Trump Sanctions Iran’s Supreme Leader, but to What End?

With the flourish of his pen on Monday, President Trump imposed sweeping sanctions on Iran’s Supreme Leader, Ayatollah Ali Khamenei, as well as everyone in Khamenei’s office or appointed by him. It was a point of high drama in the escalating brinksmanship between the United States and the Islamic Republic. It was the closest that Trump has come to formally calling for a regime change. “The Supreme Leader of Iran is one who ultimately is responsible for the hostile conduct of the regime,” the President told reporters. “These measures represent a strong and proportionate response to Iran’s increasingly provocative actions.” Usually, the United States will sanction a head of state—such as Iraq’s Saddam Hussein, Libya’s Muammar Qaddafi, and Venezuela’s Nicolás Maduro—as a signal that the leader is no longer deemed legitimate. In other words, Washington believes that a leader has to go.

Trump was opaque, even puzzling, about his intentions, however. “America is a peace-loving nation,” he said. “We do not seek conflict with Iran or any other country. I look forward to the day when sanctions can be finally lifted and Iran can become a peaceful, prosperous, and productive nation. That can go very quickly; it can be tomorrow. It can also be in years from now. So, I look forward to discussing whatever I have to discuss with anybody that wants to speak. In the meantime, who knows what’s going to happen.”

The new executive order also targeted the Revolutionary Guard commanders involved in shooting down a sophisticated U.S. drone last week. The Trump Administration intends later this week to impose sanctions on the U.S.-educated Iranian Foreign Minister, Mohammad Javad Zarif, who was the chief interlocutor during the two years of negotiations that led to the Iran nuclear deal, in 2015. Zarif once quipped that he and the former Secretary of State John Kerry spent more time with each other during that period than they spent with their wives. As Iran’s top diplomat, Zarif regularly travels to New York to attend U.N. sessions. He was here in April and had been expected to return next month.

At a White House press conference, the Treasury Secretary, Steven Mnuchin, vowed that the new sanctions will “lock up literally billions of dollars more of assets.” Secretary of State Mike Pompeo, who was visiting Saudi Arabia on Monday, charged that Khamenei’s office “has enriched itself at the expense of the Iranian people. It sits atop a vast network of tyranny and corruption.” The new sanctions, Pompeo said, will deprive the Iranian leadership of the resources it uses to “spread terror and oppress the Iranian people.”

Ironically, the punitive new measure may not have major economic impact—at least not to the degree that the Administration advertised. “It’s a lot of hype, but it doesn’t mean much economically. It’s unlikely to have a damaging effect” on Iran beyond the sanctions that have already been imposed, Elizabeth Rosenberg, a former Treasury sanctions specialist who is now at the Center for a New American Security, told me. “It’s in the realm of the symbolic.” The sanctions are “a sideshow to a threat of military escalation and all-out conflict,” she said. They fuel a narrative focussed on Iran rather than the United States—and the fact that Trump blinked when he called off a retaliatory military strike last Thursday.

Former Treasury officials also claim that Trump did not need to sign a new executive order—beyond the hype and media attention it produced. The authority to sanction either entities or officials affiliated with the Iranian government has existed since 2012, when the Obama Administration issued an executive order, Kate Bauer, a former Treasury official who is now at the Washington Institute for Near East Policy, said. “It’s clear that this Administration wants to send a message,” Bauer said. “This is a response to the recent escalation and the shooting down of the drone.”

The main impact of the new sanctions may be political—diminishing rather than encouraging diplomacy or deëscalation. Pompeo said that Tehran “knows how to reach us,” if it decides to “meet our diplomacy with diplomacy.” But Tehran immediately rejected talks. At the United Nations, the Iranian Ambassador Majid Takht-Ravanchi told reporters that Tehran would not succumb to pressure. “Nobody in a clear mind can accept to have a dialogue with somebody that is threatening you with more sanctions. So, as long as this threat is there, there is no way that Iran and the U.S. can start a dialogue,” he told reporters, before a closed-door session on tensions in the energy-rich Gulf. In a tweet, Zarif said that Trump’s advisers and allies “despise diplomacy and thirst for war.” Other Iranian officials condemned the new sanctions as “economic terrorism.”

Trump’s decision, a year ago, to unilaterally reimpose other sanctions—splitting with the five major powers who also brokered the nuclear deal—has battered Iran’s economy. In April, Washington vowed to sanction five nations that remain major importers of Iranian oil if they didn’t cease all purchases; the move cut off Tehran’s main source of revenue. Iran’s oil sales today are about a sixth of what they were in 2016. Inflation has exceeded fifty per cent in some months, with the price of basic necessities skyrocketing. The I.M.F. projects a six-per-cent economic contraction for Iran in 2019. Yet the Iranian economy is still far from crippled. The Islamic Republic has not witnessed the kind of economic protests that erupted nationwide in late 2017 and early 2018, Western diplomats in Tehran have told me

Sanctioning Iran’s supreme leader and his entourage could even backfire, some experts suggest. The Trump Administration’s goal is to get Tehran to make concessions on its missile development, regional interventions, and human-rights record, as well as its nuclear program. But “these sanctions will make discussions toward a new treaty very, very difficult,” Adnan Mazarei, a former deputy director of the I.M.F.’s Middle East program who is now at the Peterson Institute for International Economics, told me. “They send a bad political signal. The recent events—especially shooting down a U.S. drone—make Iran feel more comfortable and self-confident from a domestic perspective. It could say, ‘We won the last round and maybe we can talk now.’ ” No longer, Mazarei said. Tehran has boasted that it shot down the Global Hawk drone, one of the most sophisticated surveillance aircraft in the U.S. arsenal, with a homemade rocket. On Monday, the chief of Iran’s navy, Rear Admiral Hossein Khanzadi, warned that his forces could shoot down more U.S. aircraft flying in the Gulf, “and the enemy knows it.”

Over all, sanctions are an imperfect tool, former Treasury specialists told me. They can work—but they may take years, even decades. North Korea has been sanctioned to the hilt, but Trump’s negotiations with Kim Jong Un have yet to reduce his nuclear program, which is far more sophisticated than Iran’s. Iran is still more than a year from the ability to produce a bomb, whereas Pyongyang is estimated to have between twenty and sixty bombs. Sanctions to get Rhodesia’s white minority government to the negotiating table to end the country’s civil war took almost fifteen years. Sanctions are also most effective when the world unites behind punitive economic measures, as the U.N. did in invoking sanctions on Iran four times between 2006 and 2010. Today, the deepest split in U.S. relations with its transatlantic allies is over Iran policy.

As prospects of diplomacy dimmed on Monday, Trump signaled his willingness to deploy military force. “I think a lot of restraint has been shown by us,” Trump told reporters in the Oval Office. “A lot of restraint. And that doesn’t mean we’re going to show it in the future.”

Trump and Iran May Be on a Collision Course, and It Could Get Scarier

American hard-liners have had a dangerous obsession with Iran for years, egged on by Saudi Arabia and Israel. In 2002, in the run-up to the Iraq war, Newsweek quoted a British official as saying: “Everyone wants to go to Baghdad. Real men want to go to Tehran.”

.. I’ve been to Iran, reported from Iran and been detained in Iran; I have no illusions about it. The American hard-liners are quite right that the regime is unpopular because of its corruption, incompetence and repression. But Iran also has a deep nationalist streak, and Trump already seems to be strengthening hard-liners in Tehran. In 2002, six months before the Iraq war, I reported from Baghdad that President George W. Bush and his aides were deluding themselves to think that Iraqis would welcome an invasion; Iraqis hated Saddam but hated even more the idea of Yankee imperialists attacking their nation. Iran is similar but more formidable.

Negotiations are frustrating, imperfect and uncertain, and they may seem less satisfying than dropping bombs. But America has suffered huge self-inflicted wounds because of its invasion of Iraq 16 years ago.

Haven’t we learned lessons? Maybe “real men” should forget about going to Tehran and try multilateral diplomacy.

Trump’s stunning decision to escalate trade wars with China and Mexico signals a turning point for U.S. policy

President Trump’s plan to slap new tariffs on Mexican imports, weeks after escalating his trade war with China, leaves the United States fighting a multi-front campaign that threatens more instability for manufacturers, consumers and the global economy.

The president’s bombshell announcement that he would impose 5 percent tariffs on Mexican imports, with the possibility of raising them to 25 percent if Mexico doesn’t stop migrants from crossing into the United States, left some economists fearing there were few limits to Trump’s appetite for trade conflict.

“In our view, if the U.S. is willing to impose tariff and non-tariff barriers on China and Mexico, then the bar for tariffs on other important U.S. trading partners, including Europe, may be lower than we previously thought,” Barclays economists said in a research note. “We think trade tensions could escalate further before they de-escalate,” Barclays added.

Adam Posen, president of the Peterson Institute for International Economics, called Trump’s move against Mexico a turning point for financial markets and the U.S. economy.

In global markets Friday, investors spooked by new tariff threats sought safety in German government bonds and the Euro rather than their customary dollar-denominated havens. This “seems to me an indicator that the concerns about the U.S. are rising,” Posen said.

The president’s latest move rocked business leaders who were already scrambling to reshape supply chains to avoid fallout from the U.S. confrontation with China. The added uncertainty may paralyze executives who can’t be sure their next supply chain location will be any safer than their last.

“A lot of companies feeling pressure to get out of China are looking at Mexico if they want to serve the US market, Vietnam if they’re more focused on Asia,” said William Reinsch, a former Commerce Department trade official. “Trump’s action yesterday scrambles all those plans.”

In one example of a company caught in the crossfire, GoPro of San Mateo, Calif., last month announced it would move manufacturing of some of its cameras from China to Mexico, so that it could stop paying tariffs to import them to the United States — tariffs resulting from the U.S. trade war with China. Weeks later, GoPro now faces new tariffs to import those goods from Mexico. The company declined to comment Friday.

As U.S. companies race to find new tariff-free places to manufacture, so far few have reported returning production to the United States, despite the president’s stated aim of using trade policy to help bring jobs back home. Many are still seeking alternative locations overseas, where labor is cheaper.

Trump said he would impose the new tariffs because the Mexican government wasn’t doing enough to stem the flow of migrants, many of whom travel through Mexico from Central America. Some White House officials who support Trump’s approach believe the threat of tariffs is the only way to get the attention of Mexican leaders.

The Mexican government tried to defuse the tension Friday, saying the two sides would meet in Washington on Wednesday for high-level talks.

If no solution is found, Mexico is certain to impose retaliatory tariffs on U.S. goods, with likely targets including U.S. pork, beef, wheat and dairy products, said Former Mexican diplomat Jorge Guajardo.

Some prominent Republicans, including Senate Finance Chairman Charles E. Grassley, raised concerns that the new tariffs could threaten a trade agreement the Trump administration clinched only months ago with Mexico and Canada, to replace the 1994 North American Free Trade Agreement.

Others said the about-face treatment of Mexico would damage Trump’s ability to negotiate trade deals it is pursuing with other partners, including China and Europe.

“You can’t negotiate a trade agreement with someone and then turn around and whack them,” said Douglas Holtz-Eakin, a Republican economist and former Congressional Budget Office director.

In late March, Trump threatened to shut the entire southern border to curb illegal immigration, but backed down a week later after an outcry. That has left some wondering how seriously they should take the latest tariff threat.

If Trump follows through with new tariffs on Mexico, it would hurt U.S. economic growth and increase the possibility of the Federal Reserve reversing course and cutting interest rates this year, economists said.

The drag to the US economy could be meaningful, especially if the tariffs reach 25%,” the upper limit that Trump has set, Bank of America Merrill Lynch economists wrote Friday. Even if the tariff remains at 5 percent, the effective cost could be higher because many parts cross the border several times as products are assembled, and the tariff must be paid upon each crossing into the United States.

U.S. automakers will be among the principal casualties. Last year, the United States imported roughly $350 billion in merchandise from Mexico, including about $85 billion in vehicles and parts, according to the International Trade Administration.

A full 25 percent tax “would cripple the industry and cause major uncertainty,” according to Deutsche Bank Securities.

“The auto sector – and the 10 million jobs it supports – relies upon the North American supply chain and cross border commerce to remain globally competitive,” said Dave Schwietert, interim president of the Auto Alliance, an industry group. “This is especially true with auto parts which can cross the U.S. border multiple times before final assembly.”

“Widely applied tariffs on goods from Mexico will raise the price of motor vehicle parts, cars, trucks, and commercial vehicles – and consumer goods in general — for American consumers,” the industry group said. “The potential ripple effects of the proposed Mexican tariffs on the U.S. North American and global trade efforts could be devastating.”

Consumers could pay up to $1,300 more per vehicle if the tariffs are implemented, according to Torsten Slok, chief economist for Deutsche Bank Securities.

Retailers, technology companies and textile manufacturers also will be hurt. U.S. mills now ship yarn and fabric to Mexico, where it is turned into apparel and exported back to American retailers. Last year, the U.S. textile industry exported $4.7 billion in yarn and fabrics to Mexico, its largest single market.

“Adding tariffs to Mexican apparel imports, which largely contain U.S. textile inputs, would significantly disrupt this industry and jeopardize jobs on both sides of the border,” said Kim Glas, president of the National Council of Textile Organizations.

The new dispute with Mexico came as the U.S.-China trade conflict continued to deepen.

China on Friday announced it would establish a blacklist of “unreliable” foreign companies and organizations, effectively forcing companies around the world to choose whether they would side with Beijing or Washington.

The new “unreliable entities list” would punish organizations and individuals that harm the interests of Chinese companies, Chinese state media reported, without detailing which companies will be named in the list or what the punishment will entail.

Chinese reports suggested the Commerce Ministry will target foreign companies and groups that abandoned Chinese telecom giant Huawei after the Trump administration added Huawei to a trade blacklist this month, which prohibited the sale of U.S. technology to the Chinese company.

At a time when Western corporations have cut back executive travel to China after authorities detained two Canadians on national security grounds in December, the new blacklist sent another shock wave through the business community.

“I think foreign and especially U.S. firms now have to worry that China is creating a new ‘legal pretext’ to at least impose exit bans on foreign individuals who make this new list, if not worse,” said Bill Bishop, the editor of the Sinocism newsletter, referring to the Chinese practice of not allowing designated foreigners to leave China.

Aside from the new blacklist, China in recently days also escalated threats to stop selling the U.S. so-called rare earths — 17 elements with exotic names like cerium, yttrium and lanthanum that are found in magnets, alloys and fuel cells and are used to make advanced missiles, smartphones and jet engines.

Analysts said it could take years for the United States to ramp up rare-earths production, after its domestic industry practically disappeared in the 1990s. Roughly 80 percent of U.S. imports of the material come from China, according to the United States Geological Survey.

The People’s Daily, the Communist Party’s official mouthpiece, carried a stark warning for the United States this week in an editorial about rare earths: “Don’t say we didn’t warn you.”

That commentary surprised China experts because the People’s Daily, which often signals official positions with subtly codified language, uses that phrase sparingly: It famously appeared before China launched border attacks against India in 1962 and Vietnam in 1979.

This is how easily the U.S. and Iran could blunder into war

Both countries say they don’t want it. But here’s a scenario where it happens anyway.

Having invested his credibility and political future in looking tough, Trump seemed to have no choice. A president who had promised to extricate America from endless wars in the Middle East found himself sending more than 100,000 troops back into the desert. Only this time, the United States was invading a country with

  • 80 million people (twice Iraq’s population),
  • territory 68 percent larger than Iraq and Afghanistan combined, and with
  • hundreds of thousands of the best paramilitary troops in the world.

Asked at an impromptu news conference about the deployment, Trump simply said, “I warned Iran that if they chose to fight, we would end them.” It was a war that neither Trump nor Iranian leaders wanted — and yet, at each critical moment, escalation seemed like the only way to defend vital national interests and respond to political imperatives. Circumstances had simply become too combustible. And once the fuse was lit, no one could stop the explosion.