Cato Policy Analysis No. 124 November 7, 1989

Policy Analysis

Economic Sanctions:
Foreign Policy Levers Or Signals?

by Joseph G. Gavin III

Joseph G. Gavin III currently serves as associate Washington representative and manager, trade policy, for the U.S. Council for International Business.


Executive Summary

It is a paradox of policymaking that economic sanctions are so often imposed in the pursuit of U.S. foreign policy objectives with so little apparent success. That paradox is exemplified now by the continued reign of General Manuel Noriega in Panama and prospectively by the probable results of U.S. sanctions in response to the repression of protesters in the People's Republic of China. As of April 1988 U.S. foreign policy sanctions were in force against 27 countries,[l] and even state and local governments have begun imposing economic sanctions aimed at foreign policy goals.

To better understand this paradox it is useful to reexamine common perceptions of economic sanctions. The main conclusion of this analysis is that the chief purpose of foreign policy sanctions is to send signals and not, as is commonly perceived, to exert economic leverage. A corollary is that the pressures to impose foreign policy economic sanctions are likely to endure despite the paucity of tangible results. In light of this finding it is important that policymakers recalculate the balance of likely short-term policy gains against the harmful long-term effects of such policies on the competitiveness of U.S. industry.

Inside the Beltway the reigning study of the effectiveness of economic sanctions is by Gary Hufbauer and Jeffrey Schott, who define economic sanctions as "the deliberate government- inspired withdrawal, or threat of withdrawal, of 'customary' trade or financial relations."[2] Such sanctions are used as a "tool to coerce target governments into particular avenues of response."[3] The economic leverage discussed here is used to influence national policies or behavior that is not normally considered economic.[4] Economic leverage may be attempted by imposing export controls, import restrictions, curbs on investment, reductions in foreign aid, or freezes of financial assets. Policymakers impose such sanctions to achieve a change in some noneconomic policy, to inflict punishment in the form of economic hardship, as a "demonstration of resolve"[5] to express disapproval of some action, or to achieve some combination of these objectives.

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