By Robert Higgs and Charlotte Twight
During the past decade the United States has repeatedly waged war, not with guns, missiles, and bombs, but with economic sanctions restricting the international transactions and travel of Americans.
Economic warfare—prohibitions of travel and commercial and financial dealings imposed selectively in order to alter the behavior of other governments—has been waged at one time or another since 1979 against Iran, Libya, Nicaragua, South Africa, and Syria as well as various communist countries.
Sanctions usually fail to attain their ostensible objective: they do not alter the conduct of other governments. But they do have significant domestic consequences. Americans suffer economic losses, both short-term and long-term. In effect, sanctions impose the costs of U.S. foreign policy on Americans interested in certain international commercial and financial deals or travel to certain countries.
Sanctions imposed after the Iranians took American hostages in Tehran in 1979 illustrate the erratic and arbitrary character of this instrument of foreign policy. President Carter first blocked all Iranian property in the United States and forbade most commercial and financial dealings with Iran. Then, as part of the deal to gain freedom for the hostages, Carter rescinded the sanctions, nullified attachments of Iranian property issued by federal courts, and suspended the legal claims of Americans against Iran. An Iran-United States Claims Tribunal was established in the Netherlands, and Americans were forbidden to press their claims in U.S. courts.
This extraordinary setting-aside of the judicial system by the president was challenged in an important 1981 Supreme Court case, Dames & Moore V. Regan. The Court’s decision gave broad scope to the president’s powers under the International Emergency Economic Powers Act, sustaining his nullification of courts’ attachments of Iranian property. Moreover, the Court held that, even without explicit statutory authority, the president has constitutional power to suspend American claims in federal courts because of “a history of congressional acquiescence” in similar instances. Whatever Executive action Congress has never overtly disapproved, it has implicitly approved—a doctrine that would have astonished the Founding Fathers.
In making regulations to implement sanctions, the bureaucrats of the Treasury’s Office of Foreign Assets Control (OFAC) have extraordinary discretion—the power to act arbitrarily and capriciously. Licenses may be denied, granted, or revoked at will. OFAC is not bound by the Administrative Procedure Act with regard to notice of proposed rule making, opportunity for public participation, or delay in effective date. OFAC officials may, and sometimes do, abruptly alter the rules solely at their pleasure. They often create loopholes for privileged parties, such as wholly-owned foreign subsidiaries of American oil companies that continue business as usual with Libya, notwithstanding the president’s order that Americans cease operations in that country. Administrative officials may, as in the Iranian case, set aside the protections normally afforded private property rights by the U.S. judicial system.
Economic warfare rarely promotes the national interest effectively. Rather, it is a costly form of political theater. Only governmental officials, especially the president, normally benefit from it; and even that benefit is fleeting.
A president wages economic warfare because it enhances his popularity, if only momentarily. It diverts attention from intractable domestic problems and creates an image that he is strong, that he is “doing something” to defend or promote American interests beyond our borders.
The image has little substance. The governments of Iran, Libya, Nicaragua, South Africa, and Syria have not been visibly moved by U.S. sanctions against them. But American citizens have been hurt. Although some firms have found ways to circumvent the sanctions, important business has been lost—computer sales to South Africa, aircraft sales to Syria, all exports to Nicaragua. American reputations for reliable service have suffered in the world market, where alternative foreign suppliers are usually happy to take on the business denied Americans by their own government.
More importantly, economic warfare has shifted rights from private hands into the hands of governmental officials who are free to exercise their newly acquired powers with virtually unchecked discretion. Nothing of genuine public importance has been gained; bad political and legal precedents have become established; a little more liberty has been lost. As Ludwig von Mises pointed out in The Free and Prosperous Commonwealth: “Nationalist policies, which always begin by aiming at the ruination of one’s neighbor, must, in the final analysis, lead to the ruination of all.”