Say What Wednesdays

Economic sanctions, tariffs and what they mean for both sides

Welcome to Say What Wednesdays – Where We Answer your finance questions

Question from Rhys

  1. “I’ve been seeing stories on the news about Trump putting tariffs on China and sanctions on Russia. What is the benefit for the US to do this?” Thanks Rhys

Economic sanctions

  1. Economic sanctions are penalties applied by one or more countries against a targeted country
  2. Examples – trade barriers, tariffs, and restrictions on financial transactions

Economic sanctions are used as a tool of foreign policy by governments.

  1. imposed by a larger country upon a smaller country for
    1. the latter is a threat to the security of the former nation or that country treats its citizens unfairly.
    2. They can be used as a coercive measure for achieving particular policy goals, e.g stopping
      1. Illegal trade or
      2. for humanitarian violations.
    3. Economic sanctions are used as an alternative weapon instead of going to war to achieve desired outcomes.

Effectiveness of economic sanctions

Studies

  1. Haufbauer – 34% of the cases were ‘successful’
  2. Robert A. Pape re-examined their study, and only five of their forty so-called “successes” stood out, dropping their success rate to 4%.

Types

  • Import restrictions – consumers in the imposing country would have fewer choices of goods.
  • Export restrictions – the imposing country could lose markets and investment opportunities to competing countries

Some policy analysts believe imposing trade restrictions only serves to hurt ordinary people.

Jeremy Greenstock – sanctions are popular “that there is nothing else between words and military action if you want to bring pressure upon a government”

What is a tariff –

  1. Tax on the imports or exports of something between countries.
  2. Example – Customs Duty – Tax on the import
  3. How it works
    1. Penalise other places for bringing goods in – but flow on effects – companies etc
    2. Free trade agreements – FTA.

Tariffs are a tool and hurts people on both sides.

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