Consequences of Sanctions

Much of Western posturing over (The) Ukraine involves threats of sanctions – ignoring the obvious counter-sanction from Russia of ceasing essential gas supplies to Europe. But do sanctions really work? They have immediate effects – and longer-term consequences. And we human beings are not good at recognizing what the potential longer-term consequences might be.

In that regard, here is an interesting article from Russia Today about their new single-aisle MC-21 passenger jet, which will be competing with Airbus & Boeing for the heart of their business.
How new Russian-built passenger jet MC-21 took off despite Western sanctions — RT Russia & Former Soviet Union

US sanctions denied Russia imports of carbon composites and jet engines. This stimulated Russia to build their own sources of these former imports. It took decades, but now Russia has built a domestic industry which obviates the need for imports – and denies the West a market for those potential exports. Perhaps the conclusion is that sanctions may have near-term benefits for the country imposing them … but also carry longer-term costs.

Certainly, one wonders about the future value of Airbus and Boeing. Not only will their decades-old models be facing competition in the burgeoning Asian market from this new Russian jet, there is also the new Chinese C919 jet which will be competing in the same space. Perhaps politicians and investors should be cautious about sanctions.

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Or perhaps not. Sanctions appear to be most useful for shorter term protection NOT as a punishment. When another country is encroaching on your business, you impose sanctions to level the playing field.

We sort of understood that back in the 1800’s. The Civil War is considered by some to have been fought by the American Northeast against the South because they proposed to allow non-tariffed import from England which would have ruined, or at least greatly curtailed, Northern profits. Perhaps there was some truth in that statement, seeing as the North didn’t seem too miffed the South had gone off on their own until - they realized the Southern ports would be bringing in untariffed supplies from England (and elsewhere in the world, but then England was the big competitor). Notice how huffed the Europeans became when Trump demanded they lower their tariff barriers they had been allowed by the Marshall Plan to be able to recover. We never demanded the Marshal Plan end when they were back on their feet.

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There is a difference between tariffs and sanctions.

Tariffs can indeed be calibrated to level the playing field, such that an American worker does not have to face unfair competition from a near-slave in Xinjiang. Cross-boundary trade is still allowed, subject to those tariffs.

Sanctions on the other hand are mostly the complete forbidding of trade – such as refusing to sell carbon fiber materials to a Chinese aircraft manufacturer, regardless of price; or refusing to buy Chinese 5G technology, regardless of price.

Tariffs and sanctions both have longer-term effects as well as near-term impacts. Personal view is that tariffs are necessary in a world in which different countries have different standards on environmental, regulatory, and employment issues. (To offset the effect of tariffs on the population, cut income taxes by the amount the government takes in as tariff income). But sanctions can be a double-edged sword – especially for places like Europe and the US which import essentials rather than luxuries. Everyone can play the sanction game! And smart countries look ahead to minimize the potential for future sanctions – hence the “Make It In China 2025” policy, which is no longer talked about but is still charging forwards.

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OK. But I see your difference as more semantic than practical.

First of all, complete denial of anything is not possible. Look at nuclear armaments. We tried mightily to hold it for us, then tried mightily to limit others from “getting” them. Look where that went. Eventually knowledge distributes widely. Today you can probably find excellent sources on how to properly construct an atomic devise. It’s just a bit tough to get the materials, but that’s hardly a barrier in the long term; NorKo and soon Iran will have solved that issue. India and Pakistan did a while ago. So the whole concept of “sanctions” as you define them is foolish because no one EVER fails to get what they REALLY want. Indeed, even tariffs have great limitations - it’s called “smuggling” and it’s been a thriving industry forever.

“Avoiding” war is only possible when your opponent feels you are powerful enough AND crazy enough to inflict REAL damage upon him if he tries something rash. Look at the 1967 Mideast War. Nassar made a series of really inflamatory moves vis a vis Israel. BUT he was the whole time talking to the US Diplomatic Corps to be reassured Israel would not retaliate. The US, unfortunately, reassured him of this. They based such belief on the fact they felt Israel was way too strong to be threatened by Egypt. Guess what! Wasn’t true. Golda Meir and here IDF didn’t have any real strategic defensive depth, the country being SO small, that they felt they had to do something now, before they ran out of options. And we got the '67 War.

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I think we are in violent agreement! Yes, when the US sanctions Russia and refuses to sell carbon fiber materials, a technologically-capable country like Russia will ultimately build its own capabilities to manufacture what it needs. Which is what has happened with the MC-21 aircraft.

Your point about nuclear weapons is another demonstration of the same. Even heavily-sanctioned South Africa was able to build a nuclear weapon. Sanctions increase the costs and lengthen the time frame for the sanctioned party – but they do not stop it from moving forward and eventually getting whatever it wants.

Sanctions are a bad idea – ultimately counter-productive by turning the sanctioned country from a customer into a competitor. The use of sanctions by the West is mainly a reflection of our flaccid & incompetent Political Classes, bereft of any constructive ideas.

Tariffs are quite different – a necessary part of active trade between nations at different stages of development and with different national objectives. Unilateral “Free-Trading” US versus mercantalist China is a classic case of the self-defeating stupidity of failing to apply a sensible tariff policy – a lesson that should have been learned from England’s similar economic decline in the late-1800s because of unilateral “Free-Trading”.

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Heh, heh! I like that - “in violent agreement”.