1) What are trade sanctions? How do they fit into broad economic sanctions?
2) Discussion of the theoretical welfare effects on the world, that is, on the countries on which the sanctions are imposed and the sanction-imposing countries
3) Discussion of different arguments, in the literature, on the effectiveness of sanctions in achieving their stated objectives
4) Analysis of two specific trade sanctions by discussing the specific contents of the sanctions, their stated objectives, and their effects on all parties involved, whether the stated objectives were achieved.
The competitors in the international trade market have to follow proper rules and regulations stated by the World Trade Organizations. Through some appropriate rules and regulations, countries related to the world trade market end their trade operations. There are several things which are very important to understand before assessing them. Tariff, Quota, Trade sanctions are some significant export duties to be kept in mind before participating in the market (Arnold). This assignment deals with the discussions and issues related to the trade sanctions. The trade sanctions are basically identified as the penalty. It is a kind of penalty that is always imposed by only one country to any one country or too many countries.
When one country (or more) is penalized by another country in different reasons, then this penalty is known as Trade sanctions. Trade sanctions are basically imposed to decrease the level of export.
As introduced before, the trade sanction is a penalty that is imposed by one or more countries on one or more other nations as opined by Doyle (2014). The trade sanctions are of two types which are known as unilateral trade sanctions and multilateral trade sanctions. The unilateral trade sanctions are that penalty which is imposed by only one nation on one or more another nations. The multilateral trade sanctions are identified as the penalties that are imposed by one or more nations on the one or more other nations (Higgins). The relations behind imposing these penalties may or may not related to the trade operations.
Shojal & Root claim that economic sanctions or broad economic sanctions are those policies which genuinely try to warn the factors which harm or violate the international trade terms (Shojal and Root). As per the viewpoint of the critiques, the sanctions are not sufficient in reaching the goals for what it was made. Stated or non-stated actions in trade world may or may not be controlled with the aid of the economic sanctions. There is some effectiveness which helps in sorting the issues in relation to violent behaviour to some extent.
More precisely, the economic sanctions can be explained as the removal or withdrawal financial associations along with the customary trade for some foreign policies and security reasons. It is noticed that over the years, there are many nations who just impose trade sanctions for some very unjustified reasons. For instance, when the import of international goods in industry increases then simultaneously it harms the domestic markets. In such a situation, a country tries to impose excessive tariffs or trade sanction on the import of those goods but it may or may not effects the situation properly (Krugman and Wells).
The main loophole of this policy is their over effectiveness. In order to save the domestic market, this policy affects the international trade in a negative way. Economic sanctions are broadly distinguished from the trade sanctions (Bapat and Morgan). However, these things are imposed not only for the welfare purpose in a nation but also for the welfare of the whole world.
Obviously, there are some positive aspects of trade sanctions or barriers with some negative effects to. First of all, it shall be stated that the trade barriers supports a nation hugely to decrease the level of imports. The trade helps and harms both the countries who impose it and whom it being imposed (Higgins). Imposing the trade sanctions harms the country itself. Importing excessive goods is much costlier than producing it or buying it in the domestic markets. Still, some nations import products for several purposes like quality, quantity, availability etc. If it is noticed minutely, then it can be assessed that excessive imports ultimately harms the domestic markets and imbalances the trade of the economy (Hubbard and O’Brien). Tariffs or Quota are some trade barriers which help the domestic markets to be flourished.
The effects of imposing various protectionisms such as tariff, quota and embargo etc. basically increase the level of domestic production and hence economic growth comes following this factor. Moreover, the price of the goods in the domestic market will increase because people now do not have enough options (Jha).
For instance, foreign companies like the US outsource their job opportunities to the underdeveloped or developing the country by establishing their subsidiaries in those markets. It basically harms the domestic job market because they pay package is much fairer than the domestic companies. So naturally people like to work for them instead of working in the domestic markets. Implementing protectionism solves this problem too (Drenzer).
However, there is the darker side of the factors to which affects the trade market intensively. As a result of a decrease in imports, the country suffers from the insufficient stock of goods. Geographical aspects assess that every nation has some competitive advantage in several industries like agricultures, manufacturing or on minerals (Drenzer). If a country cannot min sufficient gold from itself then it has to import raw gold to meet the demand of the country. Now imposing trade sanctions barriers to this factor and hence the gold price in the domestic market increases. It is very harmful to the food industry because food materials are segregated as necessities. Increasing prices of food materials can cause starvation, poverty and malnutrition (Jordi). Hence it degrades not only economic growth of the nation who imposes tariff but also degrades the standard of living.
It is very general that imposing a tax on the country who is exporting, harm the business or industry of that country. Along with that, it increases the stockpile of the goods in the country who is exporting. With some certain assumptions in the viewpoint of the demand and supply theory, it can be stated that this factor increases the price of those goods (Welch and Welch).
It is surveyed that the United States has imposed sanctions for 60 times in previous three years for at least 35 different countries in the world. It is affecting the 42% of the world economy. The world export has been facing severe loss of 20 billion dollars up to the present era. As stated U.S became successful in saving the domestic market to some extent but affecting the world market which indirectly negatively impacted the U.S. itself (Krugman and Wells).
The literature claims that the sanctions are harmful and helpful for the both the parties. Sanctions were made to save unjustified behaviours of the nation towards other countries. It was become effective initially but history proves that it becomes intolerable day by day. The sanctions that the US had implemented for 60 times in different nations became effective initially but in the long run, the country starts facing the problem of serious starvation and poverty (Leijonhufvud).
The case of US tax imposition on the Iran from 1991, Soviet Union was get banned by U.S through embargo in 1980 and many more cases concludes four key results. First one says that Sanctions do not work frequently, it is very rare when sanction works. Secondly, the unilateral sanctions are not sufficient in affecting their country or in reaching their goals. The worse effect was received by America was on their trade sector. Moreover, U.S. has faced severe damage on their reputation as a supplier. The U.S. before was identified as one of the reliable material suppliers in the trade market but after all these incidents its reputation was harmed (Wetzstein).
However, as per the opinion of Drenzer, all of this critical points have some flaws too. It is observed that the Sanctions work more prominently on allies instead of working on adversaries. It has been surveyed that the there is a major reason exist behind the sanction’s failure. One of them is the way that a country imposes it, i.e. half-heartedly (Poon). It is always not that the sanctions do not work. Comprehensive research claims that during 1914 to 1990, more than 116 sanctions were imposed. The result states those sanctions were successful for the third time, were partially achievable at the third time and again for the third time it became ineffective (Terra).
This study on the America clearly depicts that the motive for which the sanctions were developed got almost unfulfilled. It was seen that failure rate of that sanctions is more than its success rate. This is probably because the way it works or the way it is imposed. If the pattern of imposing sanctions or barriers can be changed then it might work much effectively. In general, the trade sanctions become a burden for some country. Some scholars have stated that the comprehensive types of sanctions are more often prove that they are ineffective and bring failure. Oskaran (2012), has argued that the success of sanctions depends on upon its goal. It happens that the sanctions were made for some purpose and the purpose has been changed in due courses. Obviously, the sanctions got failed which had happened in the case or Iran, Iraq and Libya (Oskarsson).
Parker (2000), supports him by stating that generalizing one or more cases and concluding based on the case study result are always not fruitful. An in-depth analysis is always needed to check things properly before analysing them (Parker).
There are numerous numbers of sanctions are present among which two have been stated here in an informative way.
1. United States Embargos:
United States embargos are pretty famous in the world of trade sanctions. This embargo was imposed by the United States government to one or more country on one or more goods for different reasons.
The United States Embargo includes several rules and regulations or tax imposition on different goods. According to this embargos, the United States has imposed import barrier on arm related goods, financial restrictions, on the economic assistance during the civil war. Also, this sanction resists the dual use exports (Walker).
During the Civil War, United Sates banned the export of farm related goods in order to stronger their own power of weapons. They wanted to make them stronger. It was needed huge financial funds and economic support. If U.S. provides financial supports or economic assistance to other than it will make them weaker. So they stop providing financial assistance to their enemy countries. The main objective for which the whole thing was designed to get the victory. All was designed to get the supreme power.
Exporting goods from Iran, Sudan, Myanmar, Sudan, and Syria had been banned by the America. The objective was not fully met but yes, it had affected those countries hugely. Iran was initially started to suffer from losses but after it stronger its nuclear power, the sanctions become meaningless. Sanctions against North Korea were justified and it became successful in prohibiting the abuse of human rights by the country. Myanmar being a poor country was stopped receiving financial help from other countries. The embargo was imposed on Syria because it was identified as the terrorist zone. The mechanism of the embargo has improved the standard of living in the country (Oskarsson).
2. Cuba Sanctions:
U.S. and Cuba hold very diplomatic associations between themselves. The U.S. maintains a strict economic embargo against Cuba regarding the trade between them. It was implemented in against of certain actions help by the Cuban government. The Certain regulation was implemented which are remain in place even in today. All were implemented to save Cuban Assets also and with the help of the U.S. government, it became successful. The other objective behind this Cuba Sanction was to keep trade peace between this two countries which was very important (Terra).
Conclusion:
The above discussion clearly states that the sanctions are effective but not for all time. It also can be analysed that there are fewer situations where sanctions became effectively handle the situations. Trade restrictions or sanctions are always helpful to save the domestic market but sometimes it hurts the world economy to the next level. Some evidence has been analysed here and an ingesting fact is revealed. The way people judge whether a sanction is successful or not can be all wrong. If the reasons for what sanctions were made, become changed then sanctions can never be successful. So, research or analysis should be done in an appropriate way too.
References:
Arnold, R. Macroeconomics. London: Cengage Learning, (2008).
Bapat, Navin A. and Morgan, T. “Multilateral versus unilateral sanctions reconsidered: A test using new data.” International Studies Quarterly (2009): 1075-1094. 53.4.
Doyle, J. “How Prospects for Global Economic Growth influence Indian Foreign Policy.” Strategy & Leadership (2014): 42.2.
Drenzer, D. “The hidden hand of economic coercion.” International Organization, (2003): 643-659. 57.03.
Higgins, K. Economic Growth, and Sustainability: Systems Thinking for a Complex World. Academic Press: Cambridge, (2014).
Hubbard, R. and O’Brien, A. Macroeconomics. Boston: Pearson. Boston: Pearson (2013).
Jha, R. Contemporary Macroeconomic Theory and Policy. Kolkata: New Age International, (2008).
Jordi, G. Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework and Its Applications. Princeton: Princeton University Press, (2015).
Krugman, P. and Wells, R. Macroeconomics. New York, NY: Worth Publishers, (2013).
Leijonhufvud, A. Macroeconomic Instability, and Coordination: Selected Essays of Axel Leijonhufvud. Cheltenham: Edward Elgar Publishing, (2000).
Oskarsson, K. “Economic sanctions on authoritarian states: Lessons learned.” Middle East Policy, (2012): 88-102. 19.4.
Parker, W. “The problem with scorecards: How (and how not) to measure the cost-effectiveness.” Michigan Journal of International Law, (2000): 235-294. 21.
Poon, D. Economic and Trade Information on Hong Kong. (2016). 09 06 2016. <https://hong-kong-economy-research.hktdc.com/business-news/article/Market-Environment/Economic-and-Trade-Information-on-Hong-Kong/etihk/en/1/1X000000/1X09OVUL.htm>.
Shojal, S. and P. Root. “Effectiveness Of Economic Sanctions:Empirical Research Revisited.” International Business & Economics Research Journal, (2013): 1479-1490. 12.11.
Terra, C. Principles of International Finance and Open Economy Macroeconomics: Theories, Applications, and Policies. Cambridge: Academic Press, 2015.
Walker, A. “The UK and the EU: Trade and economy.” 31 05 2016. 31 05 2016. <https://www.bbc.com/news/uk-politics-eu-referendum-35757324>.
Welch, P. and G. Welch. Economics: Theory and Practice. Hoboken: John Wiley & Sons, (2009).
Wetzstein, M. Microeconomic Theory: Concepts and Connections. Abington: Routledge, (2013).
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