What are economic sanctions in trade?

The most common definition of an economic sanction in trade would be the withdrawal of customary trade and financial relations for foreign and security purposes. These different sanctions are applicable to cities, states but also to a country itself. We could expose the case of the United States embargo of Cuba, targeting a specific country and blocking them from trading, hence denying any access to their economy.

The issue with these sanctions is that they commonly harm innocent civilians. Since 9/11, a much larger quantity of “smart sanctions” have been used. They can take the form of travel bans, asset freezes, foreign aid reductions, embargoes, etc.

These sanctions are great instruments of foreign policy. Some even compare them to a “carrot-and-stick approach to deal with international trade and politics”. The carrot-and-stick approach is a combination of rewards and punishments to induce good behaviour. This could be the bonus taxes when buying an electrical vehicle instead of a highly consuming Italian supercar.

However, the main issue with the economic sanctions that could be applied to countries enforcing the points and agreements discussed at the Paris COOP21 is that there is no tribunal that has been created to deal and apply the sanctions. If there is no institution to charge for misbehaving acts, it will be even more difficult to force a change in behaviour, knowing that the variety of sanctions possibly used against a country, that are there to force a change in behaviour. The aim isn’t to gain money but to make aware of the risks that their actions endanger.

The panel of sanctions that can be exercised, comprises tariffs, non-tariff barriers, assets freezes or seizures, quotas and embargoes. The most common sanctions used are tariffs and quotas. Even if they don’t seem as a sanction to the grand public, the only act of surcharging the price (taxes) on goods imported from specific countries, or even to limit the number of imports or exports is a way of limiting some firms to be free. This allows a better control of the local economy, in addition to a possible higher control of the market share of foreign companies.

Some sanctions are characterised as targeted. As we know, the main aim of sanctions is to force a country to alter its behaviour regarding that case, but the sanctions can target a country totally, and not only one particular sector that could be the petrol, or cigarettes for instance. This is when we can for another time take Cuba’s example which has been embargoed for a long period. But now, the trades have reopened thanks to President Obama. The most popular sanctions used now are quotas on imports from China into occidental countries and the higher taxes on their products. This aims to reduce their market shares in some sectors. The sector that seems to be the less hurt is the automobile sector. In European countries, there are great automobile constructors such as the whole Volkswagen group or General Motors. But groups such as Tata (India) are becoming highly competitive such as the Asian carmakers (e.g. Toyota, KIA, Honda…).

The main information to retain is that sanctions are made to force a country to alter its behaviour regarding one specific issue they are dealing with, and this can take many different forms.

Source: Essay UK - http://turkiyegoz.com/essays/economics/what-are-economic-sanctions-in-trade/


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