Economic sanctions, tariffs and what they mean for both sides
Finance & Fury Podcast · Finance & Fury
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Show Notes
Welcome to 'Say What Wednesdays' - Where we answer your finance questions.
Today's question is from Rhys:
- "I've been seeing stories on the news about Trump putting tariffs on China and sanctions on Russia. What is the benefit for the US to do this?" Thanks Rhys
Economic sanctions
- Economic sanctions are penalties applied by one or more countries against a targeted country
- Examples - trade barriers, tariffs, and restrictions on financial transactions
Economic sanctions are used as a tool of foreign policy by governments.
- imposed by a larger country upon a smaller country for
- the latter is a threat to the security of the former nation or that country treats its citizens unfairly.
- They can be used as a coercive measure for achieving particular policy goals, e.g stopping
- Illegal trade or
- for humanitarian violations.
- Economic sanctions are used as an alternative weapon instead of going to war to achieve desired outcomes.
Effectiveness of economic sanctions
Studies
- Haufbauer - 34% of the cases were 'successful'
- Robert A. Pape re-examined their study, and only five of their forty so-called "successes" stood out, dropping their success rate to 4%.
Types
- Import restrictions - consumers in the imposing country would have fewer choices of goods.
- Export restrictions - the imposing country could lose markets and investment opportunities to competing countries
Some policy analysts believe imposing trade restrictions only serves to hurt ordinary people.
Jeremy Greenstock - sanctions are popular "that there is nothing else between words and military action if you want to bring pressure upon a government"
What is a tariff
- Tax on the imports or exports of something between countries.
- Example - Customs Duty - Tax on the import
- How it works
- Penalise other places for bringing goods in – but flow on effects – companies etc
- Free trade agreements – FTA.
In summary, tariffs are a tool and hurt people on both sides.