I have supported economic sanctions on Russia after the Ukraine invasion. Thus I clearly believe that they have at least some impact. But there’s a lot of evidence that sanctions aren’t actually very powerful. Russia’s economy has done pretty well despite last year’s enactment of what most pundits regarded as extremely severe sanctions.
A recent issue of The Economist provides two more examples of the relatively weak impact of sanctions. Here’s the title of an article discussing the impact of China’s sanctions on Australia:
Australia has faced down China’s trade bans and emerged stronger
The “lucky country” may be uniquely able to endure Chinese bullying
Uniquely able? Really? The US couldn’t survive Chinese trade sanctions? And what about all of the other countries that China has tried to pressure?
In the same issue, they provide a second example of this sort of “unique” outcome:
Europe has shaken off Putin’s gas embargo
Now it needs to think about how to deal with China
Some have argued that Europe “got lucky”. In fact, just the opposite is true. They got very unlucky:
Far from falling into an abyss, Europe’s largest economy suffered only the mildest of technical recessions. Some have put this down to luck, notably a mild winter in much of Europe reducing the demand for heating. In fact, the economists find, the weather was in line with recent years. If anything, other factors compounded the effect of missing Russian gas. French nuclear plants turned out to need unexpected maintenance at the worst possible time, for example.
The gas cutoff also occurred just after Germany had closed down some nuclear power plants. During a normal year, the Russian sanctions would have been even less effective.
So we have three recent examples where almost all of the so-called “geopolitical experts” badly misjudged the impact of sanctions. The devastating impact predicted for Russia and Europe, and to a lesser extent Australia, turned out to be wildly overstated.
Now many geopolitical experts say the US needs to be prepared to go to war with China—an outcome that might accidentally lead to a catastrophic nuclear war—because our economy would be devastated without the supply of computer chips from Taiwan.
Sorry guys, you’ve cried wolf too many times. Yes, by all means support Taiwan with military aid. But just as in Ukraine, a direct war between two nuclear-armed superpowers would be madness.
READER COMMENTS
S. F. Griffin
Jul 13 2023 at 3:31am
If sanctions don’t have much effect, is free trade unimportant?
Jon Murphy
Jul 13 2023 at 7:34am
No. That is an incorrect conclusion to draw. It’s like saying that just because one gets kicked out of a pub eating must be unimportant.
Sanctions have effects, but those effects can be very small for several reasons:
– Sanctions tend to be targeted against single industries or individuals, not necessarily broad swaths
-Sanctions, just like anything else, suffer from diminishing marginal returns. If a government is imposing more sanctions, they’re liable to have a smaller effect
-The availability of subsitutes. Russian sanctions on Europe were largely ineffective because Europe was able to turn to the US and other places for their energy needs quite quickly.
-How fungible the target of the sanctions are. Sanctions on Russian oil were largely ineffective because oil is a fungible commodity.
-Limited power of the imposing government. Governments only have authority over their own citizens. For example, the US government cannot impose sanctions on Russian officials per se. The US government imposes sanctions on its citizens as a proxy.
In short: do not generalize from a specific case.
vince
Jul 13 2023 at 1:19pm
If sanctions don’t have an effect, then the argument is weaker that free trade is risky. On the other hand is the possibility that:
Grand Rapids Mike
Jul 13 2023 at 9:38am
Another reason for limiting the impact of sanctions is the ubiquitous black market, where there is a demand there is a supplier at a price of course.
Jim Glass
Jul 13 2023 at 11:19pm
Do sanctions work?
To decide this, and whether they do so well or poorly, one must judge their results by their objectives as stated when imposed, as per relevant broad data. Not by later selected, perhaps irrelevant, anecdotes.
When the sanctions on Russia were imposed, Blinken said they had three purposes: (1) to make it more costly for Russia to conduct the war, especially over the long run; (2) to make it impossible for Russia to conduct further such adventures in the future, and (3) to make sure that other nations which might be planning such military adventures (I wonder who?) well know that they will incur major economic costs as a result — rather than falsely expect that the West will fold to keep the trade in oil and other goodies flowing, as Putin expected.
So I spent a few minutes looking for recent releases on relevant broad data:
Infographic – Impact of sanctions on the Russian economy. Trade data, energy revenue etc. From the Council of the European Union.~~~
~~~How Putin Cannibalizes Russian Economy to Survive Personally
— Jeffrey Sonnenfeld and Steven Tian , Yale School of Management ~~~~
By Blinken’s three criteria, ISTM the sanctions are working fine. I guess your mileage may vary.
And all this is totally apart from another major import of sanctions which commentators on this site always ignore….
nobody.really
Jul 14 2023 at 9:38am
Thanks for that cite.
Ok, I’ll bite: What is that other major impact of sanctions that commentators ignore?
Jon Murphy
Jul 14 2023 at 9:59am
I don’t think these data support your conclusion strongly. No one denied that sanctions would make war more costly (indeed, that’s one of the arguments for free trade). The question, rather, is whether sanctions are harming Putin such that he is willing to abandon war. If one is prepared for sanctions, then their effects become smaller. By way of analogy, if a hurricane is coming and one prepares for the hurricane by stocking up on needed supplies, then the potential damage by the storm is weakened considerably. There are still costs, but the costs are reduced. Yes, I still lose power and water, but if I have a crank radio and a year’s supply of water, then I’m not really made significantly worse off.
I think the bigger issue will come from non-economic pressures, namely whether Russia is prepared for a long war of attrition. The past year and a half suggests they are not.
Also, to your point:
This point here only holds if there is uncertainty surrounding sanctions. That, obviously, has not been the case for over a century. So, that particular argument doesn’t hold.
Rather, I think it support’s Scott’s (and other free marketers’) claims about free trade rather strongly. Most protectionists/industrial planners/anti-free-traders claim that sanctions will cause major economic pain on us. China or whoever can just dictate policy by threatening sanctions or the West would be hesitant to impose sanctions. But, as we see with Russia (and other cases where economic power is used to try and influence policy) that just doesn’t work. Even with a small country like Cuba versus a big one like the US. Just because Putin, Cass, Trump, etc haven’t learned that lesson doesn’t mean it’s not there.
Jim Glass
Jul 14 2023 at 12:09pm
I don’t think these data support your conclusion strongly….
Russia Budget Deficit Hits $45 Billion, Exceeding Full-Year Goal
“Spending surges amid war as oil, gas revenues drop 52%…” – Bloomberg
Russia planning 10% spending cut for 2024 budget
“As sanctions shrink energy revenues and spending soars to fund fighting in Ukraine, the budget deficit is already 17% above the plan for the whole of 2023….” — Reuters
There’s a lot more info like this, but the true bottom line was stated by Sergei Guriev, former Russian presidential economic advisor come west, when he was asked if the sanctions are working…
“They have cost Russia many billions of dollars. Every billion is a billion Putin can’t use to kill Ukrainians by buying mercenaries and drones, and is a loss that makes more difficulties for him. He delayed mobilization because he wanted a paid army, but ran out of money. The mass mobilization is one of his biggest political problems….”
People who knee-jerk out “sanctions can’t work” ignoring all data do no favors for the victims of murderous aggression in Ukraine … nor for the defense of liberal democracy (starting in the say the Baltics – ask those closest to Russia who have the most experience with it for their opinion) … nor for protecting the west from Putin’s dream “break NATO” challenge (ask his biographers) of rolling his divisions up to the border of Latvia and asking: “Article 5? Really?”. Which the Ukrainians are doing us the great favor of stopping in its tracks — at such tremendous cost to themselves.
Jon Murphy
Jul 14 2023 at 4:41pm
Merely repeating the statistics does not stregthen the argument.
Scott Sumner
Jul 14 2023 at 3:07pm
The sanctions aimed at Russia were far more comprehensive than those aimed at Europe and Australia, and thus I’m not surprised that their impact was greater. But it’s also true that their impact was far less than anticipated by most pundits.
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