Academic journal article Business Economics

U.S. Economic Sanctions: Lessons from the Iranian Experience

Academic journal article Business Economics

U.S. Economic Sanctions: Lessons from the Iranian Experience

Article excerpt

THE MOST VISIBLE SANCTIONS, THOSE ON TRADE, MAY NOT BE THE MOST IMPORTANT; AND IT IS NOT CLEAR THAT THE COST OF THE SANCTIONS ARE WARRANTED BY THEIR BENEFITS.

The United States has been the world's only major country to make frequent use of economic sanctions to change what it perceives as the objectionable policies of other countries. Although the global economic, financial, and military influence of the U.S. enables it to use sanctions as an instrument of foreign policy, the efficacy of sanctions is still in great doubt. Using Iran as an example, over a period of twenty years U.S. sanctions have had a significant economic cost for the U.S. as well as for Iran. Direct merchandise trade between the U.S. and Iran has declined significantly, but the more important costs of sanctions to each country are due to factors such as missed foreign direct investment (FDI) opportunities, which will ultimately have long-term negative consequences for both countries. For the future, largely because of the expected growing importance of the World Trade Organization (WTO), the use of sanctions by the U.S. is likely to diminish.

U.S. presidents and Congress have seen economic sanctions as instruments for achieving specific international objectives while avoiding military conflicts, thus eliminating loss of human life and avoiding special budgetary allocation for the military. Unilateral economic sanctions are imposed on a country when some policy of that country is seen as objectionable or against U.S. national interest. [1] These objectionable policies include abuse of human rights; development of nuclear, biological, and chemical weapons; support of terrorism; unlawful military engagement; opposition to U.S. policy initiatives and trade; and financial, copyright, and patent policies. By imposing some form of economic sanction on a country, the U.S. sends a strong signal of its displeasure to the target country's leadership and hopes to set in motion forces to induce a change in the country's policies.

The U.S. has used a wide range of sanction instruments in relation to target countries. These have included an embargo on all, or specific, U.S. exports; on all, or specific, imports into the U.S.; on U.S. capital flows; on operations of U.S. corporations; freezing of the target country's financial and non-financial assets in the U.S.; and bans on travel by U.S. citizens and flights by U.S. airlines to the target country. At times, the U.S. has lobbied multilateral (e.g. the World Bank) and regional (e.g. the Inter-American Development Bank) organizations to withhold their normal policies and practices toward U.S.-sanctioned countries. Also, the U.S. has tried to extend its sanctions' reach by threatening sanctions on third countries if they do not impose their own sanctions against a target country (for example, the Iran-Libya Sanction Act (ILSA)).

Economic sanctions are presumed to set in motion a change of events that will, in time, induce the target country to comply with U.S. wishes. The standard expectation is that U.S. economic sanctions will inflict a quick and heavy economic burden on the target country, making life intolerable for the citizenry. The leadership, seeing the general dissatisfaction and the threat to its survival, will change its policies to comply with U.S. wishes; or if the leadership does not change its objectionable policies, it will be overthrown and a more U.S.-friendly regime will come to power. Alternatively, economic sanctions may cause a special problem for some of the target country's elite (for example, freezing of their U.S. assets), who in turn will change the country's policies or force the leadership to do so. Rarely, if ever, do economic sanctions follow such presumed paths and achieve their intended goal quickly. [2]

The likelihood of significant economic pain on the target will in large part depend on economic and financial characteristics of the target; U. …

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