Dependencies and Their Weaponization: The Economic Impact of Trade Sanctions

Do trade dependencies leave countries vulnerable to geoeconomic coercion? We study the economic costs of trade sanctions from the 1960s to the present. In contrast to previous studies we identify the specific traded goods affected by the imposed trade sanctions, and use this to develop a measure of the “intensity” of these sanctions. While a majority of sanction policies have been enacted against an economically trivial share of a country’s trade, larger sanctions do appear to come with economic costs. Specifically, if we consider sanctions imposed between 1962 and 2020 targeting trade equivalent to at least 0.1 percent of GDP, we find that sanctioning trade worth one percentage point of a country’s GDP leads to a GDP loss of 1-2 percentage points in the 1-3 years following the sanction. We also find that sanctions of similar intensities appear more costly for lower-income countries, and countries whose trade is highly concentrated among a small number of trading partners. Low income and developing countries thus appear most vulnerable to trade sanctions.

Kiel Institute Expert