By Walter Lam
Date: 31 July 2023
Flags of EU countries flying outside its House of Parliament.
Courtesy of Endzeiter (2020).
Since the cold war’s end, the use of trade sanctions as a diplomatic tool, or the restriction of the importation and/or exportation of goods and services, rose significantly. The idea is that by reducing the economic performance of the sanctioned country, their people would be frustrated by the lowered quality of living and would pressure the government into changing its behaviour or even a regime change. They are readily viable politically to Western policymakers in the current era where sending boots on the ground is generally unpopular and thus often the final resort. Their contents can also be scaled to the issues they are dealing with in an ad hoc fashion, making them efficient and widely applicable. They are thus frequently exercised as punishment or threatened as deterrence by Western democracies to discourage countries from violating the liberal, rules-based world order.
Notwithstanding, so far they seem to have left a very limited impact due to multiple structural weaknesses.
Trade sanctions work economically as although reduced trade hurts both sides, Western, liberal democracies are theorised to suffer disproportionately less. This is because their economies are relatively bigger and their industrial structure more advanced, meaning they are wealthier and possess relatively higher quantity and quality of human capital, know-how, and technology. Being the main customers of low-skilled, easily replaceable goods, the West can damage less advanced economies without hurting themselves by importing from other less advanced economies or producing such goods. Meanwhile, being the sole providers of technologically advanced goods that are of high value and demand, their sales are not affected by export sanctions but less advanced economies would suffer from not having access.
Port of Barcelona, Spain.
Courtesy of Wallpaper Flare (2023).
However, even on a theoretical level, countries with hard-to-replace industries are inherently resilient to sanctions. Capital-intensive and high-skilled goods and services and natural resources essential to civilisation like energy and oil naturally have inelastic demands. Even Germany, a Western democracy, continued importing natural gas from Russia after it annexed Crimea, not to mention non-Western countries.
Moreover, as countries of the “Global South” become wealthier and more advanced, the West’s relative lead and thus their theoretical ability to obstruct other economies fall. Non-Western countries are now both capable and willing to pose as alternative trade partners of sanctioned countries out of ideological differences, realpolitik hedging, or the desire to take advantage of the changing trade flow. Indeed, by trading with China and India, Russia manages to continue funding its invasion of Ukraine amidst severe Western sanctions. This is not to say that trade sanctions are pointless, as Russia would have had even more resources to fund its aggression otherwise, but that their effectiveness is now subject to cooperation by rising economies, which is not always achieved.
Furthermore, Western sanctions against Russia have motivated China to build a non-Western economic bloc to preemptively minimise the potential consequences shall they invade Taiwan themselves. The existence of an alternative bloc alone encourages countries to simply turn to it if they ever become sanctioned for defying the liberal world. Granted, it will be less prosperous than the Western circulation, but as long as it is enough for autarky, sanctions will fail to induce behaviour change. Though unlikely, if this bloc becomes big enough, this might even paralyse Western sanctions out of the fear of pushing more economies away and counter-sanctions.
Informal meeting of the BRICS during the 2019 G20 Osaka summit.
Courtesy of Alan Santos (2023): https://flic.kr/p/2gmcGCV.
Another issue is whether the West is willing to sanction countries deeply integrated with their own, particularly China. Through 40 years of development, the level of skill and capital of China’s industries has risen to the point where replacing it takes time and is costly. They are also at least partially involved in the production of almost all Western goods. Sanctioning China would thereby drastically raise their own living cost, which can be politically unpopular. Multinational corporations also typically lobby Western governments to refrain from sanctioning countries of business value. Such internal constraints to the usage of sanctions will persist so long as the West continues outsourcing the production of low-skilled, labour-intensive goods overseas for a lower labour cost.
The indirectness of trade sanctions as a means is also a problem. Assuming the receiver’s economy is damaged, a change in conduct does not automatically follow. Trade sanctions affect one’s purchasing power based on individual occupation and savings, entailing that it may not always mobilise a sufficient portion of the population to demand political reforms. Additionally, regimes have a plethora of ways to negate the loss of political control due to sanctions with their state apparatus.
From indoctrination and information control to physical suppression, it is possible to cover or transfer the blame for a poor economy. They could convince the people that their decreased wealth is necessary to preserve their political or religious ideologies, or that a lifestyle of low materialistic enjoyment is acceptable. It is even possible to make them feel alienated and antagonised by the liberal world and end up only consolidating their support for the regime. Most importantly, these regimes do factor in Western sanctions as part of the cost for their actions and would deploy these countermeasures. The clearer the sanctions are articulated beforehand and the better prepared they are, the lesser can sanctions change their behaviour. Hence although trade sanctions are more flexible and available as a “soft” diplomatic tool, they can struggle to discourage rulebreakers.
Chinese President Xi Jinping meeting Joe Biden in Brazil during the G20 Summit.
Courtesy of Saul Loeb (2022).
Given these challenges, trade sanctions are far less concise and effective than initially believed, which explains the empirical lacklusterness in changing state behaviour. While they can still play a crucial role when the conditions are met and by limiting the future growth prospects of sanctioned countries, it is clear that they are no panacea. They should therefore be positioned as a low-tier response similar to moral condemnations and combined with other tools of diplomacy if Western democracies really want to maintain the rules-based world order. Likewise, with the lesson of Russia, when deterring prospective rulebreakers like China, they should be threatened as part of the effort, but certainly should not be considered sufficient alone.
Victory Day Parade, Moscow, Russia.
Courtesy of the Russian Presidential Press and Information Office (2020).
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