What are Economic Sanctions?

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

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

Economic sanctions turn out to be both financial and commercial penalties which a nation or several nations level against a targeted nation, organization, or individual. Such sanctions can cover different types of punishments. Among these are tariffs, trade barriers, or financial transacting restrictions.

What is interesting about these is that they are not always applied thanks to an economic dispute. In fact they can be forced on other countries, organizations, or individuals because of several different types of military, political, or even social concerns. Such sanctions are often utilized to realize international and sometimes domestic policies or goals.

These economic sanctions may be deployed as an extension of international foreign policy. They are typically forced on smaller and weaker nations by one or more larger and richer ones because of two different reasons. It might be the weaker nation is actually a threat to the greater nation’s security, as with Iran’s aggressive nuclear weapons program versus the United Nations. It might also be that the more powerful country feels the weaker state is practicing human rights violations on its own people, as with Syria versus much of the rest of the world’s countries.

This is why economic sanctions might be employed as a means of forcing the stronger countries’ wills on the lesser one. Some of these policies pertain to achieving more open and fair free trade or for punishing and stopping violations of basic human freedoms and rights. In modern times, these forms of sanctions have often been utilized in lieu of waging actual military conflicts in order to reach desirable end results and outcomes without actual loss of human life.

The problem with these sanctions according to many analysts and economists is that they mostly harm the ordinary citizens of a nation rather than its government or military-industrial complex. Besides this, these kinds of sanctions are not always effective in achieving their hoped for results. Regime change is a classic example of this type of foreign policy. Though it is the most common basis for such sanctions, it is rarely successful.

Haufbauer et al. have studied these types of sanction policies and determined that in only 34 percent of the relevant instances did they work out successfully. An analysis of this study by Robert A. Pape ended with the conclusion that in only five out of the forty claimed successes did the results really stand out, which dropped the successful rate down to only four percent.

The reason for this is governments have a wide range of choices for trading partners and even financial conduits which they may go through. Consider the case of Iran and its frightening nuclear weapons program. For most of a decade the democratic nations of the world united to force a range of restrictive economic sanctions via the United Nations on the Islamic Republic. The sanctions were never one hundred percent effective, as countries including North Korea, Cuba, and Venezuela still continued to trade freely and openly with Iran. Some multinational companies and even a few countries secretly conducted trade with Iran as well.

The world’s largest international bank (according to balance sheet) British multinational giant HSBC is the best known example of a company cheating on these specific economic sanctions. The United States’ justice department found the banking giant with significant operations in 71 countries and territories guilty of helping the Iranian government to circumvent the international sanctions regime. While HSBC received several billion dollars in penalties, this did not reverse the damage to the sanctions’ policy that they had already done.

These economic sanctions similarly impact the national economy of the country which imposes them to a lesser degree. When they erect restrictions on imports, the country imposing them will find its consumers suffer from less selection of goods. As export restrictions occur, the companies from the imposing nation(s) lose their access to and investment opportunities in the victim country. Other rival companies from foreign nations will take over these opportunities instead.

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