Government and Institutions

Trade sanctions rarely work & create substantial costs for the world economy



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Press Release

A note from Neil Record

IEA releases report on the side effects of trade sanctions

More and more, governments are using sanctions as a tool to change the behaviour of other countries – most notably the USA. But according to a new IEA report released today, these sanctions are often ineffective and can have damaging consequences.

The report, ‘Blocking Progress: The damaging side effects of economic sanctions’, makes the case that economic sanctions not only undermine the well-being of people living in the targeted country, but they also have a negative impact on the world economy, while rarely achieving foreign policy aims.

A key example highlighted in the report is the sanctions imposed on Russia. The total trade loss brought about by these sanctions has reached $114bn, with $44bn borne by Western countries often imposing the sanctions. Even neutral countries incur a trade loss as a result of sanctions, because they essentially break or disrupt global value chains that connect people and business together.

Sanctions can also significantly reduce the civil liberties and democratic freedoms of those living in the sanctioned state, according to the report. They come to rely on more state centralisation for basic provisions, and therefore turn away from market freedom.

The evidence collated in this report shows that, ultimately, sanctions do not work. A key aim of foreign policy should be to promote free global trade, the report argues, to secure future peace and prosperity.

Effects of sanctions

•   They result in a trade loss, which limits or reduces economic well-being and consequently the living standards of people living in the sanctioned country.

•   They break the link of the targeted nation to the global marketplace; goods that used to be imported are suddenly in short supply and those who work in exporting firms face the prospect of job loss.

•   There is a ‘friendly-fire’ effect of sanctions policy – neutral countries are impacted because global value chains are disrupted.

•   They can reduce economic and civil liberties – the sanctioned country usually turns to state intervention and away from market freedom.

•   They undermine free exchange which breeds global prosperity and peaceful relations.

Example: Consequences of sanctions in Iraq

The UN Security Council placed a near-total trade and financial embargo on Iraq after their invasion of Kuwait.

•  Sanctions created poverty and malnutrition among the civilian population.

•  Per capita income dropped by almost 87 per cent over a period of 7 years.

•  People’s living standards collapsed.

Commenting on the report, Dr Jamie Whyte, Research Director at the Institute of Economic Affairs said: 

“Governments are quick to impose sanctions – including trade embargoes – on foreign regimes they disapprove of. It’s usually a mistake, imposing costs on innocent people inside and outside the sanctioned country and entrenching the ideology of the targeted regime.”

Notes to editors

For media enquiries please contact Nerissa Chesterfield, Head of Communications: [email protected]  020 7799 8920 or 07791 390 268

To download the IEA’s ‘Blocking Progress: The damaging side effects of economic sanctions’ click here.

For more research from the IEA on sanctions click here.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.

The IEA is a registered educational charity and independent of all political parties.