When Finance Becomes Foreign Policy

Part of an ongoing exploration of how institutions adapt to changing technologies, incentives, and forms of power.

If someone asked which cabinet official should comment on the reopening of the Strait of Hormuz, most people would probably answer the Secretary of State or the Secretary of Defense. The Strait sits at the intersection of diplomacy, military strategy, and regional politics. It does not immediately bring to mind budgets, taxation, or fiscal policy.

That is why Treasury Secretary Scott Bessent’s recent comments about the Strait caught my attention. My reaction wasn’t that he was wrong. It was that he appeared to be speaking about someone else’s responsibility.

The more I thought about it, however, the more I realized the question itself reflected an outdated view of government.

The Treasury Secretary was not speaking outside his role. His role—and more broadly, the relationship between finance and foreign policy—has evolved dramatically over the past several decades. Understanding why requires looking beyond the Treasury Department itself and examining the growing importance of economic statecraft as one of the principal instruments of national power.

“Economic power has always mattered. What has changed is that it now operates alongside diplomacy and military power as a primary instrument of statecraft.”

The Rise of Economic Statecraft

Economic statecraft is not a modern invention. Hamilton understood that national credit was a strategic asset for a young republic. Jefferson attempted to influence European powers through trade restrictions rather than military confrontation. After the Second World War, the Marshall Plan demonstrated that financial assistance could reshape the political landscape of an entire continent. Economic tools have long been used to advance national interests.

What has changed is not their existence, but their speed, scale, and precision.

The Bretton Woods system placed the United States at the center of the post-war financial order through institutions such as the International Monetary Fund and the World Bank. Even after the fixed exchange-rate system ended in 1971, the U.S. dollar remained the world’s dominant reserve currency. Globalization then expanded American influence further as financial markets, supply chains, and banking networks became deeply interconnected.

The attacks of September 11, 2001 accelerated another transformation. Treasury’s responsibilities expanded well beyond fiscal management into the realm of national security. Combating terrorist financing, enforcing sanctions, disrupting money laundering networks, and developing financial intelligence became central elements of the department’s mission. Financial systems were no longer viewed simply as engines of economic growth; they had become instruments through which governments could influence international behavior.

The evolution continued over the next two decades. Iran marked an important milestone because economic pressure became the principal instrument of American strategy rather than merely a supporting measure. Successive administrations sought to influence Tehran’s nuclear ambitions by restricting oil revenues, isolating Iranian banks, and limiting access to the international financial system. Treasury was no longer supporting diplomacy from the sidelines. It had become one of the agencies executing it.

Russia’s invasion of Ukraine in 2022 demonstrated how far that evolution had progressed. Alongside diplomatic efforts and military assistance, the United States and its allies froze hundreds of billions of dollars in Russian central bank assets, imposed sweeping financial sanctions, restricted technology exports, and isolated major financial institutions. Those actions were coordinated with traditional diplomacy, but they were not secondary to it. They became central pillars of Western strategy.

Today, American economic statecraft extends well beyond fiscal policy. It includes a broad set of tools capable of influencing governments without the use of military force.

• Financial sanctions.
• Freezing sovereign and private assets.
• Export controls on strategic technologies.
• Restrictions on banking and dollar access.
• Tariffs and trade policy.
• Energy production and energy exports.
• Development finance and international lending.

Treasury Secretary Scott Bessent has openly embraced this broader vision. In several policy speeches, he has described Treasury’s mission as “American Economic Statecraft in the 21st Century,” arguing that economic security and national security are increasingly inseparable. Whether or not one agrees with the administration’s specific policies, the terminology itself reflects how the department now understands its role.

Government Has Outgrown Its Organization Chart

If economic statecraft has become a central instrument of national power, then the traditional boundaries between cabinet departments inevitably become less distinct.

The Secretary of State cannot negotiate international agreements without understanding sanctions, energy markets, sovereign debt, financial systems, and supply chains. Likewise, the Treasury Secretary cannot evaluate economic risks without understanding military conflicts, alliance politics, regional security, and geopolitical strategy. Commerce oversees export controls that influence military capability. Defense depends upon industrial capacity and semiconductor manufacturing. Intelligence agencies increasingly monitor financial networks alongside conventional military developments.

Governments are still organized into departments with distinct statutory responsibilities. The problems those departments confront, however, no longer respect those boundaries.

The Strait of Hormuz illustrates this convergence particularly well. It is simultaneously a military chokepoint, a diplomatic flashpoint, an energy corridor, a supply chain vulnerability, and one of the world’s most important economic arteries. Roughly one-fifth of globally traded oil passes through the Strait. Any disruption immediately affects energy prices, inflation expectations, insurance markets, transportation costs, manufacturing, and investor confidence. No single cabinet secretary can fully address those consequences because no single discipline fully explains them.

This convergence also changes the role of public communication. When the Treasury Secretary expresses confidence that a crisis may soon ease, financial markets respond immediately. Oil prices adjust. Investors reassess geopolitical risk. Businesses revise contingency plans. Governments observe those reactions while continuing their negotiations. Statements intended to stabilize markets can also influence the strategic environment in which diplomacy unfolds.

Economic communication has itself become an instrument of statecraft.

“The Treasury Secretary wasn’t speaking outside his lane. The lanes themselves have begun to disappear.”

The Challenge of Accountability

Integrated government produces better decisions because complex international problems require expertise drawn from multiple disciplines. Economic policy, diplomacy, intelligence, military planning, technology, and energy strategy increasingly reinforce one another rather than operating independently.

The same integration makes accountability more difficult.

When diplomatic negotiations, sanctions, export controls, intelligence assessments, military deterrence, and public financial messaging all contribute to the same objective, it becomes increasingly difficult to identify where one department’s responsibility ends and another’s begins. Success is shared. Failure is shared. The organizational chart remains neatly divided, but responsibility has become far more interconnected.

This is not necessarily a weakness. It may simply be the inevitable consequence of governing in a world where the instruments of national power have become deeply integrated.

Looking Beyond Economic Statecraft

Scott Bessent’s comments about the Strait of Hormuz prompted an interesting question, but they ultimately revealed a much broader transformation. Over the past several decades, financial power has evolved from an instrument that supported foreign policy into one that helps define it. Treasury’s expanding role reflects that evolution rather than an unusual interpretation of its responsibilities.

Economic statecraft, however, is only one dimension of a much larger story. Military power, diplomacy, technology, energy, information, supply chains, and industrial capacity have each become strategic instruments in their own right. More importantly, they increasingly operate together rather than independently. Modern governments succeed not because they excel in one domain, but because they integrate all of them into a coherent national strategy.

That integration has quietly reshaped government itself. Cabinet departments remain organized around traditional areas of expertise, yet the challenges they confront routinely cross those institutional boundaries. The result is a government that looks much the same on paper as it did decades ago, but functions very differently in practice.

Perhaps that is the real lesson behind the Treasury Secretary’s remarks. They were not simply comments about the Strait of Hormuz. They reflected the continuing evolution of statecraft itself.

Understanding that evolution is becoming essential for anyone trying to understand international affairs in the twenty-first century. The questions facing governments are no longer purely military, diplomatic, or economic. They are all of those things at once, and the exercise of national power increasingly depends on how effectively those instruments work together.