Self-imposed sanctions

by Russ Roberts on December 3, 2007

in Trade

Joan Robinson once said (anyone out there have a source?), just because your neighbor puts rocks in his harbors to keep out your boats, that doesn’t mean it makes sense for you to do the same. Charles Wheelan makes a similar point about embargoes—if you support trade embargos to punish our enemies, you can’t be a protectionist at the same time (HT: Dan Kennedy):

Sanctions are a potent weapon because they can impose serious
economic harm on the target country. Gaza has been enduring a "deep
economic depression" since the economic blockade was imposed. The
Christian Science Monitor reports that tougher sanctions on Iran "would
hit the ruling mullahs hard by raising Iran’s already high
unemployment, and perhaps force trickle-up regime change."

A Self-Inflicted Embargo

So
here’s what I don’t understand: Why do so many of our presidential
candidates, and a surprising proportion of the American population,
believe that we should impose trade sanctions on ourselves?

After
all, if you believe that the United States should trade less with the
world (or if you oppose the expansion of trade), then you’re
essentially calling for a self-imposed economic embargo — sanctions on
ourselves. If curtailing global trade is bad for Gaza and Iran, how
could it possibly be good for us? The answer is that it’s not.

Yes,
I’ve made the pro-trade argument before. But reading about the effect
of sanctions in Gaza — the opposite of free trade — made me see the
issue in a new light. The best way to understand why expanded trade is
good for the United States is to look at why cutting off trade is so
devastating in a place like Gaza.

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{ 11 comments }

Tim December 3, 2007 at 5:47 pm

Robinson's comment is not much different from another, from Henry George I believe, that with tariffs you seek to do to your own country what enemies seek to do you in time of war.

CRC December 3, 2007 at 6:12 pm

The economic sanctions again Iraq (http://en.wikipedia.org/wiki/Iraq_sanctions) are another terrific example of this.

"Critics of the sanctions say that over a million Iraqis, disproportionately children, died as a result of them…The sanctions resulted in high rates of malnutrition, lack of medical supplies, and diseases from lack of clean water."

And this is the best part:

In October 1998 he (Denis Halliday, UN Humanitarian Coordinator in Baghdad) resigned after a 34 year career with the UN in order to have the freedom to criticise the sanctions regime, saying "I don't want to administer a programme that satisfies the definition of genocide"

Slocum December 3, 2007 at 6:26 pm

I general I agree with you, but there is a difference between sanctions on a tiny country (that could not possibly produce everything it needed) and a very large one that could do so (albeit at a higher cost which would lead to a lower standard of living).

CRC December 3, 2007 at 6:37 pm

Slocum, I've wondered the same thing myself, but isn't it just a matter of the degree to which and the amount of time before the effects are felt? In other words, with the larger, more capable/resourceful/productive country, isn't it just that it might take a longer period of time and the degradation would happen more slowly (but still definitely happen)?

To me the best argument about this sort of thing is what happens when you take it to its extreme (e.g., you only "trade" with yourself as an individual…you only consume what you produce and never produce anything for anyone else to consume). It seems pretty obvious that we'd all be in poverty if we did that.

The basic principle seems to be that the smaller the "sphere of trade" the greater likeliness of poverty (and the reverse seems to be true: the greater the "sphere of trade" the greater likeliness of wealth and a higher standard of living). So a smaller country will be affected more severely and more quickly than a larger one to be sure, but the larger one would definitely still feel the effects of this reduce "sphere of trade".

Glen December 3, 2007 at 6:40 pm

Russell,

I disagree with you here–it is very possible to be anti-free trade and pro-import, for the simple reason that you need imports, tons of imports, to pay the taxes. That's how we used to fund the federal government in the 19th and much of the 20th centuries, and for a good chunk of that time we didn't even need an income tax. Not a bad trade-off, huh?

There are two types of tariffs: revenue tariffs (reasonable 10-20% rates where the goal is to fatten government coffers, i.e., definitely *not* stop the sale of foreign products) and protective tariffs (very high rates where the goal is not to feed government but just to limit the purchase of foreign products.) I more than share your disgust with protective tariffs but find revenue tariffs to be fair game. Place a reasonable tax on foreign-made products, i.e., have them share some of the tax burden, and use the income to reduce taxation on domestic manufacturing, giving them some breathing space.

The problem with free trade–i.e., 0% revenue tariffs–is that you have hike up taxation domestically to make up for the lost tax revenue on foreign products. This additional tax burden hits domestic manufacturing, making it harder for them to compete with foreign-made products. In this sense, "free trade" is really just reverse protectionism in disguise.

Glen

David Z December 3, 2007 at 7:51 pm

My first inclination was Bastiat. Tim Worstall attributes the harbor satire to him, here, although it's uncited.

vidyohs December 4, 2007 at 6:57 am

CRC,
Your "taking it to the extreme" is always a good way of seeing things. It becomes crystal clear when it is put like that.

Thanks.

vidyohs December 4, 2007 at 6:57 am

CRC,
Your "taking it to the extreme" is always a good way of seeing things. It becomes crystal clear when it is put like that.

Thanks.

Methinks December 4, 2007 at 10:55 am

"Critics of the sanctions say that over a million Iraqis, disproportionately children, died as a result of them…The sanctions resulted in high rates of malnutrition, lack of medical supplies, and diseases from lack of clean water."

Let's get real. The reason this happened is Saddam, not the sanctions. It was Saddam who took the money from oil for food to build more palaces. And he did it to turn his population against the United States and, by extension, toward himself and to make the United States the focus of hatred rather than himself. It's a tried and true method of rule in the Middle East. They all do it – form Mubarak to Saddam.

Tim Worstall December 4, 2007 at 12:58 pm

Well, I wouldn't normally trust Tim Worstall's attributions. I know exactly how much research he actually puts into them.
But this one is Bastiat. I used Joan Robinson as my source (for she did indeed used to quote it) in a newspaper piece and was shouted at by the Editor for not knowing it was orginally Bastiat.
Bit of a shock to have an educated editor, I know….

Bill December 4, 2007 at 1:01 pm

Here (http://epress.anu.edu.au/agenda/013/03/13-3-br-3.pdf) it is claimed that the "Rocks in the harbor) idea is Bastiat's, but has been wrongly attributed to Robinson.

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