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
- “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 are penalties applied by one or more countries against a targeted country
- Examples – trade barriers, tariffs, and restrictions on financial transactions
Economic sanctions are used as a tool of foreign policy by governments.
- imposed by a larger country upon a smaller country for
- the latter is a threat to the security of the former nation or that country treats its citizens unfairly.
- They can be used as a coercive measure for achieving particular policy goals, e.g stopping
- Illegal trade or
- for humanitarian violations.
- Economic sanctions are used as an alternative weapon instead of going to war to achieve desired outcomes.
Effectiveness of economic sanctions
- Haufbauer – 34% of the cases were ‘successful’
- Robert A. Pape re-examined their study, and only five of their forty so-called “successes” stood out, dropping their success rate to 4%.
- 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 –
- Tax on the imports or exports of something between countries.
- Example – Customs Duty – Tax on the import
- How it works
- Penalise other places for bringing goods in – but flow on effects – companies etc
- Free trade agreements – FTA.
Tariffs are a tool and hurts people on both sides.