Commentary

Going Alone on Economic Sanctions Hurts U.S. More than Foes

By Daniel Griswold
This piece orignially appeared on TechCentralStation.com on November 27, 2000.

Using trade as a weapon of foreign policy has harmed America’s economic interests in the world without significantly advancing national security.

The proliferation of trade sanctions in the last decade has been accompanied by their declining effectiveness. From Cuba to Iran to Burma, sanctions have failed to achieve the goal of changing the behavior or the nature of target regimes. Sanctions have, however, deprived American companies of international business opportunities, punished domestic consumers, and hurt the poor and most vulnerable in the target countries.

According to the president’s Export Council, the United States has imposed more than 40 trade sanctions against about three-dozen countries since 1993.

The council estimates that those sanctions have cost American exporters $15 billion to $19 billion in lost annual sales overseas and caused long-term damage to U.S. companies—lost market share and reputations abroad as unreliable suppliers.

Economic sanctions are especially damaging when applied to “duel use” technology. U.S. companies face a web of controls that inhibit exporting high-speed computers and other high-tech goods that, while civilian in nature, could conceivably be used by a hostile regime for military purposes.

Export controls on high-tech goods suffer from two fatal flaws: The first is that similar technology can often be obtained off the shelf from foreign competitors. Export controls succeed only in cutting U.S. firms out of fast-growing foreign markets without enhancing national security one bit.

The second flaw is that whatever controls are written into law are quickly outdated by Moore’s law of technological advancement. Today’s “supercomputer” inevitably becomes tomorrow’s high-end PC.

As well as inflicting economic damage, trade sanctions have been a foreign policy flop. A comprehensive study by the Institute for International Economics found that sanctions have achieved their objectives in fewer than 20 percent of cases. For example, the Nuclear Proliferation Prevention Act of 1994 failed to deter India and Pakistan from testing nuclear weapons in May 1998.

Trade sanctions seldom work because of the competitive global marketplace and the nature of regimes most likely to arouse America’s ire. Although the United States is by far the world’s largest economy, its global economic leverage is limited. The United States accounts for only 13 percent of the world’s merchandise exports and 16 percent of its imports. If Washington seeks to punish another country by unilaterally withholding exports, such as farm products, computers, or oil-drilling services, other global suppliers stand ready to fill the gap.

Even if sanctions inflict some pain on the target country, they typically fail because of the nature of regimes most likely to become targets of sanctions. Human rights abuses tend to vary inversely with economic development. Governments that systematically deprive citizens of basic human rights typically intervene in daily economic life, resulting in underdeveloped and relatively closed economies. Such nations are the least sensitive to economic pressure. The autocratic nature of their governments also means that they are relatively insulated from any domestic discontent caused by sanctions. If anything, sanctions tend to concentrate economic power in the hands of the target government and reduce that of citizens.

America’s ongoing embargo against Cuba illustrates the failure of sanctions. When the United States first imposed a comprehensive trade embargo in 1961, Cuba was conducting most of its trade with the United States. Since then, sanctions have utterly failed to influence the government of Fidel Castro, which has used the embargo to excuse its own policy failures and gain international sympathy. Although the embargo once enjoyed a measure of international support, today no other nation stands behind it. The reason is obvious: nearly 40 years after its imposition, the embargo has only hurt American companies and the Cuban people, while leaving the Castro regime firmly entrenched with little prospect of change. The manifest failure of U.S. policy prompted Pope John Paul II during his historic visit to Cuba in January 1998 to declare that sanctions are “always deplorable, because they hurt the most needy.”

Defenders of sanctions often cite South Africa as a success, but sanctions were not the only reason apartheid fell; the fall of the Soviet Union contributed to the climate of reform. Moreover, sanctions against South Africa differed from most U.S. sanctions today in two key respects. One, they were multilateral, while the large majority of sanctions imposed by the United States since 1993 have been unilateral. Second, the apartheid government in South Africa was answerable to a limited but still sizable electorate of about 5 million whites, which made the government more sensitive to outside pressure. Given that multilateral sanctions against a semi-democratic government were not sufficient to force change, it is virtually guaranteed that unilateral sanctions against a dictatorship will fail.

U.S. influence around the world is strengthened by the presence of American multinational companies. Foreign direct investment is not only profitable for American shareholders; it also helps foster greater economic growth in less-developed nations. American companies introduce new technologies and production methods, while raising wages and labor standards. That creation of wealth helps to advance social, political, and economic institutions that are independent of the ruling authorities. Companies engaged in long-term investments in Burma and elsewhere also help to build schools, hospitals, and roads.

China offers a good example of how economic engagement can help to slowly but steadily change a country for the better. Over the past two decades, China has become America’s fourth largest trading partner and the world’s second largest recipient of foreign direct investment behind only the United States, and China will soon be a member of the World Trade Organization.

China’s internal market reforms and increasing openness have fostered rapid growth that has led to rising living standards and greater autonomy for citizens. The share of industry controlled directly by the government has fallen from almost 100 percent two decades ago to less than 50 percent today. Private ownership of homes and businesses is rising dramatically.

Continued economic engagement has also helped open the door to China for a growing number of organizations whose mission is to promote religious and political freedom. For example, East Gates Ministries International, headed by evangelist Ned Graham, has been able to distribute millions of Bibles to Chinese believers. More than a decade after the outrage of Tiananmen Square, the communist government has begun to release political prisoners and allow a small measure of internal criticism. As was the case in Taiwan and South Korea, China’s economic liberalization is creating a foundation for a more vigorous civil society independent of government control.

Daniel Griswold is the director of the Center for Trade Policy Studies at the Cato Institute.