Navigating Embargoes and Sanctions in the Global Business Environment
In today’s political economy, no global business manager can operate without a keen awareness of the impacts and risks of embargoes and sanctions. With the current US administration enacting an array of tariffs on imports from China, a long standing trade partner, nations around the world are bracing for possible impact in a time of uncertainty. As a result, it is worth considering some of the effects of such harsh foreign policy in the past to inform US firms of how they can best navigate the global business environment today.
The Trump administration’s “trade war” with China is playing out as a series of tit-for-tat tariffs on imports and exports between the two nations. America’s last trade war during the Great Depression largely followed this same trajectory, resulting in significant decreases in exports on a national scale. Such decreases in international trade can have far-reaching effects on the nation’s economy – from stagnated growth or decline to commodity shortages.
In a similar manner, the global economy is largely sculpted by major sanctions and embargoes between nations. While the terms are frequently used interchangeably, they do serve independent purposes. An embargo is an extreme political mechanism for leveraging trade to control a foreign state. Embargos are typically far-reaching in restriction of travel, trade, and exchange of information. On the other hand, sanctions can be thought of as a “partial embargo”, restricting specific products or controlling the exchange of such products through use of tariffs.
The US has been implementing embargoes and sanctions in some form or another since 1807, shortly after its foundation (note the political cartoon from the time, denoting traders circumventing the “Ograbme” best (embargo spelled backwards), and proceeding to trade with France and Britain despite the Embargo Act of 1807). A current list of US sanctions and embargoes is found on the Office of Foreign Asset Control’s website. Perhaps no relationship between two nations better epitomizes the impacts of embargoes than the one between the US and Cuba. Since the mid-20th century, a series of embargoes have greatly limited trade between the two countries. The lasting result has been a stagnated economy for Cuba and missed opportunities for Americans.
While gradual alleviations of restrictions between the two nations have shown promise for potential growth in a free-trade society, America still has much progress to make in that regard. Sanctions persist on Cuba, Sudan, Russia, North Korea, Venezuela, and several other potential trade partners.
So, what is the implication of all of this for the global business manager?
The Trump administration’s behavior with respect to trade agreements with long-standing partners is viewed as brash by many. This type of uncertainty naturally causes the mind to wander beyond mere trade wars, to what more severe foreign conflicts could arise, and with whom. With those conflicts come sanctions, and potentially embargoes.
Another area where uncertainties lie in today’s environment is in sanctions against persons and regimes. It is a common practice for nations to restrict trade to specific factions or people within a nation (for example, the late Libyan dictator Muammar Gadaffi). As the president uses his new platform to make friends, there is no telling what enemies could develop, or what business ties those enemies may have.
Regardless of who the target is, sanctions and embargoes bring one certainty – restricted access to potential suppliers, partners, and markets. Even further, they can drive shifts in material or service pricing that changes the landscape of industries domestically.
These risks have the attention of the largest of players in the global business community. Perhaps the best course of action for small and mid-sized businesses looking to expand globally today is simply to drop the sea anchor and wait for the tempest of the current administration to pass by.