America Needs a Corporate Foreign Policy

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By PARAG KHANNA 

Former Exxon CEO Rex Tillerson is an unorthodox choice for secretary of state, but as his Senate confirmation hearing revealed, he is a pragmatist about engaging with the world as it is, rather than waiting for it to magically evolve into what grandstanding idealists from either the left or the right want it to be. Now that he is confirmed, he has an opportunity to re-anchor America into a stable world role after nearly two decades of foreign policy flailing. Already Tillerson has the backing of Henry Kissinger, who has also been informally counseling Trump. As Tillerson gets underway, can he shape Trump’s global strategy the way Kissinger did Richard Nixon’s?

Make no mistake: American foreign policy has indeed failed. It failed to prevent the rise of a peer competitor such as China, failed to entrench democracy in Arab and Latin American transition societies, and failed to integrate regional powers such as Russia and Iran into a liberal order. Barack Obama came into office seeking to change course from George W. Bush, but reluctantly remained a wartime president. Now it is Trump who pledges to break from nearly two decades of foreign policy failures, including the mishandling of Russia since the expansion of NATO in 1999 and the mismanagement of global trade since China’s entry into the WTO in 2001. Trump has professed admiration for Nixon and George H.W. Bush, two conservative but constructive realists who capitalized on fateful opportunities to engineer strategic shifts. As he enters the White House, there is no shortage of chances for him to follow in their footsteps.

There has been a widespread criticism of Tillerson’s oil industry background, a reflex that reveals an increasingly common historical illiteracy. In fact, modern American diplomacy has its roots in commercial expansion worldwide just over a century ago. By the late 19th century, Standard Oil of New Jersey already dominated the oil refinery markets of Latin America and Asia and had 60,000 employees. Meanwhile, the State Department had a grand total of 1,000 employees, mostly in Washington. Standard Oil and its successors (including Exxon) were thus strong supporters of an enhanced American presence abroad, which in any case became essential after World War I. Until that time, however, America’s oil companies were more influential than its diplomats. Indeed, as American businesses expanded worldwide, the Foreign Service itself was only created in 1925.

A century later, and with every passing year since the end of the Cold War, America’s global companies across energy, finance, technology, entertainment, retail, professional services and other sectors are once again a far greater factor in the lives of billions of people than any policy framed in the State Department. They have a legitimate interest in engaging, making deals and shaping relations with countries around the world. They are not an accoutrement or nuisance to American diplomacy. Properly understood, they are the better part of what American diplomacy is. A quarter of all the world’s foreign investment originates in America, Google dominates global web searches, Coke is the world’s most popular soft drink and the U.S. is the top trading partner for more than 50 countries. The State Department didn’t create this reality; American capitalism, innovation and globalization did.

The same is true between most other countries. Corporate diplomacy—airline connections, telecoms tie-ups, oil an gas deals and consumer goods sales—drives how relations among billions of people are structured. Governments and companies look nearby and abroad acquire supplies and meet demand. They think in terms of pragmatic complementarity, not moralizing conditionality. For most countries most of the time, economic diplomacy is diplomacy. But for the United States, public-private relations are often hostile rather than collaborative. Tillerson, one hopes, will give greater coherence to America’s corporate diplomacy the way China, India, Germany, Brazil and other countries do with their trade promotion delegations and export credit agencies, something America has flip-flopped on in recent years with the fight over the fate of the Ex-Im Bank.

Unlike America’s wayward political leadership, Exxon, Boeing, Coca-Cola, Google and other U.S.-based companies have real grand strategies, a decades-long vision for their global expansion backed by serious investments, alliances and negotiations with foreign corporate and government partners. They appeal to the logic of supply and demand rather than holding regimes and their citizens as synonymous. This not only explains the transcendent popularity of Coca-Cola and Google, but also how American university campuses have quietly sprouted and expanded in the Arab world since 9/11 despite America’s waning popularity.

Broadly speaking, most of the private sector—not just Exxon—shares the “industry” view that engagement is better than non-engagement, and they know better than members of Congress that sanctions don’t really work other than to punish people and open the door for their competitors from Europe and Asia to gain market share in countries such as Russia and Iran. Seen in this way, Tillerson’s unwillingness to bash Russia during his hearing for the pleasure of senators and the domestic media is an asset, not a liability. He’s already thinking the way a diplomat, rather than a politician, should.

Under the radar, American diplomacy has in fact been shifting clearly in this direction. In recent years, embassies around the world have been tasked with better assessing and promoting the role of American business abroad, setting up investment tours and showcasing how U.S. companies bring local benefits. Under Tillerson, diplomacy could further accelerate in the direction of such constructive public-private collaborations to enhance America’s influence.

Even without a former oil company executive heading the State Department, energy diplomacy would undoubtedly play a crucial role in the Trump administration. With the U.S. now the world’s largest oil and gas producer, today the North American continent has effectively achieved Nixon’s oil shock-era dream of energy independence. But as Tillerson rightly pointed out in a 2012 speech to the Council on Foreign Relations, it is “the global free market for energy [that] provides the most effective means of achieving U.S. energy security by promoting resource development, enabling diversification, multiplying our supply channels, encouraging efficiency, and spurring innovation.” Boosting direct oil exports to China (which began in 2016), the gradual rehabilitation of Iran’s energy sector through primarily European investment (led by Shell), expanding sustainable oil and gas production from the Arctic to Latin America and Africa, and modernizing particularly gas distribution infrastructure in the U.S. and many emerging markets could collectively ensure long-term global energy security for the world and a definitive end to the notion of “resource wars.” Forget Trump’s crude notion of taking Iraq’s oil; Tillerson is smart enough to know that real success would be securing it for everybody’s use.

Then there’s Russia. As one of the world’s largest oil and gas producers, Russia plays a crucial role in this global shift towards distributed energy abundance. Under Tillerson, Exxon made big bets on Russian gas on the far east island of Sakhalin and with state-owned Rosneft in the Arctic—but so too have countries from Norway to Japan. Indeed, it is precisely because major economic powers such as Germany and China have circumvented sanctions and maintained a variety of trade and investment ties that the sanctions regime on Russia has been panned by Trump and Tillerson as useless. Sanctions and low oil prices together hurt the Russian economy, but they didn’t isolate it.

In a world of multi-alignment, every country has a lifeline. The Western sanctions imposed on Russia in 2014 simply forced it into a disadvantageous, hostage-like contract for long-term gas sales to China. By judging Tillerson or anyone’s degree of morality by the extent to which they believe in the catch-all notion of sanctions, senators have been acting like the drunk man looking for his keys only under the lamp post, ignoring the enormous range of transactions carrying on in the shadows.

Tillerson already knows something that amateur armchair strategists on the East Coast don’t like to hear: The U.S. needs a real action plan for a world where coercive economic measures such as sanctions are of diminishing utility. The gradual de-Americanization of the global financial infrastructure in favor of bilateral and regional arrangements means the U.S. needs new sources of leverage over rogue regimes. Greater connectivity can provide this: Sanctions can still impose pain on countries—unfortunately, more on people than their governments—but their ability to change actual policy is dubious. Congress, the Treasury and State Department should cooperate on squeezing oligarchs’ shell companies and offshore accounts, but as with many other emerging markets, long-term leverage to force reforms comes from more investments and joint ventures (perhaps registered in more transparent jurisdictions to diminish corruption) that shape the country’s corporate governance and help diversify the economy. Countries that are less connected are more belligerent because they have less stake in the international system. Either the West can connect more to Russia to shape it, or the East will.

For nearly a decade, China has been heavily investing in Russia’s infrastructure, energy and agricultural sectors, forming a strategic partnership aimed at tilting Russia to the East in light of its alienation from the West. Sino-Russian bilateral trade tops $80 billion per year. Indeed, when Obama announced his “pivot to Asia” policy, Russians reminded that they had already pivoted to Asia. And yet Russia still viscerally fears China’s rise as it did during the Cold War, when they were seemingly bound together in a fraternal communist alliance.

Recall that in the spring of 1969, when border clashes suddenly erupted between Soviet and Chinese forces on the Amur River and in the border region of Kyrgyzstan, Soviet Premier Leonid Brezhnev himself appealed to the International Conference of Communist Parties for a “system of collective security in Asia,” ostensibly to inhibit China’s dominance in the region. Containing China is a Soviet idea, not an American one. Back then, of course, the Soviets were America’s principal rival, thus Nixon and Kissinger famously exploited Sino-Soviet tensions to pull China out of its self-imposed isolation and create a new triangular geometry with the communist world.

Today, however, the roles are very much reversed. China is the world’s largest trading power and leading infrastructure provider across developing countries. Russia, meanwhile, provides evidence of how the less connected a state is, the less incentive it has to play by the rules of the international system. Russia only joined the WTO in 2012, but between sanctions, falling oil prices and corruption, Russians have yet to feel the large scale benefits of the global integration that nominally began a quarter century ago with the Soviet collapse. The country’s human development index ranking has barely budged from 50th place.

There is still much unsettled business from the Soviet era. Border adjustments such as Crimea are part of the continuous remapping of the post-Soviet space, with some areas such as the Baltics being absorbed by the West as EU and NATO members, and others, such as Ukraine, Georgia or Moldova still caught in limbo. Given these far deeper origins of Russia’s seizure of Crimea, Tillerson’s take was adequately firm: “You took Crimea, but this stops right here.” But idealists in Washington aren’t satisfied until Putin, Assad and the Iranian government are all declared “war criminals,” hardly the basis on which to change relations with leaders who will long outlast you.

Trump doesn’t speak the language of diplomacy, but he is right about one big thing: The overwhelming strategic priority for the United States is to prevent a strong anti-Western coalition from forming under Chinese leadership, and Russia can become an important player in that effort. Russia remains structurally weak. Its supposed return to the global stage is little more than shrewd opportunism, with tactical moves exploiting Western lapses or errors in Ukraine or Syria. But nothing Russia does today makes it a pillar of the future balance of power. Rather, its strategic relevance lies in which direction it leans between West and East.

Faced with this choice, the West should not be isolating Russia but buying it. Trade alone does not transform societies, especially rentier economies dependent on a single export. Rather, greater foreign investment builds more durable bonds that change geopolitical calculations. Especially given its oil and gas dependence, modernizing and upgrading Russia’s energy sector will boost global supply and keep prices low, together maintaining long-term pressure on Russia to restructure and diversify its economy. This should pave the way for far greater Western influence rather than the present hostility.

Trump thinks in terms of deals. But to really change Russia and other recalcitrant states, the West needs to put its money where its mouth is, and think really big. Nixon’s interior secretary, Walter Hickel, once championed the idea of constructing a 68-mile tunnel connecting Alaska to Russia’s Far East across the Bering Strait. The fact that Chinese engineers recently proposed a high-speed railway through Siberia along this same route—as if Russia is merely China’s hinterland—is what continues to unnerve Moscow.

Russia’s weariness of becoming over-reliant on Chinese investment has prompted Moscow to turn closer to Japan, with whom Trump appears to have a strong relationship. Putin has held nearly 20 meetings with Japan’s Shinzo Abe, both to reach an agreement over joint development of the Kurile Islands and to lure more Japanese investment into Russia’s neglected sectors. It is a reminder that the West can only positively influence Russia if it is more connected to it.

A similar logic applies to China. Although Tillerson will have little influence over trade and climate policy—both areas where he is on record as being far more pragmatic than Trump—he could be an advocate for America’s business interests with respect to China in ways that could moderate Trump’s campaign positions. Not only did Tillerson support the Trans-Pacific Partnership (TPP) as a means of getting Asian governments to curb their support for state-owned enterprises, but he is of course also keenly aware of America’s rising energy exports to China. While some adjustments on trade policy may be necessary to counter unfair practices, American companies still depend on exports to China for their immediate and long-term growth. Rather than risk reciprocal and escalating tariffs, the smarter strategy would be to use the growing presence of Chinese multinationals around the world as a lever on the Chinese government. If Western governments coordinate to more actively scrutinize Chinese market access and investments abroad, then China’s own corporate giants, such as Alibaba, will pressure Beijing to allow a more level playing field. This is the kind of deal-based engagement that is more likely to constructively shape China than sparking a trade war.

To take a related example, former CIA director James Woolsey, who until recently advised Trump on national security matters, has advocated that the U.S. join the Chinese-led Asian Infrastructure Investment Bank (AIIB), which Obama strongly opposed. There is no way the U.S. can deter China’s promises of trillions of dollars of development projects for its poor, landlocked neighbors in the coming decade and beyond—especially since our European allies have wholeheartedly joined the AIIB already. Instead, the U.S. will have to work with China and other donors, as well as host countries such as Afghanistan and Uzbekistan, to influence how these investments shape governance and economies from the ground up.

Tillerson also has the opportunity to find a new equilibrium in the Middle East. The U.S. was caught off guard by the strength of the Iraqi insurgency, the Arab Spring revolts and the rise of ISIS. But further bombing ISIS into submission is not a substitute for encouraging a regional security architecture in which the legitimate interests of Iran and Saudi Arabia are recognized. The Reagan administration viewed the two theocratic states as the “twin pillars” of regional stability—a policy that gave way to “dual containment” during the Clinton administration. Under Bush and Obama, U.S. policies inflamed sectarian tensions in the region. While Trump has made clear his suspicions both of Saudi Arabia’s free-riding and Iran’s nuclear ambitions, it would once again be wise to nudge the flammable Sunni-Shia, Saudi-Iranian rivalry in the direction of an updated “twin pillars” strategy. Saudi Arabia is likely to have to shoulder a greater share of the burden for Gulf defense, but this should foster greater collaboration with its big-spending GCC neighbors Qatar and the UAE. Should the Sunnis better punch their weight in Syria and Iraq, they could eventually oust Assad in Syria while shoring up Iraqi nationalism, assuaging concerns about Iranian regional designs. This would also better prepare Sunnis for Iran’s inevitable opening. Consistent with Trump’s mantra of burden-sharing, in this scenario Saudi and Iran have to find a workable modus vivendi amid lower oil prices and ambitious economic plans that can easily be derailed by escalating conflict.

Trump has called the Iran nuclear agreement “disastrous” and pledged to get tougher on Iran. But a leader who actually wants to change the status quo shouldn’t double down on failing strategies. From his experience in the energy sector, Tillerson knows that Exxon’s European rivals already have first-mover advantage in Iran, and that their big investment plans for the country will be hard for Trump to roll back. While at Exxon, he expressed interest in Iran’s market, noting that “sometimes being first is not necessarily best,” an indication that he would likely favor maintaining the path of gradual normalization of relations. Given that all the world’s other major commercial powers are ramping up trade and investment ties with Iran, it makes far more sense to engage the country’s sophisticated business elites in new opportunities that shape their preferences in favor of restraining their regime’s international behavior. If Trump can talk to North Korea, as he has vaguely intimated he might do, then he can also take Iranian relations to the next level and recognize how helpful Iran can be (as it was in the aftermath of the invasion of Afghanistan in 2001) in stabilizing Afghanistan and Pakistan through infrastructure projects and gas pipelines.

Trump and Tillerson might also help midwife the birth of a new Middle Eastern country whose time has come: Kurdistan. Back in 2011, Exxon’s exploration contracts signed with the Kurdish Regional Government (KRG) helped stoke its independence aspirations. Meanwhile, Israel has strongly backed Kurdistan as a stable proto-state on the other side of Arab rivals and bordering Iran. As civil wars and ISIS blur away the boundaries between Lebanon, Syria, Iraq and Jordan, Turkey too has come around to begrudgingly supporting a KRG capable of combating Sunni Arab militancy (even as it steps up its campaign against the PKK and other Kurdish militant groups operating on Turkish soil), especially since an independent Kurdistan would still depend on exporting its oil via Turkey. While this would only be one part of a new Middle Eastern cartography, it nonetheless would represent a constructive break from the ambiguity of the past two administrations.

Tillerson’s desire to chart his own course for foreign policy without biting the hand that feeds him is reminiscent of Kissinger’s views on the paranoid personality of Nixon. Clearly Trump is not Nixon and Tillerson is not Kissinger, but Kissinger himself has stated that although Trump is very much an “unknown quantity,” his presidency presents an “extraordinary opportunity.” It’s not one that should be left to chance when obvious strategic opportunities present themselves. In the final passages of White House Years, Kissinger reflects sardonically but admiringly of Nixon’s commitment to engineering the Sino-Soviet split, writing, “What extraordinary vehicles destiny selects to accomplish its design.” If over the course of Trump’s presidency he is able to apply the realism of selective engagement to America’s toughest global challenges, one might use similar words to describe him.