US-EU sanctions divergence would spell trouble for multinational companies
As the policies of the new US administration sow turmoil across markets, early signs suggest that the tools of economic statecraft are not likely to get “DOGE-d” out of existence. Waves of staffing culls, budget cuts, and even real estate sales are forcing reductions across the federal government. But the leadership of the key agencies that administer economic statecraft are reinforcing their intent to strengthen and expand the work of economic statecraft. In addition to tariffs, the United States continues to flex its geoeconomic muscles by using export controls and associated licensing requirements, revamping inbound and outbound investment screening policies, and issuing a steady stream of sanctions targeting priorities like Iran’s weapons and oil networks, as well as transnational crime along the US southern border.
At the same time, threatening allied countries and fellow NATO members with tariffs or invasion upends any potential cooperative economic statecraft with these same states. It may seem like business as usual in certain corridors of the executive branch. The reality is that trade tensions and geopolitical shake-ups rattling traditional US alliances are weakening these tools and exacerbating business uncertainty at a time when the global economy may be least able to afford it.
As a force multiplier, partnerships are key to effective economic statecraft. To paraphrase Daleep Singh, former US deputy national security advisor for international economics, the force of economic statecraft is directly related to the size of the coalition implementing and enforcing the authorities. Multilateral sanctions and cooperative targeting amongst allies have been key pillars of US sanctions policy to date. They reinforce legitimacy by demonstrating agreement across governments and enable safe and legitimate markets to take shape, compounding confidence in the global flow of goods and services. Yet the actions of the current US administration—in many ways picking up where it left off—are straining US relations with stalwart friends like Canada and the European Union (EU). Ursula von der Leyen, the president of the European Commission, went so far as to say that “the West as we knew it no longer exists.”
The fracturing of traditional alliances carries significant consequences for companies facing multijurisdictional compliance obligations, meaning an already complex situation will become more chaotic. The United States used to expend significant diplomatic effort to convince its allies to harmonize sanctions and trade controls. This level of cooperation can no longer be taken for granted and may lead to more significant divergence, particularly regarding Russia. The Kremlin has already requested various forms of sanctions relief in exchange for a ceasefire in Ukraine. The United States has also quietly delisted some high-profile targets like Karina Rotenberg and Antal Rogan, with the secretary of state going so far as to publicize that Rogan’s “continued designation was inconsistent with US foreign policy interests.” Companies are taking notice, too. Raiffeisen Bank International, after years of concerns over its business in Russia, is reportedly slowing its efforts to exit Russia with the notion that “rapprochement between Washington and Moscow” may be in sight.
This complexity was foreshadowed in the wake of Russia’s February 2022 reinvasion of Ukraine and the 2018 US “maximum pressure” sanctions campaign against Iran. These events led to greater discord between US and allied sanctions and may contain clues for how the present situation could evolve. For example, when the first Trump administration withdrew from the Iranian nuclear deal, the EU expanded its “blocking statute.” The statute was intended to protect EU companies engaged in otherwise lawful business from the effects of extra-territorial application of US sanctions, but it ultimately produced a series of headaches and lawsuits for major multinational companies. Will the United States attempt the same, and try to shield US persons from EU and United Kingdom (UK) sanctions? Major multinational companies suddenly freed from the burdens of US sanctions may find themselves held back by EU or UK and risk drawing the ire of the US government if they err on the side of caution so as not to violate European laws.
The United States cannot expect to practice status quo ante economic statecraft while simultaneously trying to reshape the global order. US allies rightfully followed the lead of prior US administrations in establishing robust tools of economic statecraft, and these will not be “deleted” at the whims of the United States—if anything, present conditions suggest the EU may need to strengthen these tools. At the current rate, US actions are likely to produce a number of adverse consequences beyond diplomatic disunity and compliance nightmares. The United States may drive illicit finance into the US economy, for instance, if major US clearing banks are compelled to handle Russia-related transactions and the administration is already deemphasizing anti-corruption initiatives.
To be sure, US lawmakers may have leverage to prevent the Trump administration from providing wholesale sanctions relief. Some members are pushing for strong, new sanctions requirements tied to any Ukraine ceasefire deal. The negotiations between Presidents Trump and Putin and their teams are unpredictable, to say the least. However, it is becoming clear that no matter what the future holds, we may have already seen the zenith of transatlantic synchronization on sanctions and trade controls. The nadir is shaping up to be a mess.
Jesse Sucher is a nonresident senior fellow at the Atlantic Council’s Economic Statecraft Initiative.
The views and opinions expressed herein are those of the author and do not reflect or represent those of the US Government or any organization with which the author is or has been affiliated.
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Economic Statecraft Initiative
Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.
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