Understanding Trade Embargo

Embargo

An embargo is a restriction imposed by a country on international trade and other commercial activities with a particular country. Embargoes stop the international trade of all or some products across international boundaries. Embargoes are typically designed to isolate and punish the targeted countries for their objectionable actions and policies towards other countries.

Embargoes are used by countries to punish the unlawful behaviour of other countries without the use of military forces. They are used in cases of humiliation, violations of human rights, or armed conflict between countries. Those countries that totally rely on international trade for importing technology from other developed countries are exposed to embargoes.

Trade Embargo

A trade embargo is a restriction imposed by the government of a country in the form of a complete ban on the trade of certain goods or services from a particular country. When an embargo is enforced, imports and/or exports are stopped from the target country. This will result in an interruption of international commerce between the two countries. They occur when disagreements happen between two countries, leading to economic sanctions for the target country. This may occur due to the political instability of that country, such as human rights abuses, financial issues, etc.

Examples

The following are some real-world examples of trade embargoes:

U.S. Embargo on Cuba

The U.S. embargo on Cuba since 1960 has restricted trade and other financial transactions between Cuba and the United States. It affected the economic condition of Cuba and its relations with other entities.

UN Embargo on North Korea

The Security Council of the United Nations imposed a comprehensive embargo or sanction on North Korea to restrict its atomic weapons and missile programmes, including restrictions on other forms of trade with this country.

EU Sanctions on Russia

Due to Russia’s annexation of Crimea, the EU restricts trade in multiple sectors and individual businesses that have a direct impact on the economy of Russia.

Other Types of Embargoes

The following are some other types of embargoes:

Financial Embargoes

A type of embargo in which financial restrictions are imposed on the targeted country or entity is called a financial embargo. Financial embargoes include freezing financial assets, restricting access to financial markets, and limiting financial activities that affect the financial conditions of the targeted country.

Arms Embargoes

In an arms embargo or a military embargo, governments restrict the trade of military weapons, technologies, and equipment. Their purpose is to reduce human rights abuse, remove conflicts, and enhance regional stability between countries.

Partial Embargoes

In the partial embargo, there is only a restriction on specific goods or services, while other forms of trade continue normally.

Comprehensive Embargoes

In a comprehensive embargo, there is a restriction on all types of trade with targeted countries. 

Purpose of Trade Embargo

The following points explain the purpose of the trade embargo: 

Economic Sanctions

Trade embargoes are a source of economic sanctions that are imposed by governments in order to influence the economic behaviour of the targeted country. The purpose of trade embargoes is to change the foreign policy, economic behaviour, or unlawful practices of that country, which are likely to be objectionable.

Non-Proliferation

The trade embargoes are imposed on those countries that are involved in developing harmful nuclear, chemical, and biological weapons that are objectionable for the well-being of other countries. The trade embargo’s other purpose is to restrict those countries that are involved in unlawful activities.

National Security

Another purpose of trade embargoes is to protect a country’s national security interests from the unlawful actions of other entities, such as the proliferation of weapons used in massive destruction, terrorist activities, and regional conflicts between two countries.

Human Rights and Democracy

Trade embargoes are used to pressurise the targeted countries to fulfil human rights and maintain democracy between countries. Trade embargoes are used to reduce human rights abuse and violations of democratic laws and to insert pressure to promote international norms.

Effects of Trade Embargo

The following are some effects of trade embargoes:

Economic Impact

Trade embargoes directly impact the economic conditions of the targeted country or entity, such as affecting GDP, employment, and trade balance, which affect the supply chain and cause trade imbalances between conflicting countries.

Political Consequences

Trade embargoes can cause political and diplomatic tensions between both countries, which automatically affect regional economic stability and coordination between them.

Humanitarian Considerations

A trade embargo restricts humanitarian aid and limits access to necessary goods or services, which can cause humanitarian crises in the targeted country.                  

Sanctions

These are a set of precautionary measures that are economic in nature and are imposed by more than one country on the targeted country in order to restrict certain actions, such as financial investments or trade, and to promote human rights standards and enforce internal security laws.

Types of Sanctions

The following are some types of sanctions:

Economic Sanctions

These sanctions are used to restrict the trade of goods or services and limit access to vital resources in order to affect the economic condition of the targeted country.

Diplomatic Sanctions

These sanctions are used to restrict diplomatic ties between the imposing country and the targeted country. It includes actions like closing embassies and withdrawing ambassadors to show disapproval of their actions or isolate that country.

Financial Sanctions

These sanctions are imposed on the targeted country, which restricts its access to financial markets and freezes assets and financial transactions across the border, which affects the economic stability of that country.

Military Sanctions

These sanctions are used to restrict the sale and supply of military equipment and technologies across country borders in order to protect against unlawful actions from the targeted country.

Differences between Embargoes and Sanctions

The following table contains the main points of difference between embargoes and sanctions:

Other Forms of Trade Restrictions

There are also some other forms of trade restrictions:

Tariff

A tax on imports which increases the price of imported goods to make them less competitive in the domestic market of a country is called tariff. Tariffs make imported goods relatively expensive as compared to their domestic substitutes leading to a fall in the value and volume of imports.

Quotas

Quotas are the quantity limits on the imports. Quotas restrict imports by limiting their quantities.

Subsidies

These are a type of government payment to encourage production and consumption of domestic goods or services in order to make them more competitive with imported goods.

Criticism of Embargoes

Economists argued that because of the limited likelihood of the change in policies by the targeted countries, embargoes hurt the population of that country, which has no role in the changing and implication of the unlawful policies.

For example, the international economic embargo imposed on Iraq due to the 1990s invasion of Kuwait has been criticised as it impacted Iraq’s population. The U.S. embargo on Iraq has also been criticised due to the violation of nuclear non-proliferation.

Conclusion

In conclusion, trade embargoes are the restrictions imposed by the government on the trade of goods or services with the targeted country to isolate it and causing economic instability in that country. Trade embargoes are of different types. Each type has its own restrictions related to the actions of the targeted company. The main purpose of a trade embargo is to protect nations from unlawful activities by other countries.