author of "Backfire," repeatedly makes the point that sanctions by the United States against other countries have not worked. Examples abound: Cuba, Iran, Syria, North Korea, Venezuela, and on and on. Furthermore, Demarais thinks it's only a matter of time until China surpases the United States in so many ways. So negative is Demarais's assessment that she begins to lose credibility. Sanctions may not have produced the desired outcome, but the game isn't over. Furthermore, not one of the countries under sanctions by the United States doesn't wish that they weren't. And finally, if you are looking for a great elucidation of sanctions and how they work, don't' read this book. Like so many writings on this subject, the author does a poor job of explaining sanctions in detail.
May 22, 2023
The first half of the book is excellent and points out in great detail how the US is hypocritical in its use of sanctions, uses them too often and too cavalierly and generally creates a lot of havoc for very little gain.
On the other hand, this is very much written from the French perspective and she is clearly irritated that these amateurish Americans have so much power and so little (how do you say) finesse. The second half of the book trails off into factors like cryptocurrency that she sees as an imminent threat to the US dominated global financial system. However, the fatal flaws in the alternate solutions (custody and access to the global finance system for crypto or rule of law for Chinese channels) are never addressed.
In short, read until page 140 for an excellent summary of the problems with the American penchant for sanctions and then stop.
On the other hand, this is very much written from the French perspective and she is clearly irritated that these amateurish Americans have so much power and so little (how do you say) finesse. The second half of the book trails off into factors like cryptocurrency that she sees as an imminent threat to the US dominated global financial system. However, the fatal flaws in the alternate solutions (custody and access to the global finance system for crypto or rule of law for Chinese channels) are never addressed.
In short, read until page 140 for an excellent summary of the problems with the American penchant for sanctions and then stop.
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