Economic sanctions, including travel bans, asset freezes, export restrictions, arms embargoes, capital controls and reductions in foreign aid, are a powerful political tool. Although much less destructive than war, sanctions can still take lives and lead to deterioration in living standards for citizens in target countries. Research on the effectiveness of sanctions has emphasized that the size of the demands imposed and the political openness of the target country influence whether or not sanctions achieve their objectives. Sanctions that demand modest policy changes and avoid military impairment are most likely to be effective.
Nonetheless, understanding the broad impact of sanctions on international markets and business is challenging because they can have unintended consequences for both the sending and receiving nations. Sanctions can shake entire industries and disrupt supply chains, reshaping global market dynamics and shifting geopolitical alignments. They can cause disruptions in product demand and drive up labor costs in high-wage sectors where companies must pay for specialized compliance and risk management personnel to navigate regulatory requirements and other business hurdles. In the longer term, they can make it difficult for businesses to re-establish relationships with sanctioned nations and may even create reputational risks through association. In addition, the long-term effects of sanctions can have a ripple effect in other markets as potential partners and suppliers reassess their relationship with firms that have previously complied with sanctions. Even after they have been lifted, the lasting impact of sanctions can linger for years, as target countries begin to search for alternatives that allow them to bypass the sanctions.
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