US sanctions approach during Trump's second term

During the 2024 election campaign, President Donald Trump suggested that he would implement a major change in the US’ policy approach away from its prior widespread use of international sanctions. Precedent from Donald Trump’s first presidency indicates his likely policy during his second term, suggesting widespread and extensive listing and delisting of sanctions in the four-year outlook. 

Trump was notably assertive in employing economic sanctions during his first term, often as the primary means of foreign policy enforcement, but was also willing to lift measures. During his first term, he set an average of three sanctions daily, with mainland China, Cuba, Iran, North Korea, Russia, Syria and Venezuela the priority targets. According to administration statements and Trump’s social media posts, at that time the administration anticipated that leverage based on the importance of the US market, and the practice of “signaling” — publicly outlining demands required for sanctions relief — would yield at least moderate progress with foreign policy goals.

Contrary to the conventional wisdom that sanctions are nearly never removed, the first Trump administration often eased sanctions. Over his period, his administration issued nearly 4,000 sanctions and lifted over 700. While delisting levels did not reach the levels associated with either the Obama or Biden administrations, Trump’s first-term delistings suggest appetite for at least limited sanctions curtailment.

Much like other US administrations since the end of the Cold War, Trump’s advisers during his first term largely dismissed concerns that economic sanctions would harm the US dollar’s preeminent role in the global economy. This outlook was based on multiple factors including having over 90% of foreign transactions US dollar-based. It was also then assessed that many regional powers would have little reason to abandon the dollar.

US dollar alternatives

The rise of economic sanctions usage and the alleged “weaponization of the dollar” have produced a trend whereby some markets have begun using other mechanisms to conduct international trade. Holdings of the US dollar as a percentage share of global official currency reserves have fallen from 73% in 2000 of the prevailing total to about 58% today. Markets like Brazil, Russia, India and mainland China, which are part of BRICS, have actively pursued building alternate financial infrastructure independent of the dollar, often seeking to increase bilateral trade using their domestic currencies.

Mainland China has sought to expand the use of the renminbi as an international medium for trade, through a mix of strategic investments, promotion of trade, and seeking to position itself at the forefront of new payment technologies. Its pilot schemes for central bank digital currency (CBDC) have many more users than existing, fully operational CBDCs, and it has sought to link its digital currency with the electronic payment systems in partner markets.

Russia is also proposing a CBDC cross-border payment platform to replace reliance on the US dollar and facilitate bilateral trade. In October 2024, a report issued by the Russian Finance Ministry and Bank of Russia called for the development of a “multicurrency” electronic payment system within BRICS to establish cross-border payment links between bloc members, while facilitating trade in their local currencies. It specified that this would increase financial autonomy from the US and sidestep “external pressures such as extraterritorial sanctions.” The report also seeks more direct connections between central banks to further assist bilateral linkages.

To prevent this potential decline of the dollar as a reserve currency, Trump has pledged to use sanctions “as little as possible” in his second term. Instead, Trump would prefer to utilize tariffs as his preferred tool of economic diplomacy. As an example, Trump recently announced that he would impose a 100% tariff on US imports from any BRICS country accused of working to undermine the US dollar’s role as the world’s international currency. Investment screening and trade restrictions — both inbound and outbound — are other mechanisms that Trump appears likely to utilize, and which would have more sector-specific impacts while having less overall effect on the global status of the dollar.

Sidestepping sanctions

Still, the ease of applying sanctions, which can be issued in as little as one day, means that their use will continue under Trump. His administration is likely initially to use short time frames for sanctions or to design sanctions measures calibrated to yield results quickly so that they can be removed rapidly. Such efforts run a risk of enjoying limited success, based on the small scope that they have had in changing the overall policy stance of sanctioned states.

In many cases, such as with Russia, backchannels have been used to sidestep sanctions through third-party states to access imports, while exports have been redirected to other markets, in the case of Russian energy with this benefiting mainland China, India and others. As a more extreme historical example, sanctions on Cuba have lasted more than half a century and not produced the democratic transition aspired.

Efforts over the last few years indicate that effective global sanctions that cause significant economic repercussions require near-full cooperation — that is, no evasion — by most, if not all, major economic actors. This has already proved very difficult to achieve, and results have been less than desired. With Trump expected to move away from multilateral coordination in multiple areas of US policy, including trade and defense as well as sanctions, the probability of sanctions success looks more limited, which would likely result in any new US sanctions having to last for a more extended period than initially planned.

With more selective use of sanctions highly likely under a second Trump administration, here is a list of markets that remain highly likely to be targeted:

• Russia: Trump has not made his intentions on Russian sanctions clear, but he has promised a quick end to the conflict in Ukraine. To that end, sanctions would likely be eased on Russian oil in exchange for ending the conflict in Ukraine, or Russian cooperation on arms control or counterterrorism efforts. If, however, Russia rejects a US-led effort to end the war, Trump advisers have suggested that the US would be prepared to impose more comprehensive sanctions against the Russian central bank or energy exports.
  
  
• Iran: The Trump administration will likely pivot back to a maximum pressure policy toward Iran, which will involve strengthening the enforcement of existing US sanctions.
  
  
• Venezuela: The appointment of Senator Marco Rubio (R-FL) as Trump’s secretary of state designate suggests that Trump is likely to expand the existing sanctions regime against the Maduro administration, including the curtailment of sanctions exemptions offered to some US hydrocarbon companies currently operating in the country. Ultimately, sanctions policy toward Venezuela will need to balance the competing goals of increased immigration, democracy promotion and foreign policy prerogatives.
  
  
• Mainland China: Trump has indicated that he will increasingly support a broad use of economic tools in lieu of sanctions to pursue his economic objectives, including the employment of higher tariffs on mainland Chinese exports to the US (building upon existing Section 301 tariffs) and the introduction of further export restrictions to delay mainland Chinese development in strategic sectors. Controls limiting mainland China’s access to emerging technology are likely to be continued and extended. Affected industries include semiconductors and chips, advanced energy technology, and technology with dual-use military purposes. 

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