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The hard-working staff here at Spoiler Alerts has noted the increased interest and attention that economic sanctions have been receiving in D.C. Last year, sanctions played a surprisingly prominent role in the U.S. National Security Strategy. This month, Treasury Secretary Jack Lew gave an excellent speech outlining some general principles on the subject – the first speech of this kind by a policy principal. On Friday, at a Center for a New American Security (CNAS) event, Treasury Undersecretary Adam Szubin expounded further on the matter.

But why should U.S. government officials be the only ones to talk about economic sanctions? Indeed, Szubin was speaking at a CNAS audience because of the rollout of a new report, “The New Tools of Economic Warfare: Effects and Effectiveness of Contemporary U.S. Financial Sanctions,” co-authored by Elizabeth Rosenberg, Zachary Goldman, Julia Solomon-Strauss, and – wait for it – me.

I’d encourage anyone interested in economic sanctions to read the full report – I can assure you that, having briefed U.S. government officials late last week, a surprising number of them have already read parts of it. The report examines the effect of post-9/11 U.S. sanctions on targeted actors, as well as the possible systemic blowback from the increased use of financial sanctions in particular. From the report’s introduction:

This paper presents new research to suggest that U.S. sanctions targeting states have significant negative effects on foreign investment, corruption, ease of doing business, and other related measures in target states. These findings challenge widespread understandings of the impact that sanctions against states have had and provide principles for designing more effective sanctions programs in the future – programs that better advance security interests and policy objectives. We also discuss the ways in which the effects of sanctions aimed at nonstate actors, particularly counterterrorism sanctions, are more difficult to measure but nonetheless are impactful.

My contribution to the report – along with that of my research assistants Aaron Melaas and Mohannad Al-Suwaidan – was to compare how a targeted economy performed relative to “peer” economies once sanctions were imposed. The key findings:

1) It is easy to see why economic sanctions were traditionally thought to be ineffective. Even in the post-9/11 universe, sanctioned countries did not suffer significant costs as measured by lost economic growth or trade. So it would be easy for sanctions skeptics to deprecate the tool.

2) Economic sanctions have a pronounced effect on investment. The key mechanism through which sanctions affect the target’s economy is by elevating perceptions of economic and political risk. This, in turn, causes both domestic and international investors to act in a more risk-averse manner, drying up investment. Target governments can compensate for such a shortfall with other macroeconomic measures, such as greater government spending or subsidizing consumption. Such steps, however, are like fueling a body with sugar rather than nutritious food – there are no short-term differences, but a sugar crash is coming.

3) 21st century sanctions still have a lot of negative policy externalities. One of the ostensible appeals of current sanctioning tactics is that they ostensibly pack some economic firepower but are more targeted than the old comprehensive trade embargoes. Because financial sanctions in particular are targeted at elites, they should have fewer humanitarian effects than, say, the Iraq embargo did in the 1990s.

As it turns out, while current sanctions are potent they still have significant and deleterious effects on the target’s political economy. Countries under sanction still see spikes in corruption, lags in human development, declines in the quality of governance, and shifts toward repression and authoritarian rule. This doesn’t mean that sanctions should never be used. Rather, it means that the happy talk about targeted financial sanctions being the “silver bullet” of American diplomacy is nonsense. Courtesy – The Washington Post