The Art of Economic Warfare-

Fighting in the Economic Battlefield

“The future of war, is not fighting, but famine, not the slaying of men, but
the bankruptcy of nations and the break-up of the whole social
organization”.
- Ivan Bloch Russian Rail Tycoon

Today wars are fought with bonds not bombs. War in 21st century will be
fought in the field of trade, capital markets, and finance. The world has
witnessed a blurring of lines that were once seen as separate and
distinct, civilians and enemy combatants are virtually indistinguishable.
Everything that can be weaponized has been—from water pipes to the
personal computers. “National security” and “economics” are no longer
separate policy arenas, they now overlap.

The end of the last millennium saw a dramatic rise in the ratio of foreign
trade to global economic output. Between 1800 and 1913, world output
per head doubled; over the same period the volume of world trade per
capita multiplied by a factor of eleven. This rapid evolution of
globalisation and tightly integrated economies was accompanied with a
waning popularity of direct warfare. Leaders and policy makers were
forced to look for alternative ways of waging war.
The US spearheaded this effort by employing various emergency devices
to control their international economic relations- export control, the
freezing of foreign funds, blacklisting, shipping control trying keep away
from fighting in World War 2 but they
ultimately failed. As the Germans
overcame the European democracies,
one after another, and the Japanese
pushed farther down into south-
western Asia, economic warfare was
converted from a substitute for
fighting into a preparation for armed
conflict.

Instruments of Economic Warfare

Sanctions
Perhaps the most successful example
of the effectiveness of sanctions is the
US embargo on Iran to suspend
its uranium enrichment program based on Capitol Hill’s fears that Iran
would use the enriched uranium to accelerate its nuclear program.
Over the years, these sanctions have taken a serious toll on Iran's
economy and people.
The Sanctions in Iran lead to 2 years of economic contraction and caused
significant damage to their
economy. The value of the
Iranian Rial has plunged
since autumn 2011, it is
reported to have devalued
up to 80%, falling 10%
immediately after the
imposition of the oil
embargo since early
October 2012, causing
widespread panic among
the Iranian public.
International companies
have also been reluctant to
do business with Iran for
fear of losing access to larger Western markets.
On 2 April 2015, a provisional agreement was reached between both
parties which would lift most of the sanctions in exchange for limits on
Iran's nuclear programs for at least ten years.

Targeting the Engine of the Economy

Opium poppy is deeply entangled in the socio-economic fabric of
Afghanistan, and hence it influences its political arrangements and power
relations. Afghanistan is responsible for 90% of the world’s opium
production and the opium poppy economy is massive driver for the
Afghan economy. As of 2017, opium production provides about 400,000
jobs in Afghanistan, more than the Afghan National Security Forces. The
Taliban has profited massively from the opium trade through a 10
percent tax on farmers, known locally as ushr, and by providing
traffickers with protection services. Eventually it grew more
sophisticated in its role in the trade and became increasingly involved
in processing opium into heroin.
This link between opium income and Taliban resources encouraged the
United States to suppress the Afghan opium trade. Attacks by the US and
NATO forces on opium production have led to 100,000 deaths a year.
Another mainstream example is the ongoing conflicts involving oil-
producing nations which also highlights how economic warfare aids
military action. The years following the US invasion of Iraq, for instance,
saw extensive efforts to derail Iraqi oil production and sabotage its
pipelines.

Monetary Measures and Trade Wars

In principle, Monetary measures can be used both as defensive or
offensive weapons. As an offensive measure one approach is the
devaluation of one’s own currency to reduce the price of own exports. An
obvious case to consider is the brewing US-China trade war. China and
the U.S. have already been in conflict for years, with China pegging its
currency to the dollar, which gave it a trade advantage at certain periods.
This was paired along with its aggressive trade policy and subsidies for
domestic companies. This lead to a trade deficit of over $375 billion in
2017.
Another approach is to expand ones influence in the world by entering
into multiple trade deals and economic partnerships. China has had trade
meetings with Russia, Japan, South Korea, the European Union, South
American nations and numerous African nations. Trade deals will allow
China to lower the costs of its goods by reducing or maybe even
eliminating tariffs thereby protecting itself from the effects of future
trade wars and trade threats. China is also making itself more
economically competitive and integrated into trading zones around the
world.
Monetary measures can also be used effectively as a defensive strategy.
Post the tariff hike on a number of Chinese goods, buyers and sellers on
both sides of the Pacific Ocean felt the burn. Chinese companies lost
orders overnight, and U.S. firms began to scale back their orders and
manufacturing. In response the Chinese Politburo devalued the yuan. The
lower value of the yuan allowed higher levels of trade than what would
have been expected after application of Trump’s tariffs which allowed
some Chinese firms bear the brunt of the tariff hike.

Freezing foreign funds

During World War 2 the US
spearheaded the freezing of
foreign assets which began
in April 1940 when Germany
invaded Denmark and
Norway, it has now
developed into a
comprehensive system of
exchange control and an
effective engine of economic
warfare. Originally, the
dominant aim was to protect
the owners of the funds. But
eventually it was recognized
that to keep several billions of dollars out of German hands was indirectly
a way of aiding Britain.

Strategies in Economic Warfare

Coercion - After a country achieves a position of economic influence in
another, it threatens to stop making purchases, to cut off supplies, or to
refuse to pay obligations unless some concession—economic, political, or
military—is made. In many cases the victim is maneuvered into a position
in which a significant proportion of his trade is controlled by the initiator,
or the latter manages to become deeply indebted to the victim. A prime
example of this is Modern day China, One of President Xi Jinping’s
central foreign policy initiatives, the Belt and Road Initiative (BRI), is
a potentially trillion-dollar testament to Beijing’s commitment to
using loans, infrastructure projects, and other economic measures to
gain economic influence. In the past decade. China has punished
countries that undermine its territorial claims and foreign policy
goals with measures such as restricting trade, encouraging popular
boycotts, and cutting off tourism. These actions have caused
significant economic damage to U.S. partners such as Japan and
South Korea.

Persuasion- It consists of
the use of foreign
economic relations to
favour another country
and thereby win its good
will and support. The
strategy used is to give
more favourable terms of
to the intended country-
favourable trade terms and
low-interest loans. On the
basis of these economic
favours, a country may
expect, in return, reciprocal favours in the form of political support, an
alliance, or perhaps neutrality.

Historically the US has been a proponent of this strategy. Between 1934

and 1945, the United States signed 29 reciprocal trade agreements with
various Latin American countries to win their support. And in Asia, the
administration tried to use the Export-Import Bank to blunt the rise of
Japan. The US wanting to spread democracy in the east even arranged a
$25 million loan to China in 1938.

Conclusion
As we have seen, in the modern era, sovereign states and multilateral
institutions have imposed economic sanctions on dictatorial regimes or
would-be nuclear powers as an alternative to waging war .They have
conditioned offers of aid, loans, and debt relief on recipients’ willingness
to implement market and governance reforms. Economic warfare has
also played a supporting function for conventional military conflict. The
increasing complexity of our economic partnerships will soon reduce the
incentives for armed military combat. Indeed, World War III won’t be
fought with guns and atom bombs but with currency and trade
embargoes.