Taalya Khan
The Impact of U.S. Trade Sanctions on Global Security: Economic Leverage or Strategic Risk?
In an increasingly interconnected world, the United States has a long history of leveraging economic sanctions as a tool to advance its foreign policy goals. By sanctioning adversaries like Russia, Iran, and North Korea, the U.S. seeks to isolate these nations economically, exert pressure on their governments, and drive changes in behavior without resorting to direct military conflict. However, as U.S. sanctions grow more widespread and affect more countries and sectors, a pressing question arises: are these sanctions making the world more secure, or are they instead creating new economic and security vulnerabilities? The evidence seems to suggest the latter.
The United States has imposed three times as many sanctions as any other country. In fact, for their part in Russia’s war against Ukraine, the U.S. is currently sanctioning a total of 400 individuals and entities. Sanctions are intended to disrupt the economies of target nations by restricting their access to foreign markets, cutting off financial networks, and impeding critical imports like technology and energy resources. These actions can lead to economic decline, inflation, and currency devaluation within a sanctioned country, making it more challenging for its government to finance aggressive activities. For example, sanctions on Iran’s oil industry during Trump’s ‘Maximum Pressure’ campaign reduced the country’s oil reserves and revenue and, in theory, its capacity to fund proxy conflicts and nuclear development. Similarly, sanctions on Russia following its invasion of Ukraine aim to restrict its ability to finance the war and make the cost of continued aggression unmanageable.
However, while the economic impact on these nations can be severe, the effectiveness of sanctions is not always guaranteed, and the unintended consequences that may result from their imposition can be far-reaching. First, sanctions may harm civilian populations more than government leaders. In Iran, for instance, sanctions have led to increased poverty, higher food prices, and shortages of medical supplies, deepening the suffering of ordinary citizens rather than those in power. The sanctions imposed in Iran by the EU and the U.S. between 2012 and 2015 resulted in higher poverty rates and higher poverty immobility. Immobility increased from 33% to 50% during the sanction period for the lowest percentile group in an expenditure distribution for households in Iran. This adverse impact on a country's ordinary citizens risks fostering widespread anti-American sentiment, undermining U.S. diplomatic relationships, and providing regimes with propaganda to strengthen their domestic control.
Worse still, sanctions can fail and have the opposite effect of what was intended. Studies show that sanctions increase foreign investment in the sanctioned country. Rather than deterring global investment, they encourage it. A 2013 study illustrates how U.S. disinvestment encourages foreign direct investment. It is seen as an opportunity to earn substantial profits rather than an increased risk to be avoided. This foreign investment diminishes the leverage of sanctions and renders them essentially useless.
Moreover, the overuse of sanctions risks driving global markets away from the U.S. dollar. Currently, the dollar is the world’s reserve currency, granting the U.S. unique financial power. However, as sanctioned nations seek to evade U.S. financial controls, they may turn to alternative currencies or cryptocurrency markets to bypass restrictions. Russia has already made one such attempt when it tried to bypass the Society for Worldwide Interbank Financial Telecommunications (SWIFT) by passing a bill to allow cryptocurrency payments in international trade. Their efforts to evade and retaliate against the U.S. by bypassing the Society for Worldwide Interbank Financial Telecommunications (SWIFT) show that similar strategies and sanctions may soon be mimicked by other countries. This shift could weaken the global standing of the U.S. dollar, ultimately reducing the economic strength that underpins America’s position in global affairs.
So, are sanctions truly useless, or can they maximize advantageous outcomes? Sanctions remain a valuable foreign policy tool, but in order for them to remain so, they must be used strategically and selectively, with careful consideration of both their intended and unintended impacts. U.S. policymakers should aim to target specific sectors that have direct implications for security, such as weapons production or financing for terrorism, while minimizing harm to civilian populations. Targeted sanctions maximize economic harm and, thus, maximize the benefit of the sanctions. A study by two economists from Georgetown University, Daniel Ahn and Rodney Ludema, shows that a targeted company loses one-quarter of its operating revenue, one-third of its employees, and over one-half of its asset value compared to a non-targeted one.
In the end, sanctions are most powerful when they are part of a broader diplomatic strategy that includes dialogue and negotiation. This has worked in the past. In 2000, before China joined the World Trade Organization (WTO), the U.S. and China negotiated to fix trade imbalances and open up Chinese markets. This improved trade relations without resorting to sanctions. This is why sanctions should be used exclusively as a last resort after all other methods, like trade agreements or negotiations, have been exhausted. When used wisely, sanctions can serve as an effective tool for peace; however, the ways they are currently used create a more fractured and unstable world.
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