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

This piece orignially appeared on Tech​Cen​tral​Sta​tion​.com on November 27, 2000.

Using trade as a weapon of foreign policy has harmed America’seconomic interests in the world without significantly advancingnational security.

The proliferation of trade sanctions in the last decade has beenaccompanied by their declining effectiveness. From Cuba to Iran toBurma, sanctions have failed to achieve the goal of changing thebehavior or the nature of target regimes. Sanctions have, however,deprived American companies of international businessopportunities, punished domestic consumers, and hurt the poor andmost vulnerable in the target countries.

According to the president’s Export Council, the United Stateshas imposed more than 40 trade sanctions against about three‐​dozencountries since 1993.

The council estimates that those sanctions have cost Americanexporters $15 billion to $19 billion in lost annual sales overseasand caused long‐​term damage to U.S. companies – lost market shareand reputations abroad as unreliable suppliers.

Economic sanctions are especially damaging when applied to “dueluse” technology. U.S. companies face a web of controls that inhibitexporting high‐​speed computers and other high‐​tech goods that,while civilian in nature, could conceivably be used by a hostileregime 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 theshelf from foreign competitors. Export controls succeed only incutting U.S. firms out of fast‐​growing foreign markets withoutenhancing national security one bit.

The second flaw is that whatever controls are written into laware quickly outdated by Moore’s law of technological advancement.Today’s “supercomputer” inevitably becomes tomorrow’s high‐​endPC.

As well as inflicting economic damage, trade sanctions have beena foreign policy flop. A comprehensive study by the Institute forInternational Economics found that sanctions have achieved theirobjectives in fewer than 20 percent of cases. For example, theNuclear Proliferation Prevention Act of 1994 failed to deter Indiaand Pakistan from testing nuclear weapons in May 1998.

Trade sanctions seldom work because of the competitive globalmarketplace and the nature of regimes most likely to arouseAmerica’s ire. Although the United States is by far the world’slargest economy, its global economic leverage is limited. TheUnited States accounts for only 13 percent of the world’smerchandise exports and 16 percent of its imports. If Washingtonseeks to punish another country by unilaterally withholdingexports, such as farm products, computers, or oil‐​drillingservices, other global suppliers stand ready to fill the gap.

Even if sanctions inflict some pain on the target country, theytypically fail because of the nature of regimes most likely tobecome targets of sanctions. Human rights abuses tend to varyinversely with economic development. Governments thatsystematically deprive citizens of basic human rights typicallyintervene in daily economic life, resulting in underdeveloped andrelatively closed economies. Such nations are the least sensitiveto economic pressure. The autocratic nature of their governmentsalso means that they are relatively insulated from any domesticdiscontent caused by sanctions. If anything, sanctions tend toconcentrate economic power in the hands of the target governmentand reduce that of citizens.

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

Defenders of sanctions often cite South Africa as a success, butsanctions were not the only reason apartheid fell; the fall of theSoviet Union contributed to the climate of reform. Moreover,sanctions against South Africa differed from most U.S. sanctionstoday in two key respects. One, they were multilateral, while thelarge majority of sanctions imposed by the United States since 1993have been unilateral. Second, the apartheid government in SouthAfrica was answerable to a limited but still sizable electorate ofabout 5 million whites, which made the government more sensitive tooutside pressure. Given that multilateral sanctions against asemi‐​democratic government were not sufficient to force change, itis virtually guaranteed that unilateral sanctions against adictatorship will fail.

U.S. influence around the world is strengthened by the presenceof American multinational companies. Foreign direct investment isnot only profitable for American shareholders; it also helps fostergreater economic growth in less‐​developed nations. Americancompanies introduce new technologies and production methods, whileraising wages and labor standards. That creation of wealth helps toadvance social, political, and economic institutions that areindependent of the ruling authorities. Companies engaged inlong‐​term investments in Burma and elsewhere also help to buildschools, hospitals, and roads.

China offers a good example of how economic engagement can helpto slowly but steadily change a country for the better. Over thepast two decades, China has become America’s fourth largest tradingpartner and the world’s second largest recipient of foreign directinvestment behind only the United States, and China will soon be amember of the World Trade Organization.

China’s internal market reforms and increasing openness havefostered rapid growth that has led to rising living standards andgreater autonomy for citizens. The share of industry controlleddirectly by the government has fallen from almost 100 percent twodecades ago to less than 50 percent today. Private ownership ofhomes and businesses is rising dramatically.

Continued economic engagement has also helped open the door toChina for a growing number of organizations whose mission is topromote religious and political freedom. For example, East GatesMinistries International, headed by evangelist Ned Graham, has beenable to distribute millions of Bibles to Chinese believers. Morethan a decade after the outrage of Tiananmen Square, the communistgovernment has begun to release political prisoners and allow asmall measure of internal criticism. As was the case in Taiwan andSouth Korea, China’s economic liberalization is creating afoundation for a more vigorous civil society independent ofgovernment control.