Countries often rely on economic sanctions as a lever to change policy in foreign countries. The recent example of Huawei provides a good example of why sanctions are often (not always) ineffective:
American tech companies are getting the go-ahead to resume business with Chinese smartphone giant Huawei Technologies Co., but it may be too late: It is now building smartphones without U.S. chips. . . .
“When Huawei came out with this high-end phone—and this is its flagship—with no U.S. content, that made a pretty big statement,” said Christopher Rolland, a semiconductor analyst at Susquehanna International Group. He said that in recent meetings, Huawei executives told him that the company was moving away from American parts, but it was still surprising how quickly it happened.
In this case there seem to be two issues. First, sanctions were weakened after US firms complained that they were losing valuable exports opportunities in China. Second, the ability of firms to substitute away from key inputs is often greater than expected. Indeed this is a point that goes well beyond economic sanctions. For instance, environmental regulations often prove to be less costly than expected, as firms find other (cleaner) ways of producing goods at a cost that is less than expected.
In my view, sanctions are only justified when there is a need to deter military aggression. However one can make a reasonable argument for sanctions in the case of severe human rights abuses. The situation in Hong Kong certainly does not justify sanctions; if there were a case, it would be the far more severe human rights abuses in Xinjiang. But in that case it would be hard to justify not doing the same regarding India, which is committing severe human rights abuses against millions of Muslim citizens in Assam and Kashmir. Do we really want to have sanctions against India, China, Russia, Saudi Arabia, North Korea, Syria, Iran and many other countries, comprising half the world’s population? Or would that do more harm than good?
In general, economic growth is the best way to improve human rights in the long run. In the short run it doesn’t always work (as we see in India and China) but it’s our best hope for the long run.
READER COMMENTS
E. Harding
Dec 2 2019 at 12:42am
Solidly agree, Sumner, with this caveat: sanctions never work on U.S. non-allies, ever (unless they are extremely severe and internationally enforced). In fact, without exception, they make U.S. non-allies’ regimes stronger and fail to deter military aggression (except, as in the case of Iraq, through total economic sabotage). That is why the Cuban, Venezuelan, and Iranian regimes are still alive and kicking while the Indonesian, Guatemalan, and South Korean regimes have long fallen. The Soviet Union was not persuaded into falling through sanctions, but through just the opposite -excessive economic reliance on the developed West.
Phil H
Dec 2 2019 at 7:53am
“In the short run it doesn’t always work (as we see in India and China)”
In the case of China, I don’t even think this caveat is true. It’s far from clear that the human rights situation in China is worse than 10 years ago. Xinjiang is obviously a disgrace, but the general improvement for the rest of China’s massive population has been real. And ten years ago, Tibet was nearly as bad as Xinjiang is now. 20 years ago, it was the Falun Gong crackdown (combined with real organ harvesting, which, so far as I can tell, has now stopped). Thirty years ago… hardly needs saying. And forty years ago, China was only just emerging from the Cultural Revolution. If you think Chinese human rights are terrible now, I’m afraid it’s only because you weren’t paying attention to what came before.
(Sorry, Scott, I know you’ve seen me say this before. But I think it’s a really important message.)
This all just strengthens Scott’s main point.
Scott Sumner
Dec 2 2019 at 2:15pm
I mostly agree. Obviously human rights have improved in many areas (end of one child policy, gay rights, etc.). And in all areas as compared to under Mao, But speech is less free than 20 years ago.
Steve S
Dec 2 2019 at 9:11am
Did we ever try to directly address the IP theft issues that are at the heart of Huawei’s blacklisting? There was an article on here or Marginal Revolution about how China is pretty good about resolving issues with the WTO. Why use a hammer when we’re trying to put in a screw?
FWIW I work in the electronics industry and we had a customer tell us that some guys from Huawei America (last year before they shut that down) were taking pictures of all his products and wouldn’t stop even when asked. So I think they do have a mentality of copying ideas and not respecting IP, I just wish we would try to address it head on instead of with sloppily applied sanctions.
Scott Sumner
Dec 2 2019 at 2:16pm
I agree.
Lorenzo from Oz
Dec 3 2019 at 8:09pm
How much of sanctions are another case of “needing to be seen to be doing something”? Such behaviour in domestic policies tends to be very selective cases of signalling too. Though it might well be the case that international affairs, with weaker information and feedback, is much more inclined to be selective.
Matthias Görgens
Dec 8 2019 at 4:13am
Not even sure economic growth doesn’t work in the short run.
India and China could do better, but they are already doing much better than in the counterfactual with less growth, aren’t they?
Economic growth doesn’t lead to perfection in the short run, yes.
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