Economic Sanctions, Economic Statecraft and Trade Wars

Introduction

Economic statecraft refers to the use of economic resources and instruments to pursue foreign-policy, diplomatic or strategic objectives. Economic sanctions are among its most important tools.

States can use trade restrictions, financial measures, investment controls, asset freezes and other economic instruments to influence the behaviour of governments, organizations or individuals.

A trade war occurs when states impose escalating trade restrictions against one another, often involving tariffs and retaliatory measures.

Economic Statecraft

Economic Statecraft: Use of economic instruments to achieve political, diplomatic, security or strategic objectives.

Economic statecraft can involve:

• Trade
• Investment
• Foreign aid
• Loans
• Financial access
• Currency policy
• Export controls
• Import restrictions
• Economic sanctions
• Technology restrictions

Positive and Negative Economic Statecraft

Positive Economic Statecraft: Use of economic incentives to encourage desired behaviour.

Examples include:

• Development assistance
• Preferential trade access
• Investment
• Loans
• Debt relief
• Economic partnerships

Negative Economic Statecraft: Use of economic restrictions to discourage or punish specified behaviour.

Examples include:

• Sanctions
• Embargoes
• Asset freezes
• Export controls
• Financial restrictions
• Trade restrictions

Economic Sanctions

Economic Sanction: Restrictive economic measure imposed to influence the behaviour of a state, organization, company or individual.

Unilateral Sanctions: Sanctions imposed by one state or jurisdiction.

Multilateral Sanctions: Sanctions imposed by multiple states acting together.

International Sanctions: A broad term for economic or other restrictive measures adopted internationally.

Types of Sanctions

Comprehensive Sanctions: Broad restrictions affecting a large portion of economic relations with a target.

Targeted Sanctions: Restrictions directed at specific individuals, organizations, sectors or activities.

Sectoral Sanctions: Restrictions focused on particular sectors of an economy.

Financial Sanctions: Measures restricting access to financial services, transactions, assets or financial institutions.

Trade Sanctions: Restrictions on imports, exports or other forms of international trade.

Arms Embargo: Prohibition or restriction on the transfer of weapons to a specified destination or actor.

Investment Restrictions: Limits on investment in specified countries, companies or sectors.

Asset Freeze: Restriction preventing specified assets from being transferred, sold or otherwise dealt with.

Embargo

Embargo: Official prohibition or substantial restriction on trade with a particular country, territory or actor.

An embargo may be comprehensive or limited to particular goods, services or sectors.

Export Controls

Export Control: Government regulation restricting the export of specified goods, technologies, software or services.

Export controls may apply to:

• Military equipment
• Dual-use technologies
• Advanced computing
• Sensitive manufacturing equipment
• Nuclear-related materials
• Strategic commodities

Dual-Use Goods: Goods, software or technology that can have both civilian and military applications.

Financial Restrictions

Financial Sanctions: Measures restricting access to financial institutions, payment systems, capital markets or financial assets.

Banking Restrictions: Measures limiting banking relationships or transactions involving a targeted actor.

Asset Freeze: Restriction on dealing with specified financial or physical assets.

Secondary Sanctions: Measures that may impose restrictions on third-country actors for conducting specified transactions with a sanctioned target.

Sanctions Enforcement

Sanctions Compliance: Measures taken by companies, financial institutions and other organizations to comply with applicable sanctions.

Sanctions Evasion: Attempts to circumvent sanctions through prohibited or concealed transactions.

Sanctions Circumvention: Use of alternative routes, intermediaries or structures to avoid restrictions.

Sanctions Monitoring: Processes used to detect violations or assess implementation of sanctions.

Effectiveness and Costs

Sanctions may seek to:

• Change government behaviour
• Prevent access to strategic resources
• Restrict military capabilities
• Signal international opposition
• Increase the economic cost of specified policies
• Support diplomatic negotiations

Their effects can vary according to the target’s economic resilience, alternative markets, domestic institutions and the degree of international participation.

Sanctions Effectiveness: Degree to which sanctions contribute to achieving their stated objectives.

Sanctions Impact: Economic, political and social consequences of sanctions.

Sanctions Spillover: Effects of sanctions on countries, companies or populations outside the immediate target.

Economic Coercion

Economic Coercion: Use or threatened use of economic measures to influence another actor’s behaviour.

Economic Pressure: Broader term covering economic measures intended to influence another actor.

Economic Leverage: Ability to use economic relationships or resources to influence outcomes.

Trade Wars

Trade War: Escalating trade conflict involving reciprocal restrictions between countries.

Retaliatory Tariff: Tariff imposed in response to another country’s tariff or trade measure.

Tariff Escalation: Progressive increase in tariffs between trading partners.

Trade Retaliation: Economic measures adopted in response to another actor’s trade restrictions.

Trade Dispute: Disagreement concerning trade rules, market access or trade measures.

Trade and National Security

Economic relations can increasingly become connected with national-security concerns.

Economic Security: Protection of economic capabilities, resources, technologies and supply chains from external vulnerabilities.

Strategic Trade Restriction: Trade restriction imposed partly for strategic or security purposes.

Technology Controls: Restrictions on access to strategically important technologies.

Investment Screening: Government review of foreign investments for economic, security or strategic concerns.

De-Risking and Decoupling

De-Risking: Reduction of economic exposure to particular risks while maintaining substantial economic relationships.

Decoupling: Significant reduction or separation of economic interdependence between countries or economic systems.

Friend-Shoring: Relocation of supply chains toward countries considered politically or strategically reliable.

Near-Shoring: Relocation of production or business activities to geographically closer countries.

Key Distinctions

Sanctions vs Embargo: Sanctions include a wide range of restrictive measures; an embargo is generally a prohibition or major restriction on trade with a target.

Unilateral vs Multilateral Sanctions: Unilateral sanctions are imposed by one jurisdiction; multilateral sanctions involve multiple participating jurisdictions.

Primary vs Secondary Sanctions: Primary sanctions restrict conduct within the relevant jurisdiction; secondary sanctions may target third-country actors for specified dealings with sanctioned entities.

De-Risking vs Decoupling: De-risking reduces vulnerabilities while preserving relationships; decoupling involves substantially deeper separation.

Economic Statecraft vs Economic Sanctions: Economic statecraft is the broader concept; sanctions are one category of economic statecraft.

Key Terms at a Glance

Economic Statecraft | Positive Economic Statecraft | Negative Economic Statecraft | Economic Sanctions | Unilateral Sanctions | Multilateral Sanctions | Comprehensive Sanctions | Targeted Sanctions | Sectoral Sanctions | Financial Sanctions | Trade Sanctions | Embargo | Arms Embargo | Asset Freeze | Export Controls | Dual-Use Goods | Secondary Sanctions | Sanctions Evasion | Economic Coercion | Economic Leverage | Trade War | Retaliatory Tariff | Tariff Escalation | Economic Security | Investment Screening | De-Risking | Decoupling | Friend-Shoring | Near-Shoring

Related Glossaries

International Political Economy | International Trade and Protectionism | Global Finance and Monetary Relations | Global Supply Chains | Economic Security | Geoeconomics