Economic Diplomacy

Reading: Lee, Donna and Brian Hocking (2010) ‘Economic Diplomacy’ in Robert A. Denemark (ed.) The
International Studies Encyclopedia, Vol. II, pp 1216-1227. Wiley Blackwell.
• Also known as Dollar & Commercial diplomacy

• Advocating of state business interests abroad. Also refered to as

Economic Statecraft

• Economic diplomacy is the use of money as sanctions or rewards to

achieve national interest or a foreign policy objective

• One of the carrots that’s is actually sticks

Definition

“The process through which countries tackle the outside

world, to maximize their national gain in all the fields of
activity including trade, investment and other forms of
economically beneficial exchanges, where they enjoy
comparative advantage; it has bilateral, regional and
multilateral dimensions, each of which is important”.
 Two Sides of Economic Diplomacy

1. Using economic tools to 2. Using diplomacy to achieve

achieve a foreign policy country’s economic objectives
objective

Eg: Saudi Arabia and Pakistan Eg: China and Pakistan

Objective: Military Objective: Economic
Why is It important now?
▪ Before WW2
▪ Only recognized states were diplomatic actors
▪ Today Economic Diplomacy is orchestrated by states involving several non-state actors
▪ Now, supranational organizations
▪ EU, UN, WTO, IMF…
▪ Non-government organization
▪ Amnesty international, Human Rights Watch, The Red Cross…
▪ International Business
▪ Oil (Exxon, Shell…), Financial firms (Deutsche bank, JP Morgan…), Automobile
(Toyota, Mercedes…), Technology (Apple, Samsung…)
Scope
The scope of economic diplomacy can encompass all of the main
international economic activities of a state including, but not limited to,
policy decisions designed to influence:

1. The Development (lending)

2. The Debt (aid)
3. The Trade (exports, imports, investments & free trade agreements)

Case Study: China OBOR

Economic Coercive Diplomacy

Dollar Diplomacy
" This policy has been characterized as
substituting dollars for bullets. It is one
that appeals alike to idealistic
humanitarian sentiments, to dictates of
sound policy, and strategy, and to
legitimate economic aims."
• Taft's idea to further the United State's
aims in Latin America and East Asia by
guaranteeing loans made to foreign
countries.
• Taft urges Wall Street investors to invest
money in foreign markets in order to
increase American influence abroad.
• Loans were meant to improve
infrastructure

Dollar diplomacy, known as "[a] policy aimed at furthering the interests of the United States abroad by
encouraging the investment of U.S. capital in foreign countries", was initiated by President William Taft.
GOALS

Improve financial opportunities for American businesses.

Use private capital to further U. S. interests overseas.
Therefore, the U.S. should create stability and order abroad
that would best promote America’s commercial interests.
Latin Americans tend to use the term "dollar diplomacy"
disparagingly to show their disapproval of the role that the
U.S. government and U.S. corporations have played in using
economic, diplomatic and military power to open up foreign
markets.
Dollar Diplomacy
• Goal: Prevent European powers from using the debt problems of Latin
America to justify intervening in the region.
• Assumption: Both would gain financially from U.S. trade and
investment, and Latin American countries would also become more
stable and orderly.
• Reality: Failed in Nicaragua, as loans made to help stabilize the
government were not enough. Unable to quell social unrest, the
government called on the United States, which sent in the marines to
keep the peace.
Aid Diplomacy
• Also known as the Development Diplomacy
• Pejoratively known as Debt-Trap Diplomacy
• Main Tools:
1. Institutions
➢ MNCs
➢ Lending Institutions
➢ Development Agencies
2. Investments
➢ Building Infrastructure