How Sanctions Affect Global Trade

Sanctions have been used as a political instrument since ancient Athens, where the Megarian decree of 432 BC limited trade to neighboring Megara. Modern nations have also used sanctions as a foreign policy tool, leveraging their economy to achieve their objectives. Businesses that operate globally must comply with these restrictions or risk running afoul of international law.

Since World War II, the number of international sanctions has increased, and fewer large economies want to engage in the expensive business of war, preferring to exert influence through their economy. The United Nations Security Council has enacted 30 separate sanction actions since its founding, 14 of which are ongoing. The UK’s Her Majesty’s Treasury, the US’s FBI, and the Office of Foreign Assets Control (OFAC) enforce the UN’s sanctions regimes. Additionally, individual nations also impose their own sanctions. The US government, representing the world’s largest economy, has imposed sanctions on more than 30 countries.

Sanctions are political measures aimed at influencing foreign states, individuals, or parties to achieve a specific goal, usually by affecting their economy or wealth. For example, forbidding the import or export of goods to and from a specific country can damage its economy. This can be used as a means of non-military punishment or as leverage to persuade the foreign state to take specific action. A recent example is the U.S. passing the H.R. 850 bill, which effectively ended Iran’s international sale of oil in response to Iran’s nuclear arms program.

Sanctions can be identified broadly in two ways. The number of nations involved distinguishes between unilateral sanctions, deployed by a single country, and multilateral or bilateral sanctions, deployed by multiple nations acting together. The method of restriction distinguishes between economic sanctions, which involve a ban on trade goods, and non-economic sanctions, which involve the removal or reduction of diplomatic elements, such as embassies or ambassadors. Economic sanctions can be narrow in focus, such as the import/export of a specific commodity, or broad, cutting off all trade. Common methods include quotas, tariffs, non-tariff obstacles, asset freezes and seizures, embargos, diplomatic sanctions, military sanctions, and sports sanctions.

Sanctions have a powerful negative impact on the target country’s economic situation. A 2015 study examined 68 countries between 1976-2012 to measure the effect of U.S. and UN sanctions on a nation. It concluded that moderate UN multilateral sanctions reduced a target’s GDP growth rate by up to 3.5%, while severe UN multilateral sanctions reduced the target’s GDP growth by more than 5%. The adverse effect on a target of UN multilateral sanctions was measurable even ten years later, and the target’s aggregate decline in GDP-capita was 25.5% on average. U.S. unilateral sanctions against a target country carried a GDP growth reduction of less than 1%. The adverse effect on a target of U.S. unilateral sanctions was measurable only seven years later. Even the threat of a sanction can have an impact in the form of an anticipation effect. The amount of trade increases when the threat is levied, as the state and business within it stockpile needed goods to prepare for future limitations.

The target country suffers the worst effects, but the imposing country’s economy is also sanctioned in its way. Its companies have fewer available markets and investment opportunities, and some experts fear that the overuse of sanctions results in an isolated, less influential economy. Recent research suggests that U.S. imposed sanctions cost its economy $15-$19 billion in potential exports every year, including 200,000 potential jobs in the import/export industry. The negative effects associated with economic sanctions have been given as a reason to discontinue their use. In contrast, British diplomat Jeremy Greenstock famously suggested that sanctions are

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