American economic strength and dynamism allow the United States to extend its global influence through non-kinetic means, while also accruing additive benefits. The United States, despite its debt and political turmoil, remains attractive for foreign direct investment, immigration, and as a business partner. The United States has a well-earned reputation for a laissez-faire approach to private capital that has made it a global financial hub, sometimes to the chagrin of Congress as it seeks to ban some Chinese companies from listing in US markets.

In the current world order, capital moves across borders with few limitations. Steps taken to slow the flow of capital starve countries of investment and inflict costs on economic growth, employment, tourism, tech transfer, and global opportunities. The same would be true for the United States unless policymakers take economic statecraft seriously. The dollar provides America with a unique competitive advantage that the euro, yen, and yuan have yet to displace. That status is not a given though as domestic polarization (playing on fear) and financial and corporate interests (playing on greed) have the potential to erode USD status.

Policymakers are taking notice.

National Security Advisor Jake Sullivan’s April 27, 2023 speech provided a broad framework for economic statecraft as the avenue for renewal of America’s economic leadership. Unfortunately, it also led to concerns that poorly crafted or blunt-tool economic statecraft are likely to lead to bad policy, which ultimately serve to undermine the greenback and lead to further acceleration of de-dollarization. Concerns about de-dollarization in the near term are overblown, but that does not mean that those concerns shouldn’t be heeded. There are significant dollar shortages in African, South Asian, and South American emerging markets, leading them to trade in non-USD currencies.

Treasury has, at times, taken the lead, but efforts have been scattered across State, Commerce, US trade representatives, and other agencies. Congress and current and future administrations need a strategic perspective when they’re at the trade negotiating table. State is uniquely qualified for this role, but gets overshadowed by traditional conflicts unfolding in Europe, the Middle East, and Asia. Protecting the dollar should be at the center of US foreign policy since it sustains American prosperity and is a key aspect of the US-dominated rules-based order.

The risks to currency dominance are many: shifting balance of power among countries, reshaping the global economy and markets; reduced corporate, institutional, and investor demand for USD over time; heightened exchange rate volatility, especially as over sixty currencies are pegged to the USD; and rewriting the rules of the global financial system, which, under the leadership of the dollar, is guided by US values. If the USD were to lose reserve status, the United States would feel serious negative economic and political repercussions—losing capacity to borrow quickly and cheaply and damaging its ability to fund industrial policy, social welfare programs, and defense.

The US government has at its disposal an array of economic policies to incentivize or punish other countries through tariffs, sanctions, import and export controls, and investment restrictions, among other tools. The biggest threats to the dollar include sanctions and tariffs. Because of USD global dominance and US control over the Society for Worldwide Interbank Financial Telecommunications, sanctions are particularly low-hanging fruit for economic statecraft. They are an extremely important tool, particularly when used by the United States and its allies in multilateral coalitions acting together. But frequent unilateral usage of sanctions and overuse has led to more countries desiring an alternative currency, as countries become wary about being too dependent on the USD. The alliance of the aggrieved seek alternatives to sanctions including positive assistance to the injured party, as compared with reprisals against the aggressor or organizing logistical and financial aid to countries in distress.

Geoeconomic fragmentation and policy-driven reversal of global integration carry potential adverse economic ramifications that could hamper international cooperation and strain the international monetary system and financial safety nets. Unraveling trade links would most adversely impact low-income countries and less well-off consumers in advanced economies, and US sanctions and tariffs can accelerate fragmentation as countries perceive economic interdependence, particularly with the United States, a vulnerability as interdependence is weaponized.

Economic security is national security. Recent commentary on economic statecraft correctly identifies weaknesses in US national economic security priorities, lack of resources, staffing, and organizational design. Deputy National Security Adviser for International Economics, Daleep Singh, one of the primary architects of the Russian sanctions, highlights the necessity for economic statecraft to be grounded in doctrine that enhances global prosperity while safeguarding US national security. Employing economic coercion can be effective, but should be brought to the table with well-defined end goals and long-term ramifications in mind. Currently, there is no whole-of-government effort to counter Chinese and Russian de-dollarization schemes.

Janine Stouse has over twenty-five years of experience in the financial services sector and a Master’s in International Relations with a focus on National Security issues.

To read the analysis as it was published on the Foreign Policy Research Institute webpage, click here.

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Overcapacity in China’s green industries is now said by the United States and others to be a major problem in international trade. Subsidy and dumping practices are well defined in the WTO rulebook, which spells out remedies to compensate aggrieved producers. But ‘overcapacity’ has never been defined by the World Trade Organization, nor have remedial measures ever been articulated to deal with it.

In one sense, overcapacity could be said to characterise Swiss exports of financial services, French exports of champagne and US exports of civil aircraft. Yet overcapacity has become a negative buzzword solely with respect to China. An old complaint is China’s huge steel industry which accounts for about half of world production and about a quarter of world exports. More recently critics have pinned the label on China’s green industries — electric vehicles, batteries and solar panels. Chinese policies are denounced for encouraging plant investment far ahead of domestic demand, leading to exports at bargain prices and discouraging industries abroad.

The US Tariff Act of 1890 and the Antidumping Act of 1916 launched countervailing duties (CVD) and antidumping duties (ADD) — both additional import duties that aim to provide relief to affected domestic industries — on their way to becoming fixtures of world trade law.

Why do critics add overcapacity to the basket of unfair trade practices when CVD and ADD remedies are readily available, widely accepted, and could in principle address the unfair component of Chinese exports? The main reason for this is that only with careful analysis can the extent of subsidisation or dumping be determined and corresponding penalty duties be justified.

By contrast, once the ‘overcapacity’ label is invoked, no calculation is needed to justify a penalty duty. Since Chinese subsidies are often opaque, this is convenient. As US practice has shown, under Section 301 of the Trade Act of 1974, a penalty duty of any magnitude can be imposed against unfair trade practices, and the target importer has no effective recourse to the dysfunctional WTO dispute system.

US trade remedies under Section 301 were invoked long before Chinese overcapacity became an issue. Section 301 tariffs against China respond both to opaque subsidies and technology theft. Legal engineering has made current declarations of overcapacity equally immune to challenge as a finding of national security threat. The saga of penalty duties against Chinese exports of solar panels and electric vehicles illustrates the new landscape of trade remedies.

In December 2012, the US Department of Commerce (DOC) found subsidy rates for Chinese solar firms of around 15 per cent and assessed CVDs accordingly. In the same month, Commerce found dumping margins ranging between 18 and 29 per cent, depending on the Chinese solar firm, and assessed anti-dumping duties accordingly. While this combination of CVDs and ADDs curtailed solar imports from China, renewable energy demand was strong and China still remained the main supplier of solar panels. In fact, by 2023, China commanded 80 per cent of global solar capacity, and plant additions in 2024 were sufficient to satisfy all global demand through to 2032.

In June 2018, former president Donald Trump invoked Section 301 to impose 25 per cent tariffs on a large swath of Chinese exports, including solar panels. The new 25 per cent penalty tariff came on top of existing CVDs and ADDs. In May 2024, again invoking Section 301, US President Joseph Biden doubled the 25 per cent tariff on solar panels to 50 per cent. A predictable consequence of the overcapacity duties was the circumvention of Chinese solar exports through Cambodia, Malaysia, Thailand and Vietnam. US imports from those countries were in turn subject to high CVDs and ADDs.

The overcapacity charge went into overdrive for Chinese production of electric vehicles (EVs). In 2009, China surpassed the United States in auto production and became the world’s largest producer and within a few years the dominant maker of EVs. The European Union has long imposed a tariff of 10 per cent on imported cars. Nonetheless, fearing that good quality Chinese EVs would swamp the European auto market, the European Union investigated Chinese subsidies, finding a range between 17 per cent for Chinese manufacturer BYD up to 38 per cent for state-owned manufacturer SAIC. Corresponding CVDs were imposed in July 2024, on top of the standard 10 per cent tariff.

Across the Atlantic, in June 2018, US imports of Chinese autos were subject to Trump’s 25 per cent trade-war tariff. Rather than fuss with a subsidy inquiry, in May 2024 Biden deployed Section 301 to quadruple the auto tariff to 100 per cent. Biden also imposed a 25 per cent Section 301 tariff on EV battery imports, effective in August 2024. Trump immediately promised a 200 per cent tariff on EVs, whether made in China or Mexico.

If trade policy centred on consumer welfare, the United States and European Union would thank China for its inexpensive EV, battery and solar exports and their contribution to lowering carbon emissions. But trade policy has always offered a sympathetic ear to domestic firms. Not since the Great Depression of the 1930s has that sympathetic ear been more attuned than in today’s populist era.

Bringing discipline back into application of the global trade rules is an urgent but not an easy task.

Gary Clyde Hufbauer is a non-resident Senior Fellow at the Peterson Institute of International Economics. This article is part of a series from East Asia Forum (www.eastasiaforum.org) in the Crawford School of Public Policy in The Australian National University.

To read the full analysis as it was published on East Asia Forum, click here.

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After completing a voyage between Vladivostok and Kaliningrad, Ivan Fedyushin, second officer aboard a sailing vessel, reported a striking observation: the previously prevalent ice fields across the Bering Sea, Chukotka Sea, and East Siberian Sea had disappeared. This vanishing ice serves as a significant indication of a profound change in the Arctic’s accessibility for all types of vessels. The melting Arctic ice offers major powers a key benefit: greater navigational access. This expansion not only extends the available months for using Arctic maritime routes to transport resources but also boosts the potential volume of cargo transported. A study supported by the Russian Science Foundation, employing satellite data and climate models, projected that the Northern Sea Route’s transit window will expand by approximately 4 to 6.5 months by the close of the 21st century.

The Northern Sea Route (NSR), connecting the Baltic Sea to the Bering Sea through Russia’s extensive Arctic, is known for providing faster navigation during ice-free periods, drawing the interest of various global players. A trip from Dalian, China, to Rotterdam, the Netherland along the NSR takes around 33 days, as opposed to the 48 days via the Suez Canal. The potential savings, in both time and money, explains why China and other nations are closely observing the Arctic and its potential for global shipping. 

Understanding Northern Sea Route’s growing utilization means acknowledging the significant role played by Russia and China as policymakers in the region. After a Russian decree in 2015 approving the Route’s development until 2030, the Northern Sea Route saw a notable increase in the sea transport volume, rising by approximately 9 million tons between 2017 and 2018. 

China’s growing involvement in the NSR is evidenced by its 2018 Arctic White Paper and the 14th Five-Year Plan, emphasizing China’s dedication to polar region collaboration. China’s interest is branded as the “Polar Silk Road,” the component of the Belt and Road Initiative in the Arctic. It aims to establish new sea routes through the Arctic Ocean, tapping into the region’s potential for global trade connectivity and promoting Arctic exploration. Russia has welcomed this interest, with President Vladimir Putin saying in 2017 that “the Silk Road has reached the North.” Putin added that Russia would combine the Northern Sea Route with Chinese projects. In 2019, a team of Chinese researchers, from the Chinese Academy of Sciences and Fuzhou University conducted a study to understand which Russian ports had the highest potential for enabling Chinese access to the strategic Northern Sea Route.

It is therefore not surprising that this partnership would bear some fruits. From 2019 – the year after China’s Arctic White Paper was released – onward, the number of transits of the Northern Sea Route have grown, rising from 27 in 2018 to 37 in 2019, and further spiking to 62 in 2020. In a related development, the Northern Sea Route Information Office reported an eightfold surge in traffic volume over the last six years, escalating from roughly 18 million tons transported via ships in 2018 to over 30 million tons in 2021. 

NSR: The Chinese Alternative for Maritime Shipping

It is important to highlight that about 90 percent of Chinese products are transported by sea. The Chinese State Oceanic Administration, has proclaimed the 21st century as the “century of the oceans,” recognizing the importance of maritime routes on their strategy for development. China-Europe maritime trade is three times greater than air trade. In this context, the Northern Sea Route is seen as a viable alternative to some problems arising from the traditional maritime routes like the Suez Canal or the South China Sea and the Strait of Malacca.

The Chinese strategic maneuver to diversify its oil and natural gas supply routes, aiming to alleviate the strategic vulnerability famously known as the “Malacca dilemma,” led it to see the Arctic shipping potential as essential. The Malacca dilemma, a term coined by President Hu Jintao in 2003, signifies China’s vulnerability to a naval blockade due to limited alternative routes and the potential for control by external powers, particularly the United States. Overreliance on the Strait of Malacca presents a major obstacle for China’s trade networks, since the narrowness of the strait, coupled with the increasing piracy risks in the area, severely limits and endangers China’s crucial trade paths. Despite everything, China remains highly dependent on this strait, through which approximately 6.5 million barrels of oil destined for China pass each year.

However, challenges for China extend beyond just the Strait of Malacca. Both in the Suez Canal and in its own waters, China is well aware of looming issues. The Suez Canal is experiencing growing congestion year after year, and the South China Sea is becoming more appealing for pirate attacks, casting uncertainty on the stability of navigation and the import and export of goods.

China’s Role in Enhancing Arctic Connectivity and Trade

Therefore, China’s engagement in Arctic affairs is motivated by its pursuit of new energy sources and more stable and faster maritime routes to transport those resources. The collaborative initiatives between China and Russia in the Arctic have led to COSCO, a prominent Chinese shipping company, being involved in approximately 30 percent of voyages along the Northern Sea Route. In 2021, a total of 26 ship voyages to China via the Northern Sea Route were recorded, with COSCO operating 14 of them. 

In an effort to assess the impact of adopting the Northern Sea Route, COSCO sponsored a study that unveiled significant savings: 14 voyages on this route resulted in a total reduction of 220 days in transportation time, savings of 6,948 tons of fuel, and cost reductions totaling $9.36 million compared to traditional routes. The Northern Sea Route not only bypasses the obstacles of the Suez Canal but also provides a safer passage, effectively sidestepping the problems found in the South China Sea. Also, it offers China a way faster route to transport goods to and from Europe. 

The NSR is especially attractive for shipping goods between China and Russia. Annual trade between Russia and China has increased since 2012 from less than $90 billion to more than $190 billion in 2022. Much of this trade involves energy supplies from Russia to China. In October 2023, the number of oil shipments to China along the Russian coast showed a 23 percent increase compared to the previous year, reaching 400,000 barrels per day this year. According to the Federal Customs Service, while only one dry bulk carrier, carrying a 35,000-ton cargo of coking coal, departed from Sabetta at the close of 2022, three ships loaded with a total of 117,000 tonnes of this commodity were cleared this October. 

Efforts to further develop the NSR are underway. China Communications Construction and China Railway Construction have been discussing the extraction of raw materials in Russia’s Komi Republic, including the potential construction of a new railroad and a deep-water port for loading ships for transportation along the Northern Sea Route. 

China and other partners also aim to construct a fiber optic cable spanning approximately “10,500 kilometers along the Arctic Circle.” This project would not only improve connectivity but also boost navigation safety in the region by increasing data transmission. Huawei is helping build part of the infrastructure to make communication faster and more efficient between ships, and between ships and the coast.

In October 2023, at the third Belt and Road Forum in Beijing, Putin invited other countries to contribute to  the development of the Northern Sea Route, and the development of deep-sea terminals on the eastern section of the Northern Sea Route. But what was most remarkable about Putin’s speech was his belief that “starting next year navigation for ice class cargo ships throughout the Northern sea route will become year-round.” If true, this would increase China’s interest in this maritime route, likely resulting in even more aid to the construction of high-class or nuclear icebreakers in order to reach this goal. 

The Northern Sea Route, due to climate change and icebreakers, is becoming more and more attractive, increasing its importance on a global scale. The role of China in the development of the NSR is connected to its ambitions of diversifying maritime shipping routes, its need for new energy resources (while competing with the West), and the quest for faster and safer navigation.

Tiago Tecelão Martins holds a bachelor’s degree in Sociology and a master’s degree in International Studies, both from ISCTE–Instituto Universitário de Lisboa. He researches evolving power dynamics between major players like China and the United States, with a particular emphasis on the Arctic.

To read the full article, click here.

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