Economic Sanctions and Demand for Protection

Abstract

How do the distributional consequences of economic sanctions impact future trade policy? Regardless of whether sanctions are effective in achieving concessions, sanctions restrict international trade flows, creating rents for import-competing producers, who are protected from international competition. These rents can then be used to pressure the government to implement protectionist policies. Thus, while the lifting of sanctions directly facilitates some international transactions, sanctions also have an indirect effect. They create powerful domestic interest groups in the sanctioned country who seek market protection. I use multiple estimators to evaluate the effect of trade sanctions on tariff rates. The evidence is consistent with the argument that sanctions increase market protection in both the short and long run.

The Impact of Economic Coercion on Public Opinion: The Case of US–China Currency Relations

“…The causal effect of the threat treatment should be particularly large for individuals who would be hurt by foreign punishment, which in this case refers to US restrictions on Chinese exports. Trade restrictions would be most costly for export-oriented enterprises, foreign-owned companies, and others that participate in international business ventures and global production chains (Milner 1988; Kirshner 1997; Pond 2017). Thus, the effect of the threat treatment should be strongest for individuals employed in internationally oriented firms.…”

“…The types of cases that interest us—when a sending state seeks to change a foreign state’s economic policies—are therefore excluded from most definitions of economic sanctions (Drezner 2001, 380; Pape 1997, 92-94). However, these cases do fit with the broader concept of “economic coercion,” which Drezner (2003, 643) defines as a government’s “threat…to disrupt economic exchange with the target state, unless the target state acquiesces to an articulated demand.” Drezner (2001), Pond (2017), and Zeng (2002) are among the relatively small number of empirical studies focused on how economic coercion influences a target state’s economic policies.…”

Trading Interests: Domestic Institutions, International Negotiations, and the Politics of Trade

“…Retaliatory protectionist measures also have domestic political consequences for the sanctioning country. On the one hand, they provide protection to the affected domestic industry, which can be politically expedient (Pond, 2014); on the other hand, they raise the price of goods imported from the targeted country, which, even if only temporarily, hurts domestic consumers of the imported goods. The enforcement of a ruling once it is issued imposes costs on governments, and the ability and willingness of governments to absorb these costs affects the incentives to litigate a dispute.…”

“…Pond (2014) argues that the temporary protection afforded by trade sanctions strengthens demands by import-competing firms in the sanctioned country for continued protection through tariffs, even once sanctions are lifted. Temporarily provided protection, used as bargaining chip in negotiations, plausibly can have similar effects on strengthening protectionist demands.…”

A General Framework for International Conflict under Incomplete Information

“…Conflict between states comes at a great cost (Pinker, 2011;Goldstein, 2011;Pond, 2017;Neuenkirch and Neumeier, 2016) and the fact that states fail to agree to a settlement before engaging in coercion is a puzzle (Fearon, 1995) motivating extensive research into the conditions for the onset of and success in war or economic sanctions (Bas and Schub, 2018;Gartzke et al, 2017). To this end, scholars have developed a number of theories to understand how conflict in international relations unfolds, focusing on the role of economist cost, audience cost, uncertainty and signalling (Bas and Schub, 2018;Gartzke et al, 2017).…”