Four Tools of Modern Economic Statecraft

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The Impact of Modern Economic Statecraft on Cross-Border Trade and Investment: Sanctions, Export Controls, Investment Screening, and Supply Chain Rules

 ● PLI Chronicle: Insights and Perspectives for the Legal Community, March 10, 2023 ●

Anthony Rapa ●

Geopolitical risk is top of mind for companies these days, and it seems that every week brings a new proposed sanction, trade control, or investment restriction. Increasingly, companies and investors are discovering that their cross-border movement of goods, technology, and capital implicates regulatory restrictions of some kind and is subject to governmental scrutiny.

In modern parlance, such measures fall under the rubric of “economic statecraft.” The pace of change is dizzying, and the stakes are high, with each new economic statecraft tool holding the power to cut off business with targeted markets, trigger regulatory scrutiny of transactions, and impact business planning.

Economic statecraft is not new. The earliest recorded example dates back to the 5th century BC, when the Athenian Empire banned the people of Megara, a town allied with Sparta, from trading in harbors and marketplaces controlled by the empire. Another notable example is Napoleon’s Continental System, in which the French emperor sought to prohibit trade between the European continent and Great Britain. A further historical instance, with modern-day implications, is the U.S. embargo of Cuba, which dates back to the early 1960s.

While economic statecraft is not new, what is new is the power of the U.S. government and, increasingly, other governments, to respond swiftly to geopolitical events with economic countermeasures. In the modern landscape, such measures are often multilateral and reinforced through governmental bodies and market gatekeepers such as financial institutions.

Given the prevalence of economic statecraft tools and the geopolitical trends prompting their promulgation, it is important for economic operators engaged in cross-border trade and investment, and those advising them, to understand the nature and scope of the tools at governments’ disposal.

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