Chapter 12. Economic Sanctions and Free Trade 361
12.3 Probability of Success of Economic Sanctions
Before conducting a quantitative analysis of the trade war, let us first study the probability of success of trade wars throughout history.
The results of economic sanctions can be divided into three types:
Success, failure, and uncertainty. Generally, both sides claim victory after economic sanctions. What is success and failure? No extremely precise definition is offered academically. In fact, even the definition of trade war offers a broad space for explanation. In some conflicts between countries, only one side threatens to use economic sanctions but threatens nothing more. Is this situation considered a trade war?
Therefore, the big difference in the statistical data in research liter- ature on trade wars is understandable.
380 From Trade Surplus to the Dispute over the Exchange Rate
The bottom-line definition of a successful trade war is the achieve- ment of the goal. All the same, discussing the cost spent is necessary. If the country spends much and even loses more rather than gain, it fails even if it achieves the goal. If the country achieves the goal by other means, such as sending troops or solving the problem after a long time (e.g., the other side changes government), it does not succeed in the real sense. Economic sanctions are often combined with other political and military means in conflicts between countries. Therefore, accurately evaluating the effect of economic sanctions is difficult.
The failure of economic sanctions is relatively easy to determine.
Events do not happen as planned, and economic sanctions do not work. The results of most economic sanctions are not evident. Attack- ers usually talk a great deal with minimal follow-up action, which should be defined as failure.
Hufbaver et al. invested much effort in quantitatively analyzing the cost and benefit of economic sanctions. These researchers roughly divided the results of economic sanctions into two categories: success for those achieving the goal and failure for those not achieving the goal or not having definite results.6 Although their method of divi- sion deserves elaboration and improvement, no situation seems to be better than the present.
According to Table 12.2, the probability of success of economic sanctions before the Second World War is 43.8%. After the war, economic sanctions occurred more frequently, with the probability of success at 35%.
The U.S. noticeably not only joins in the economic sanctions it leads but also imposes them alone. Before the Second World War, almost all economic sanctions independently imposed by the U.S. had no results. In 1945 and 1969, relative to other countries, the U.S. had prominent economic and military advantages. Thus, the probability of success of economic sanctions solely led by the U.S. was as high as 62.5%. Afterwards, the diverse world pattern caused the American hegemony to gradually decline. Thus, the probability of success of economic sanctions led by the U.S. declined to 19.5%. In 1990 and 2000, the success probability further decreased to 18.2%.
6See G. Haufbauer, J. Schott and K. Elliott, Economic Sanctions Reconsidered, 2007.
Economic Sanctions and Free Trade 381
Table 12.2: Probability of success of economic sanctions.
Success times Failure times Probability of success All Economic Sanctions
1915–1944 7 9 43.8%
1945–1969 16 31 34.0%
1970–1989 23 52 30.7%
1990–2000 24 42 36.4%
Economic Sanctions with the U.S. as a participant
1915–1944 3 5 37.5%
1945–1969 14 14 50.0%
1970–1989 13 41 24.1%
1990–2000 17 33 34.0%
Economic Sanctions imposed by the U.S.
1915–1944 0 3 0.0%
1945–1969 10 6 62.5%
1970–1989 8 33 19.5%
1990–2000 2 9 18.2%
Source: G. Haufbauer, J. Schott, and K. Elliott, Economic Sanctions Reconsidered, p. 170.
G. Haufbaver and his colleagues summarized more than 200 eco- nomic sanctions since. Their research reveals that the probability of success of different sanction methods is 17.9% by only restricting the export, 20% by restricting only the import, 25% by restricting both import and export, and 40.3% by combining the financial sanctions as well as import and export sanctions. Clearly, if the standard of the successful economic sanctions increases, the probability of success for economic sanctions will be much lower than that of the above research. For instance, Robert Pape in the University of Chicago holds that the probability of success of economic sanctions is only 5%
(Table 12.3).
As previously mentioned, if the U.S. launches a trade war against China, the former will neither adopt financial sanctions nor further restrict exports. If the U.S. restricts the import of Chinese goods separately, the probability of success will be the lowest in history.
In fact, as long as the U.S. restricts the import of goods made in
382 From Trade Surplus to the Dispute over the Exchange Rate
Table 12.3: Probability of success of different economic sanctions.
Success Failure Total Probability of success
Finance, import, and export 25 37 62 40.3%
Finance 19 34 53 35.8%
Import and export 10 30 40 25.0%
Import 2 8 10 20.0%
Export 5 23 28 17.9%
Source: G. Haufbauer, J. Schott, and K. Elliott, Economic Sanctions Reconsidered, p. 170.
China, the latter will retaliate and take countermeasures at once to restrict the import of U.S. goods. If the market is small in China, the U.S. will not feel the impact of losing the Chinese market, thus launching a trade war can be done at low cost and a high probability of success can be achieved. If the market is very large in China, the U.S. economy will be seriously affected if it loses the Chinese market.
Thus, the U.S. should think carefully if provoking a trade war against China is worthwhile.