What are Trade Sanctions?

Trade sanctions are trade-related penalties levied by one country against one or more other countries. These sanctions fall into the broader category of economic sanctions, and they might be used to achieve economic policy objectives, political objectives or military objectives. Trade sanctions usually come in the form of tariffs on imports, quotas limiting the volume of imports, licensing costs or other administrative obstacles to trade.

A country that feels it has been treated unfairly by a trading partner often will implement trade sanctions that are aimed at economic objectives. Actions that might be considered unfair include subsidizing a domestic industry, dumping below-cost products on the international market or installing tariffs or nontariff barriers to trade. The United States often refers to these types of sanctions as "trade remedies" and has been known to use such sanctions to retaliate against unfair trading practices.

One example of the U.S. using trade sanctions against unfair practices occurred in 2002, when President George W. Bush placed tariffs on imported steel, claiming to protect the U.S. steel industry against illegal dumping of cheap steel by competitors in Europe and Asia. The World Trade Organization (WTO) judged the U.S. tariffs to be illegal, prompting several European countries to threaten retaliatory tariffs. This eventually caused the U.S. to withdraw its steel tariffs.

Trade sanctions also can be a political or military tool. Sanctions have been used in an attempt to get countries to change their political behavior, focusing on issues such as civil liberties protection, human rights, threats of aggression and the development of weapons of mass destruction. In these cases, the sanctions usually are part of a comprehensive diplomatic and military approach. In other cases, sanctions have been used to cut off financing for countries and organizations thought to be a threat to peace and security or in violation of international law.

Trade sanctions also are an important policy instrument for countries belonging to the WTO. This organization has a binding dispute resolution procedure enshrined in its bylaws that allows member countries to come to the WTO as an impartial third party to settle any trade-related disputes. When the WTO finds in a country's favor, it often will authorize it to implement sanctions against the guilty party.

Trade sanctions have been used with some regularity, but they notoriously are difficult to implement and rarely achieve their objectives. This is largely because most goods and services trade on global markets. If one trading partner places tariffs on a particular import, the target country simply can export the product to other trading partners. As a result, multilateral trade sanctions, those imposed by a bloc of countries, generally are more effective than unilateral sanctions.