Why embargoes can be ineffective — Washington Wednesday

Cartoon protesting the Embargo Act of US President Thomas Jefferson in 1807

By definition, embargoes are “an official ban on trade or other commercial activity with a particular country.” Politicians impose restrictions on other countries in attempts to alter unfavorable behaviors. The use of economic tools should work, right? With an embargo, countries have an incentive to align their actions properly so that they can resume trade with the punitive country and get the economy back on track. Well, they don’t work nearly that effectively. I’ll explain why.

The best way to understand embargoes: look at examples. The United States placed restrictions on North Korea sixty years ago. Okay, you see the immediate issue right? No? Well, sixty years tells me these curtailments have not been hugely impactful over the span of more than half a century. Let’s look at Cuba as another example. The United States decided after twenty years of disciplinary measures towards North Korea with no progress to replicate their approach with Fidel’s Cuba. President Eisenhower was prompted to impose restrictions on Cuba after they nationalized oil refineries without compensation. Similarly to North Korea’s embargo, the Cuban one has arguably failed.

How do we explain these failures? Columbia University professor, Jagdish Bhagwati, may have the answer. His findings, namely the Bhagwati theorems, indicate that the use of indirect cures in place of direct cures for problems leads to unintended outcomes. The well-known political economist and father of the Laffer curve, Arthur Laffer, argues that Bhagwati’s findings support his belief that economic tools cannot solve political problems, only political tools can.

So what’s the solution? The use of direct cures. In this instance, the United States should opt for political tools of varying severity to achieve their political agenda, not economic tools! There are differing levels of political pressure. A president can bring attention to the public about the improper behaviors of other leaders. This approach is known as the “bully pulpit.” Heavier tools can be used stemming from the State Department and other agencies. If a more stern approach is needed, the Department of Defense, CIA and NATO can intervene.

Political tools are difficult to administer, and I do not suggest warfare. However, the past and current use of embargoes have rewarded an image of moral high-ground, but not change for the restricted country, which was the initial intention. The United States undoubtedly appears more ethical by refusing to trade with countries such as North Korea, which may be the reason US politicians are eager to use embargoes to solve political issues. Business is lost, also domestically, and politics does not change in the punished countries. It would be interesting to see if the United States could prosper more with foreign affairs if they opted for a direct cure for political problems.