What is an Economic Embargo?

Published by Thomas Herold in Economics, Laws & Regulations, Trading

'Economic Embargo' is explained in detail and with examples in the Trading edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

An Economic Embargo is a type of government-mandated order. They limit the exchange of goods and commerce to a country which they specify. Sometimes they affect only particular goods which represent a threat to the importing nation’s vital economic or security interests.

Such embargoes are typically established because two nations find themselves in a political spat or economic disagreement or because of a combination of the two. The idea behind such an economic punishment and restriction is to economically isolate a nation. The enforcer hopes to make life difficult for the people and ultimately government of the nation so that it will have no choice but to carry out the desired actions of the embargo issuer.

There are two different main forms of economic embargoes. A strategic embargo will stop the trade in any type of military hardware, equipment, or goods with the victim nation. Trade embargoes are far more restrictive. They stop any individual or company from exporting given goods (or sometimes all goods) to the nation which is targeted. In today’s world, a large number of countries depend on global trade to function and prosper. This is why an economic embargo can prove to be such a potent weapon to influence the behavior of a nation without having to go to war.

A trade embargo may lead to severe negative consequences for the victim nation and its economy. The U.S. often relies on the mandates issued by the United Nations in deciding which countries to inflict economic and trade embargoes against. In many cases, allied nations will combine their collective economic and trade powers to issue joint economic embargoes. This restricts trade with the targeted countries in an effort to force them to make strategic changes for world peace or to engage in better humanitarian behaviors.

The United States has become famous for its imposition of a few long-lasting economic embargoes against other sovereign states. Among these are ones which have been in place on nations that include Iran, North Korea, and Cuba. Back in the decade of the 80’s, a number of countries with the U.S. enforced a trade embargo against the once-prosperous nation of South Africa. They did this because of several issues the combined governments opposed, including apartheid (segregation and official discrimination against the native African black population by a ruling white minority) and a drive for nuclear technology and weapons capability within the country.

America- enforced embargoes leveled against some of these and other nations particularly leave out the trade of certain goods, such as necessary items. In these cases, they focus more exclusively on weapons, ammunition, and weapon systems or luxury item goods. Other forms of trade they leave in place. Comprehensive forms of economic embargoes are more devastating to the victim nations since they stop all types of trade between the victim nation and the inflictors.

After the terrorist attacks which began with September 11, 2001, American-led embargoes have increasingly tended to focus on threatening nations like the Sudan. This country and others such as Iran are well-known for their historic and present-day ties to terrorists and their funding around the globe. This makes them a direct threat to American national security interests and those of its allies and friends around the world.

The U.S. has occasionally also been the recipient of such economic embargoes. During the 1970s, the American economy suffered great harm because of the infamous Arab Oil Embargo. The Organization of the Petroleum Exporting Countries, or OPEC, enforced this oil embargo and created misery through skyrocketing gas prices, fuel rationing, and even gasoline shortages at the pump.

In the United States, it is the American President who has full authority to inflict embargoes in war times. This he can do under the existing Trading with the Enemy Act. Besides this, the President may also rely on the existing International Emergency Economic Powers Act to enforce national emergency based commercial restrictions. Such embargoes become administered by the Office of Foreign Assets Control within the U.S. This is a division of the Department of the Treasury that helps to find and freeze the ultimate sources of funds for both terrorist operations and drug businesses.

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The term 'Economic Embargo' is included in the Trading edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.