The Trump administration’s financial and political interventions in Argentina have been declared a success, but the consequences of these actions are still unknown and remain quite risky. In late September, U.S. Treasury Secretary Scott Bessent announced the Treasury Department’s commitment to lend up to $20 billion to Argentina’s central bank and directly purchase Argentine pesos in an effort to stabilize Argentina’s currency markets. Word then leaked that Treasury was seeking to organize a consortium of private financial institutions to invest another $20 billion in Argentine sovereign debt—although the prospective lenders were not comfortable taking on such risks absent a guarantee from U.S. taxpayers. Bessent first justified the actions on the grounds that Argentina is a “systemically important” economy and argued that the peso was “undervalued.” Later, however, he acknowledged that the Trump administration was seeking to provide its political ally Javier Milei, and his right-wing political party, a “bridge to the election” being held on Oct. 26, in the hopes the government might pull out a victory. Shortly thereafter, Trump undermined his own economic support program by stating that the disruptions in Argentina were “not going to make a big difference for our country.” Rather than an unconditional “whatever it takes”-type commitment, the United States was signaling it would only continue supporting the peso market if Milei’s right-wing party emerged victorious. This undermined market participants’ confidence in the peso’s prospects, causing it to decline again and triggering additional purchases by the Treasury. (Treasury ultimately purchased an estimated $2 billion worth of pesos.)
The fact that Milei’s party ultimately prevailed in the elections might create the impression that this episode was a successful use of financial statecraft, meaning the U.S. government’s channeling of money and capital to influence geopolitics paid off. But looks can be deceiving. It remains unclear whether these measures will stabilize the Argentine currency for the long term, as the peso experienced a brief post-election rally but soon fell back near its pre-election levels. Milei has subsequently rejected calls to let the peso float in order to rebuild the currency’s credibility. And Argentina owes the International Monetary Fund $56 billion for loans made before the U.S. intervention. All these factors mean there are still risks that the Treasury, international financial institutions, and any private U.S. lenders enlisted in this effort could end up losing money on their investments. These actions have also implicated other domestic economic policies. For example, the financial assistance benefited Argentine beef and soy exporters who compete against the U.S. agricultural sector at a time when China in particular is looking for alternatives that are not subject to Trump’s onerous tariffs. It is dangerous to prematurely declare this episode a success. When a U.S. administration lacks a sufficient appreciation for the role finance plays in geopolitics, it risks mismanaging its responsibilities—and in the process creating economic and political instability.
The Roots and Promise of Finance as Statecraft
Today’s model of financial statecraft is an outgrowth of the United States’ so-called “Exorbitant Privilege,” the idea that the American dollar’s status as the world’s reserve currency has situated the U.S. financial system at the center of global economics and geopolitics. Since World War II, economic integration has shifted the emphasis of foreign policy away from armed conflicts between world powers and toward diplomatic negotiations and sanctions, increasing the importance of networks of private financial actors. In the globalized, financialized, and dollarized modern economy, the U.S. government has effectively turned private financial institutions into geopolitical tools of first resort for projecting its power and prerogatives while largely avoiding armed conflicts.
Modern financial statecraft operates as a public-private partnership between the government and financial institutions to use dollar-based financial channels to create leverage and dispense benefits or punishments without causing disruptions to one’s own domestic economy or politics. It employs a set of financial carrots and sticks to provide and expand access to dollar-denominated money and credit to allies and deny financial access to rivals and adversaries. The international response to Russia’s invasion of Ukraine, for example, relied on financial sanctions denying access to U.S dollar funding and transmitted through American banks with global footprints. At the same time, the Biden administration sought to leverage the World Bank and G7 partners to “de-risk” private capital investments in infrastructure, critical minerals production, and other strategic sectors and promote sustainable development principles.
This public-private partnership structure reduces a government’s direct fiscal costs by shifting some of the obligations of international development and sanctions onto private banks. It ostensibly increases economic competitiveness by providing the financial industry with a stream of profits from providing loans and other financial services with the government’s urging and assistance. If not managed properly, however, the regime of financial statecraft that we often think of as a source of competitive and geopolitical advantage for the United States could quickly become a critical vulnerability.
The Perils of Financial Statecraft
Trump’s approach of using the financial system as a tool of geopolitics without ensuring the financial system remains stable and well-regulated risks undermining U.S. power. This is because the attributes that make finance an attractive statecraft tool—including the intangibility, ubiquity, and velocity of money, financial instruments, and financial markets—can lead to financial instability that makes the financial system vulnerable to disruption. The U.S. government could then find itself in a position of having to choose between a set of bad choices: walking back its statecraft measures, providing regulatory forbearance to or bailing out the financial sector, or allowing financial crises to happen.
Financial crises and bailouts undermine the United States’ goal of preserving the stability of the global political order. Crises and bailouts undermine the public’s confidence in the financial system and the officials that govern it, creating political instability, polarization, and radicalization. Statecraft-triggered instability, in particular, may also arouse isolationist sentiments causing the United States to further pull away from the international rules-based order.
Short of a full-blown financial crisis, there are other important political-economy implications from mismanaging financial statecraft. The public-private partnership model raises concerns about the balance of power between public and private actors. Outsourcing policy through financial institutions can make them so geo-strategically important that the government risks effectively ceding control over important foreign policy—or even other public policies—to private actors with interests and incentives that can conflict with the public interest. Banks in particular enjoy a unique form of structural power due to their relationship with the government, rendering them the government’s “national champions” and its partners in foreign policy.
On the other end of the spectrum, full government control of finance raises the specter of abuse through surveillance and curtailment of civil liberties and the possibility that politically disfavored groups could be denied financial access. China offers the most salient example of surveillance risks, but the financial system has also been used to marginalize immigrant populations here in the United States. Conversely, friends, allies, and business associates of Trump may enjoy privilege and access–even when they have violated U.S. policies. Concerns about abuse could increase as the Supreme Court and Trump continue their efforts to bring previously independent agencies under more direct political control.
An Increasingly Unsettled Policy
Which brings us back to the current moment. Financial statecraft is not new, but its stakes are higher now than they have been at any point since the 2008 Global Financial Crisis. That’s because attempting to leverage the logic and dynamics of financial markets and institutions requires an understanding of the foundations that make those markets and institutions work. And yet, it is becoming increasingly clear that the U.S. government lacks sufficient appreciation for the credibility and stability required to engage in responsible financial stewardship.
In early November, for example, the Supreme Court considered whether Trump’s sweeping trade tariffs introduced on April 2, which the administration dubbed “Liberation Day,” are permitted by the International Emergency Economic Powers Act (IEEPA). This case illustrates the complexities of the administration’s “America First” economic agenda built on the “three pillars” of tariffs, dollar sanctions, and—crucially—financial deregulation. The use of the IEEPA tariffs was so sweeping that they caught market participants off guard, triggering steep declines in the stock market and caused volatility that spilled over into the broader U.S financial sector. These protectionist policies caused market participants and policymakers to question the U.S. government’s longstanding role as global provider of safe financial assets, creating instability in the market for U.S. Treasury securities. This financial tumult could have provoked self-reflection about the means and ends of the Trump administration’s statecraft policies. Instead, Bessent argued that financial deregulation was the best way to stabilize financial markets and preserve the United States’ status as a financial safe haven.
As part of its deregulatory agenda, the Trump administration is weakening Wall Street reforms at the same time that it pushes financial institutions to make risky investments in Argentina. Subordinating principles of prudent lending and investment to broader political goals has rarely turned out well. It may well achieve some geopolitical goals over the short term, but, unsurprisingly, it often leads to financial stress and bailouts.
The administration is also promoting the growth and expansion of the crypto industry—a financial project aimed at creating a private monetary system that is not subject to core statecraft controls, such as anti-money laundering and sanctions requirements, or longstanding financial regulations. The risks of lax statecraft and regulatory policies will only compound as cryptocurrencies become a larger and more interconnected part of the financial system and the U.S. government that stands behind it—especially if crypto assets such as stablecoins become significant purchasers of U.S. Treasuries, as Bessent has advocated.
The volatile combination of simultaneous efforts to expand dollarization, increase protectionism, and push deregulation suggests that the Trump administration lacks sufficient appreciation for, or really any coherent theory of, effective and sustainable financial statecraft. Couple these moves with Trump’s efforts to bring the previously independent central bank under his control and it will ultimately lead to a loss of confidence in U.S. economic power, diminishing the role of U.S. financial institutions and markets as global safe havens.
Other global actors understand these dynamics well. In response to the Liberation Day tariffs, for example, the European Commission threatened to impose restrictive measures—known fittingly as the “anti-coercion instrument”—to exclude U.S. banks from European government procurement contracts. Policymakers in other countries are already observing that increasing protectionism and fiscal dynamics may be eroding the status of the dollar as the global reserve currency and U.S. Treasuries as safe assets. And the European Central Bank has reportedly tested European banks’ reliance on dollar funding and potential funding vulnerabilities in the event they are denied access to the Federal Reserve’s dollar swap lines due to political influence from Trump.
Some of these concerns may be legitimate or they may be strategic arguments made to pressure U.S. policymakers and turn a perceived U.S. geopolitical advantage into a vulnerability. The point is that mismanaging financial statecraft can transform finance from a potential source of strength into a vulnerability.
Reforming Financial Statecraft for the Long Term
It might be tempting to view the Trump administration’s approach to financial statecraft, like many other policy areas, as an aberration. But the truth is that many administrations have lacked a comprehensive framework for administering financial statecraft. They have often failed to coordinate between its various constitutive tools and overlooked the essential connections between statecraft authorities and the role played by financial regulation. The sanctions on Russia’s financial and commodities markets, for example, caused financial stress that tested the stability of global markets that were already experiencing inflationary pressures. The siloed view of this regime obscures many of its potential risks and costs and undermines its efficacy. It’s time to reform this regime so that it can be more sustainable over the long term.
First, effective financial regulation improves the efficacy of statecraft by making the dollar based-financial system more reliable and resilient. The Trump administration justifies its financial deregulation on “international competitiveness” grounds, but it is merely thinking in narrow, private profit-driven terms. Better capitalized banks can keep lending during economic downturns, including those caused by geopolitics, which may soon be needed due to Trump’s erratic economic policies. If regulations become too weak, U.S. taxpayers could eventually be called upon to bail out overleveraged Wall Street banks and their executives and shareholders to avoid a financial crisis brought on by geopolitical risks. Integrating regulatory measures into the statecraft toolkit makes financial institutions more effective and resilient conduits, minimizes the risks that financial statecraft will produce financial instability and result in crises or bailouts, and constrains the power of private financial institutions that have become geo-strategically important actors in their own right. There are existing laws on the books that direct regulators to address the geopolitical risks of global finance. All that’s needed is political will from Congress or legal action from other stakeholders to ensure those measures are enforced.
Outside of these regulatory measures, the U.S. government must regain its status as a reliable international partner committed to the rule of law. This means reinforcing its commitment to ensuring the stability of the financial system and the global financial order. It also requires cabining many statecraft powers to ensure they are subject to appropriate procedural checks. The expansiveness of many of the powers that Congress has delegated renders them vulnerable to misuse and abuse, in ways that are both anathema to democratic governance and create the potential for corruption and self-dealing. The president and the Supreme Court must end the assault on the independence of agencies like the Federal Reserve. At the same time, the IEEPA case clearly illustrates that Congress should cabin the broad statecraft authorities to constrain government power and limit the potential for arbitrary use and abuse by the executive branch.
It is also worth addressing more fundamental questions about the moral implications of using finance as a tool for global immiseration and privilege. Tools such as international financial assistance and debt restructuring have been wielded against less powerful countries to achieve a set of political goals, cloaked in the technocratic language of fiscal and monetary discipline. Falling back on the abstraction and complexity of finance obscures financial statecraft’s human toll, namely its ability to cause unemployment, poverty, and starvation in countries that are denied access to financial resources.
Reforming the current model of financial statecraft is a necessary, but insufficient, step toward improving how finance is used as a tool of geopolitics. Only then can we properly assess whether the United States–and the president in particular–should even be in the business of using its financial might to dictate geopolitics to the rest of the world.
