The role and results of economic sanctions

by Robbin S. Johnson
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Foreign policy is on most people’s minds in Washington these days, with the situation in the Ukraine and the Middle East leading the way. So, it might be a useful time to review the role and results of economic sanctions.

Economic sanctions may be imposed for three reasons: national security, foreign policy and short supply. The national security rationale is used mainly in the context of exports of sensitive technologies. Applications are often military or quasi-military. Though probably a useful restraint on leading edge technologies, such sanctions are frequently criticized for remaining in place too long and shifting business and technology development from the United States to other countries — both allies and adversaries.

More common and far-reaching in application have been foreign policy sanctions. They typically occupy a zone where traditional diplomatic relationships and negotiations have broken down but where military action is unattractive. They have a long and controversial history.

For example, some argue that the economic sanctions the United States imposed on Japan contributed to the sense of desperation that led Japan to attack Pearl Harbor. The longest standing economic sanctions may be those imposed by the United States on Cuba and North Korea.

The differing aspects of sanctions

These examples illustrate several aspects of foreign policy sanctions. First, they are only a promising tool for large, powerful countries, whose economies are important to the targeted adversary. Second, they need the Goldilocks touch to be just the right sort of economic pressure: too extreme and they can produce the military outcome they were intended to avoid; too soft and they fail to produce the “regime change,” or even the restoration of diplomatic ties, desired.

Third, foreign policy sanctions may become a dead end. When they fail, the sanctioning country is faced with an unacceptable diplomatic dilemma. To withdraw the sanctions is to admit failure while courting the opposition of domestic constituencies that have come to defend or depend upon them. To leave them ineffectually in place is to become captive to a stale policy when other options should be tried. U.S.-Cuba relations are perhaps the best illustration of this trap.

Finally, foreign policy sanctions depend importantly on a coalition effort for their success. If important economies break away, the sanctions lose their force, and those who keep them in place watch their own costs rise while the anticipated benefits dissipate. In extreme situations, the target of the sanctions acquires leverage by cleverly modulating its policies to create tensions and exploit differences within the coalition. North Korea occasionally and Iran more recently have used such leverage to their advantage. Short of that, even fatigue may lead to stress in and dissolution of the coalition.

Use of the “food weapon”

The most notorious use of the alleged “food weapon” for foreign policy purposes was President Jimmy Carter’s Soviet grain embargo of 1980. It illustrated most of the weaknesses of foreign policy sanctions: they were not hurtful enough to change Soviet policy; they contributed to President Carter’s defeat in elections later that year, enabling new President Ronald Reagan early in his term to lift the sanctions that had become so unpopular with farmers; other exporting countries failed to join in a coalition effort, reducing their economic force; and in a strange twist of reverse leverage, 24 years later President Putin of Russia embargoed food imports from the Western allies of Ukraine, showing that food is probably an ill-chosen weapon, given abundant substitute sources.

The third type of sanction — and the one most pointedly felt by agriculture — invokes the short supply rationale. The most notorious example was President Richard Nixon’s decision to cut in half U.S. soybean exports to Japan in 1973. Dogged by Watergate and rising inflationary pressures, President Nixon cut across export contracts in what the Japanese described as the “soybean shock.” The action proved unnecessary, and the sanctions were lifted within 45 days. And the real damage proved to be to the U.S. farm economy, its reputation as a reliable supplier smeared, and South American soybean production boosted dramatically.

Lessons to learn

Short supply sanctions also played a role in the 2008 and 2012 food crises, when prices of staples like rice, corn and wheat spiked. Russia, Thailand and other exporters stopped or limited their sales. The two-fold effect was to amplify the supply disruption and price volatility of those periods while shifting the adjustment burden onto the poorest importers, most dependent and least able to cope. Such sanctions continue to give life to the costly doctrine of food self-sufficiency when a reliable, sanction-free trading system could deliver food security at much lower cost.

Still, the lessons of the limitations and risks of economic sanctions seem to have to be re-learned each new administration — repeating an at best checkered history.
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