The 1939 manual that shows Trump how to wreck Russia's economy

Telegraph

20 hours ago

It is unlikely that Donald Trump will tour the National Archives in Kew during his state visit to Britain next month, but if the president were to find the time, he could study the original instruction manual on how to wreck a national economy.
Deep in the vaults lies Britain's Handbook of Economic Warfare, circulated on August 14 1939 and kept secret – or 'under lock and key', according to the emphatic instruction on its cover – right up until 1990.
Its 52 pages, compiled on the eve of the Second World War, amount to an elegantly-written manifesto for economic havoc, filled with relevance for today's decision-makers.
Perhaps most of all for Trump, who could this week punish Vladimir Putin's refusal to agree a ceasefire in Ukraine by taking what the President's supporters call a 'sledgehammer' to the Russian economy.
The hammer in question would be a raft of American sanctions with one vital difference: they would be targeted not on Russia itself, but on any country that buys Putin's oil, with the aim of depriving the Kremlin of its customers and suffocating its single biggest source of revenue.
The objective of these 'secondary sanctions' would be to choke Russian finances so severely that Putin would have to sue for peace in Ukraine.
That goal finds its echo in said British handbook. 'The aim of economic warfare,' reads chapter one, 'is to so disorganise the enemy's economy as to prevent him from carrying on the war'.
This amounts to a 'military operation, comparable to the operations of the three services, in that its object is the defeat of the enemy.' The 'weapons' include 'interference with trade' and 'withholding financial, shipping and insurance facilities.'
The word 'sanctions' does not appear in the handbook; instead chapter two proposes a 'statutory list' of 'firms' and 'vessels' with which all trade and any contact would be banned.
Just as Trump wants to compel other countries to stop buying Russian oil, so the handbook stresses the necessity of 'persuading or inducing neutral governments, firms and persons to refrain from transactions advantageous to the enemy.'
Indeed, such is the text's relevance that it is now said to be back in vogue in Whitehall. Deputy National Security Adviser Jonathan Black has reportedly pointed colleagues towards the handbook in recent months, claiming it will help guide them as Britain deals with threats from the likes of Putin's Russia.
Trump must now decide whether secondary sanctions are the right tool of persuasion even though America has used them only sparingly in the past, mainly against Iran, and no other Western country has resorted to them at all. Even the handbook, written when war was imminent, stops short of recommending them.
On the surface, the president and his allies seem unrestrained. Lindsey Graham, a Republican senator representing South Carolina, has introduced a bill that would impose 500 per cent tariffs on any country buying Russian 'petroleum products', describing this as a 'sledgehammer available to President Trump to end this war' and a sanction of 'bone-breaking' power.
Ukraine certainly hopes so. On Sunday, one of President Zelensky's key advisers, Andriy Yermak, said that Russia's economy was 'holding on only through the sale of energy resources' and it would be possible to 'strangle' Putin's revenues with 'secondary tariffs proposed in the USA.'
On July 28, Trump said that Putin had '10 or 12 days' to accept a ceasefire in Ukraine or face unspecified consequences, a deadline that the White House later clarified would expire this Friday. Earlier, the president had threatened 'tariffs at about 100 per cent – you'd call them secondary tariffs' on any country importing Putin's oil.
The biggest targets would be China and India, which buy nearly 75 per cent of Russia's seaborne oil exports. If Trump is in earnest, then the world's second and fifth biggest economies respectively will this week suffer American tariffs of 100 per cent, though there seems no immediate prospect of him endorsing Senator Graham's bill and its penalty of 500 per cent.
The president is a master of bombast and empty threats, but the oil price still responded to his words by climbing above $70 per barrel. Faced with a choice between punitive US tariffs or abandoning Russian oil, China and India would probably have to choose the latter and cut Putin loose.
Thanks to Russia's dependence on just two customers, that would make a big difference to Moscow's revenues. In June alone, Russia earned more than £6 billion by selling 2 million barrels of oil a day to China and 1.5 million to India.
Add in exports of coal, gas and refined oil products, and Russia received a total of about £7.5 billion from the two countries in one month – representing about half of the Kremlin's global fossil fuel revenues.
'If those markets are lost, then clearly this would have a serious impact on Russia,' says Jonathan Eyal, an associate director of the Royal United Services Institute. 'But as always with the oil market, it's swings and roundabouts.'
Secondary sanctions, if imposed, might be too successful for their own good. By choking off Russian oil, they could unbalance the market and cause the price to rise, damaging the world economy and forcing Trump's voters to pay more to fill up their cars.
A higher price would also allow Putin to earn more from any remaining exports. Thanks to sanctions, Russian oil already sells at a discount on the market price. If that baseline was higher, then the Kremlin could raise more revenue even with the discount.
And how would the sudden imposition of punitive tariffs on China square with Trump's wish to negotiate a trade deal with the world's second biggest economy?
On Friday, Trump enacted a 25 per cent tariff on India in retaliation for its supposed protectionism against US exports. But he had publicly threatened an extra 'penalty' for the country's purchases of Russian oil. So far, no such 'penalty' has appeared and India's tariff is still lower than Canada's 35 per cent.
Eyal points out that Trump has not yet given his backing to the Graham bill, and the president's separate announcements are 'muddying the waters', creating a 'typical Trump mess.'
But there is no doubt that imposing different tariffs based on whether countries comply with America's foreign policy objectives violates World Trade Organisation rules.
And deliberately placing a sovereign state under unbearable pressure to stop doing business with another sovereign state could break international law. 'As a principle, we've always argued that these measures are illegal because they effectively extend US jurisdiction to other countries,' says Eyal.
Britain's Handbook of Economic Warfare from 1939 notes another familiar risk, namely that neutral countries, 'if pressed too hard', could 'throw in their lot with the enemy', just as excessive American pressure on China and India might drive them closer to Russia.
Even when the Second World War was imminent, the British Government weighed the risks and decided against imposing secondary sanctions on neutral countries doing business with Nazi Germany. 'There will be no Secondary Statutory list,' says the handbook. 'That is to say, neutral traders will not be penalised merely for continuing to trade with another who has been placed on the Statutory List.'
But the text stresses the importance of maintaining an artful pretence that secondary sanctions might at any moment be imposed, noting how this bluff had been highly effective during the First World War.
'The fear, which was discreetly fostered, that a Secondary Statutory List, might be enforced proved, however, extremely efficacious during the war of 1914-18,' says the handbook. 'There is evidence that some firms on the Statutory List were virtually boycotted by other firms for fear of consequences that we had no intention of permitting.'
In the same way, just the possibility of America imposing secondary sanctions has already made companies in China and India and elsewhere wary of doing business with Russia. The fact that Putin must sell his oil at a discount is proof of this chilling effect.
Yet Putin's incessant drone and missile attacks on Kyiv, which killed 31 people in one night last Thursday, suggest that he does not believe that Trump will go ahead with secondary sanctions against Russia's biggest economic partners.
Instead, Putin's assaults on Ukrainian cities suggest that he is determined to ignore what he thinks is Trump's bluster.
It will soon become clear whether Putin is right and the president is bluffing just as surely as Britain was in 1939. If not, this could be the week when Trump takes up his sledgehammer and wields it against Russia with a severity that would exceed Britain's actions against Nazi Germany in the countdown to war.