Trade-sanctions in a globalized world
Author: Dr. Rolf Clauberg
Politicians at certain times try to fight other countries by trade-sanctions. Besides the present trade-sanctions
against Russia there are other older examples in history. For trade-sanctions to work there are two necessary requirements:
- the country one wants to sanction must depend on trade
- it must be possible to enforce the sanctions
If the country is self-sufficient trade-sanctions don’t work. If the country needs important goods it does not or even
cannot create itself, it depends on trade. If it is possible to completely break the supply and value chains coupling
the country to other countries, trade-sanctions may be enforceable.
Of course, to pay for the imports it needs a country has to export goods or services to balance its accounts.
Hence, countries who do trade, normally have a complex net of trading relations with the other trading countries,
including those who apply the sanctions against it. Therefore, countries applying trade-sanctions against other
countries may very likely damage also their own economies as well as the economies of neutral countries not involved in the conflict.
Links to references:
- Napoleonic port blockade - wikipedia
- Napoleonic port blockade - britannica
- The Global Value Chain Development Report 2019
- Fertilizer and food shortage
- Global wheat production by country
- International grains council
- Peter F. Drucker, The Global Economy and the Nation-State
Let us explain the point that trade-sanctions may damage also the country that applies the sanctions.
In the Napoleonic war, Napoleon tried to damage the British economy by a port blockade [1][2] prohibiting all countries
under Napoleon’s control as well as neutral countries to trade with Britain. The action reduced trade between the
European continent and Britain by about 25 to 50% and caused economic problems for Britain, but at the end Britain was stronger
than before due to redirecting its trade with the European continent to overseas, while the continent was damaged by the missing
trade with Britain. Hence, this is an example where the first requirement for effective trade sanctions worked, but Britain’s control
of the open sea made the sanctions counterproductive. France and its partners were hit by the drop of trade with Britain,
while Britain in the end had even increased its own trade by shifting trade to non-European countries.
For Russia and the USA with its western-European allies, the situation looks similar to those of the Napoleonic
war. On Russia’s western side, the European countries can block trade with Russia, but on the eastern side the
countries of Asia are not participating in the sanctions. 193 countries are members of the United Nations Organization, but only about
40 countries support the sanctions against Russia. The European Union alone presents already 27 of these countries, while
the countries with the largest populations – China and India – are on the other side.
In addition, many European countries still depend on
gas and oil from Russia. Russia is part of the very complex global supply and value chain system [3]. It is the world’s
top exporter of fertilizers [4]. Russia and Belarus together account for 40% of global exports of crop nutrient
potash. Russia is the third largest wheat producer (after China and India) [5]. In the last years Russia approximately
accounted for about 20% of the global wheat supply [6]. There clearly are serious food shortages already – caused
by direct effects like trade route break downs due to war, as well as indirect effects due to missing fertilizers
and supply chain distortions. Similar problems exist already in certain areas of high-tech industries caused by
missing chemicals and rare-earth metals. In other words – any distortion of the global supply and value chain
system can have unexpected consequences leading to severe problems in nutrition, medical, and technological areas.
Here, I want to point to a publication from 1997 - clearly from a time before the present issues! - by the renowned
economist Peter F. Drucker in the Foreign Affairs Journal on pages 159-171 [7]. His paper "The Global Economy and the
Nation-State" describes several interesting aspects
concerning total or hybrid wars. The most interesting part for our topic starts on page 164. It is the role and the
operating modes of "transnational companies", sometimes also called "globally integrated enterprises". Multinational companies
of the mid-20th century built smaller copies of their home company in foreign countries. These companies were complete in
the sense that they could produce complete products at every production place. Globally integrated enterprises
came up in the 21st century. They locate operations and funtions wherever, cost, skills, and business environment are best. These
companies may produce different components in different locations and countries. They may even put the final product together out of
its components at a location or country where none of its components is produced. These type of companies are
a perfect solution as long as the supply chains between the different locations of the company are working properly. On page
168 Drucker describes a leading american enginering company with 43 plants worldwide with one critical part needed in
all its plants which is produced only in its one plant outside Antwerp in Belgium. If the plant in Belgium would be destroyed
by a local desaster, production would stop for all its plants. On page 170 of his article Drucker describes that total war
doctrines may be detrimental to a countries war efforts because the transnational companies may no longer be functional and
unable to support any military production.
Here we have to say that today the danger exist not only for transnational companies, but may be a general problem. Because
the old style vertically integrated companies are more and more replaced by groups of highly specialized companies delivering
components to a company which puts everything together. In other words, the final product company outsources production of many
components to specialized companies which may be distributed over the entire globe. Any distortion of the suppply chain system
connecting these companies would have the same effect as for a transnational company.
Economically we are no longer independent nation-states, or groups of such states, but members of a highly complex
and interdependent global system.
© Clauberg R., 2022
This work is licensed under a Creative Commons Attribution 4.0 International License.
