Chapter 12. Economic Sanctions and Free Trade 361
12.1 Origin and Evolution of the Trade War
The U.S. presidential election is held every four years. Before every election, some politicians start an argument with China over trade and exchange rate issues. These politicians have presented these argu- ments many times, regardless of whether the issues made sense or not. To solicit votes for the 2012 election, the democratic and repub- lican candidates hurled malicious words at each other. Republican candidate Mitt Romney announced that he would declare China as a currency manipulator on his first day in office.1 In his speech, democratic candidate Carl Levin accused the Bush administration and the current republican leadership in the House of Representa- tives of indulging China in manipulating the exchange rate. Levin also requested the House of Representatives to vote on the RMB exchange rate bill immediately. Democratic senator Charles Rangel from New York warned, “In order to correct China’s trade-distorting policy, the U.S. should fight a trade war with China.” McDermott, another democratic senator, also claimed that the U.S. had suffered heavy losses because of the RMB issue and should not be afraid of a trade war.2
These politicians speak at random. Thus, people cannot help but question if they actually know what a trade war is.
The world has more than 200 countries and regions. Different economies, ideas, politics, and cultures cause inevitable disagree- ments, disputes, and conflicts in international relations. Generally, most countries live in peace. Although disagreements may exist between them, these countries are able to sit down and solve the issues successfully. Sometimes, conflicts escalate, which leads to
1Mitt Romney accused China of manipulating the RMB exchange rate in his campaign speech on January 6, 2012. He said, “If I am elected president of the U.S., I will not continue to talk about how important China is and how to deal with China. In my opinion, the contact with China is necessary, but I will tell China that it’s time to stop these behaviors and behave in conformity with the rules. I will not let it kill the U.S.
jobs. People say, ‘you can’t provoke a trade war’. But, guys, the trade war is under way.”
2SeeChina Youth Daily, October 28, 2011.
364 From Trade Surplus to the Dispute over the Exchange Rate
tensions. If a country is dissatisfied with another country, what should it do?
(1) Public opinion warfare: Senators, reporters, or politicians may publish articles or make speeches in newspapers, radio, televi- sion, or public meetings to blame each other and express their dissatisfaction, which may lead to civil or official demonstrations.
(2) Diplomatic warfare: If condemnation by public opinion cannot achieve the goal, the issues must be negotiated at the government level. When general diplomatic contact cannot solve the prob- lem, it will escalate to a serious protest, the closing of the con- sulate, the reduction of the level of foreign relations, the retreat of ambassadors, and finally the complete breaking off of diplomatic relations.
(3) Trade war: A trade war may break out along with diplomatic warfare. The attacker imposes economic sanctions in an attempt to express its anger through economic means to force the other side to change its attitude or give in.
(4) Paramilitary operation: The stationing of troops along the boundary, military threat, military alliance, military exercises, blockade, subversion, and sabotage are common ways to express strong dissatisfaction.
(5) Military action: If all means have been used and proved to be ineffective, a local war or a general war is inevitable.
The escalation from public opinion warfare to a war is a slow process, running for a few months to several years. However, the process may also be very quick.
Before the Second World War, all countries in the world had been ready to wage war against each other. The powerful countries intim- idated the small ones. The strong oppressed the weak without any reason. For instance, Japan invaded China on September 18, 1931, and Germany invaded Poland in 1933 and the Soviet Union in 1941.
Needless to say, these countries were aggressive.
The two world wars presented many lessons to the world. After the end of the Cold War, great changes took place in the world pattern.
The concept of the outcome of a war has had a fundamental change,
Economic Sanctions and Free Trade 365
especially after the emergence of nuclear weapons. Everyone loses in a nuclear war. The side that started the war usually arouses public indignation. A war does not necessarily solve the problem. Moreover, the cost of war continuously increases. If public condemnation and diplomatic negotiations do not work, then economic sanction is a good choice.
The famous German military theorist Clausewitz said, “The war is the continuation of politics by another way.”3 Today, economic sanctions are also considered a continuation of politics. Economic sanctions are regarded to be more powerful than public condemna- tion and diplomatic negotiations. Moreover, the destructiveness of economic sanctions is not as large as that of a war. At the begin- ning of this century, economic sanctions were advocated as means of settling international disputes. In 1919, U.S. President Wilson said,
“Economic sanction is a peaceful and quiet treatment without the use of force but hitting the vital point. Other countries except the sanctioned do not need to pay the cost of life in economic sanctions, but the sanctioned one will suffer enormous pressures. In my judg- ment, no any modern country can withstand the pressure.” The first half of his speech is reasonable, but the rest is exaggerated.
More than 200 occurrences of economic sanctions occurred in the world from 1915 to 2008. This figure is 11 times more before the Sec- ond World War, about 0.44 times more every five years on average.
During the Cold War between 1945 and 1990, about 116 instances of economic sanctions were made, about 2.58 times every five years on average. After the Cold War, the hostility between the two camps disappeared. The aggressiveness of both camps was no longer as intense as it was in the 1950s; however, from 1990 to 2005, about 57 occurrences of economic sanctions broke out within 15 years, 3.8 times every five years on average.4 The international environment
3Quoted from Oxford Dictionary of Question (1979), 3rd. (edn.), Oxford University Press, p. 152.
4Haufbaueret al. (2007) summarized the cases of economic sanctions in history and provided rich information. See Haufbauer, G., Schott, J. and Elliott, K. (2007). Economic Sanctions Reconsidered.
366 From Trade Surplus to the Dispute over the Exchange Rate
became relaxed, but the occurrence of economic sanctions became higher than ever.
With global integration, economic sanctions increased rather than decreased. In the past 30 years, aside from the two former superpow- ers (i.e., the U.S. and the former Soviet Union), the United Kingdom, France, Canada, China, India, and Australia, among others, have imposed economic sanctions. Except for Japan and Germany, the defeated countries in the Second World War, most superpowers in the world have resorted to economic sanctions. Even the UN, EU, and other international organizations have been frequently involved in all kinds of economic sanctions. Therefore, as long as conflicts between countries exist, people will not forget about economic sanctions.
The U.S. imposed most of the trade wars in the world. It led 77 trade wars among the 116 that occurred from 1914 to 1990. Moreover, the U.S. joined in more than 60 trade wars among the over 80 that occurred from 1990 to 2007.
Economic sanctions usually have multiple goals. The first goal is to put pressure as well as warn and punish the sanctioned countries.
The second is to keep the promise of the Allies, maintain authority, and show power. The third is to show that the government actively maintains the country’s national interests. In a number of cases, the main goals are to balance domestic pressure and win votes.
Clearly, in the U.S. presidential elections in 2012, some politicians stirred protests to solicit votes. These politicians fooled the people emotionally by blaming China for the high unemployment rate and economic recession in the U.S. According to these politicians, the trade war is a fight for the welfare and employment of the American people. To date, the U.S. remains in the public opinion warfare stage.
However, people must maintain high vigilance to prevent the warfare from drifting. Otherwise, the warfare may escalate from public opin- ion to diplomatic and trade war as well as turn into a military conflict (Table 12.1).
Therefore, reviewing the history of trade wars, introducing related theories, and estimating the costs to increase the public’s knowledge become necessary. Only in this manner can it be possible to prevent
Economic Sanctions and Free Trade 367
Table 12.1: Economic sanctions since 1914.
Time Attacker Target Motivation
1914–1918 Britain Germany The First World War 1917 The U.S. Japan Stop Japan’s invasion and
expansion in Asia 1918–1920 Britain Russia Oppose the new Soviet
political power
1921 LN Yugoslavia Stop Yugoslavia from
occupying Albania’s territory
1925 LN Greece Withdraw troops from
Bulgaria
1932–1935 LN Portugal,
Bolivia
Stop the war
1933 Britain FSU Ask FSU to release two
British citizens
1935–1936 LN Italy Oppose the U.S. invasion of Abyssinia
1938–1947 Britain, The U.S.
Mexico Oppose Mexico in
confiscating private assets 1935–1945 The Allies Japan,
Germany
Second World War
1940–1941 The U.S. Japan Stop Japan from invading the Southeast Asia
1944–1947 The U.S. Argentina Eliminate the remaining Nazi forces
1946 LAS Israel Oppose the founding of Israel
1948–1949 The U.S. The
Netherlands
Request for the recognition of Indonesia as an independent state
1948 India Hyderabad
(border between India and Pakistan)
Request for the inclusion of Hyderabad to India
1948–1949 FSU The U.S.,
Britain, France
Stop the independence of West Germany
1948–1955 FSU Yugoslavia Oppose Yugoslavia’s independent action
1948 NATO FSU Stop the FSU from
expanding 1949–1970 The U.S. China North Korean War
1950 The U.S.,
Britain
North Korea North Korean War
(Continued)
368 From Trade Surplus to the Dispute over the Exchange Rate
Table 12.1: (Continued)
Time Attacker Target Motivation
1951–1953 The U.S., Britain
Iran Oppose Iran in nationalizing the Anglo–Persian Oil Company
1954 FSU Australia Australia refuses to extradite the defected Soviet citizens 1954–1961 India Portugal Restrict imports of Indian
products
1954–1984 Spain Britain Sovereignty of Gibraltar 1954–1974 The U.S.,
South Vietnam
North Vietnam
Stop North Vietnam’s military operation 1975–1998 The U.S.,
South Vietnam
North Vietnam
Improve human rights and prisoner issue
1956–1983 The U.S. Israel Request for the withdrawal of troops from the Sinai Peninsula
1956 The U.S.,
Britain, France
Egypt Free passage through the Suez Canal
1956 The U.S. Britain,
France
Request for the withdrawal of British and French troops from the Suez Canal 1956–1962 The U.S. Laos Oppose the Laotian
government
1957–1962 Indonesia The
Netherlands
Control West Iran 1957–1963 France Tunis Support independent
activities in Algeria 1958–1959 FSU Finland Two pro-Soviet parties did
not obtain cabinet positions in new Finland 1960–1962 The U.S. Dominica Ban subversive activities in
Venezuela
1960–1970 FSU China Ideology dispute
1960 The U.S. Cuba Cuba’s closer relationship with the Soviet Union and the nationalization of the U.S. refinery
1961–1965 The U.S. Sri Lanka Oppose the socialization of private property
(Continued)
Economic Sanctions and Free Trade 369
Table 12.1: (Continued)
Time Attacker Target Motivation
1961–1965 FSU Albania Albania supported Beijing openly in the Moscow Conference
1961–1962 Western Countries
East Germany Oppose the building of the Berlin Wall
1962–1964 The U.S. Brazil Oppose the socialization of private properties 1962–1994 UN South Africa Oppose segregation 1962–1965 FSU Romania Ideological divergence and
restriction of economic independence
1963–1965 The U.S. UAE Stop military operation in Yemen and Congo
1963–1966 Indonesia Malaysia Stop the dispute between two countries
1963–1966 The U.S. Indonesia Oppose the Sukarno regime
1963 The U.S. South
Vietnam
Oppose the government in suppressing the public
1965 UN Portugal Oppose Portugal in
suppressing independent activities in Africa 1964–1966 France Tunis Oppose the socialization of
private properties
1965–1967 The U.S. Chile Oppose the price reduction of copper products
1965–1967 The U.S. India Change the agricultural policy
1965–1979 Britain, UN Zambia Racial discrimination
1965 The U.S. LAS Oppose the imposition of
sanctions on U.S.
companies caused by Israel’s resistance 1967–1970 Nigeria Biafra Stop the civil war
1968 The U.S. Peru Oppose the purchasing of
aircrafts from France 1968–1974 The U.S. Peru Oppose the socialization of
private properties 1970–1973 The U.S. Chile Oppose the socialization of
private properties
(Continued)
370 From Trade Surplus to the Dispute over the Exchange Rate
Table 12.1: (Continued)
Time Attacker Target Motivation
1971 The U.S. India,
Pakistan
Stop the civil war in Bangladesh
1971 Britain Malta Defense agreement
1972 The U.S. Terrorist
countries
Oppose terrorism 1972–1979 The U.S.,
Britain
Uganda Protect human rights
1973 The U.S. Anti-human
right Countries
Protect human rights
1973–1974 LAS The U.S. Stop the U.S. from providing weapons to Israel on the Day of Atonement 1973–1977 The U.S. South Korea Protect human rights
1973 The U.S. Chile Protect human rights
1974 The U.S.,
Canada
Nuclear Test Countries
Oppose the nuclear test 1974–1978 The U.S. Turkey Withdraw troops from
Cyprus
1974–1976 Canada India Oppose the nuclear test 1975–1976 The U.S.,
Canada
South Korea Prevent the spread of nuclear weapons
1975 The U.S. FSU Dispute on Jewish settlement
1975–1982 The U.S. South Africa Prevent the spread of nuclear weapons
1975–1979 The U.S. Cambodia Promote human rights 1975–1979 The U.S. Cambodia Promote human rights and
prevent Vietnam from expanding
1975–1990 The U.S. Chile Improve human rights, solve Letellier, and restore democracy
1976–1981 The U.S. Uruguay Promote human rights 1976–1977 The U.S. Taiwan
(China)
Relinquish the development of nuclear weapons 1976 The U.S. Ethiopia Protect human rights 1977–1981 The U.S. Paraguay Protect human rights 1977–1986 The U.S. Guatemala Protect human rights 1977–1983 The U.S. Argentina Protect human rights 1977–1978 Canada Japan, EU Promote nuclear weapon
supervision
(Continued)
Economic Sanctions and Free Trade 371
Table 12.1: (Continued)
Time Attacker Target Motivation
1977–1979 The U.S. Nicaragua Oppose the systems of the existing government 1977–1981 The U.S. Salvador
(Brazil)
Protect human rights 1977–1984 The U.S. Brazil Protect human rights 1977–1992 The U.S. Ethiopia Protect human rights 1978–1983 China Albania Counter anti-China speeches 1978–1981 The U.S. Brazil Oppose the spread of nuclear
weapons
1978–1982 The U.S. Argentina Oppose the spread of nuclear weapons
1978–1982 The U.S. India Oppose the spread of nuclear weapons
1978–1980 The U.S. FSU Oppose FSU’s invasion of Afghanistan
1978–1983 LAS Egypt Withdraw from the Camp
David Negotiation 1978–1988 China Vietnam Withdraw troops from
Cambodia
1978 The U.S. Libya Fight terrorism
1979–1981 The U.S. Iran Oppose the confiscation of U.S. property
1979 The U.S. Pakistan Oppose the spread of nuclear weapons
1979 LAS Canada Oppose Canada in moving its
embassy to Jerusalem 1979–1982 The U.S. Bolivia Improve human rights 1980–1981 The U.S. FSU Request for the Soviet Union
to withdraw from Afghanistan
1980 The U.S. Iraq Fight terrorism
1981–1990 The U.S. Nicaragua Stop the supporting of Salvadoran guerrillas and subverting the Sandinistas government
1981–1987 The U.S. Poland Pressure from the Soviet Union caused Poland to declare martial law 1981–1982 The U.S. FSU Cancel the natural gas
pipeline project
(Continued)
372 From Trade Surplus to the Dispute over the Exchange Rate
Table 12.1: (Continued)
Time Attacker Target Motivation
1981–1982 EU Turkey Restore democracy
1982 EEC Argentina The Argentine army landed
at Falkland Islands 1982–1988 The
Netherlands, The U.S.
Surinam Improve human rights
1982–1986 South Africa Lesotho Refugee issue
1983–1986 Australia France Testing of nuclear weapons in the southern Pacific Ocean
1983 The U.S. FSU Protest the shooting down of
a civil aircraft of South Korea
1983–1988 The U.S. Zimbabwe Oppose the U.S.
1983 East
Caribbean Area
Grenada Oppose the Austin regime
1983–1989 The U.S. Rumania Protect human rights, relax immigration restrictions, and establish a democratic election
1990–1993 The U.S. Rumania Protect human rights, relax immigration restrictions, and establish a democratic election
1984 The U.S. Iran Require an end to the war
between Iran and Iraq 1984–1997 The U.S. Lebanon Oppose the holding hostages
and disarm Hizbullah 1985–1994 The U.S. South Africa End racial discrimination
1986 The U.S. Syria Fight terrorism
1986 The U.S. Angola Request Cuba to withdraw
troops
1986–1999 Greece Turkey Give up the claim for the Aegean Island, withdraw troops from Cyprus, and protect human rights 1986 France New Zealand Repatriate French agents 1987–1990 The U.S. Panama Oppose the Noriega regime 1987–1990 The U.S. Haiti Improve human rights
(Continued)
Economic Sanctions and Free Trade 373
Table 12.1: (Continued)
Time Attacker Target Motivation
1987–1988 The U.S. Salvador (Brazil)
Change the amnesty decision 1987–2001 India,
Australia, New Zealand
Fiji Restore democracy and modify the Constitution to protect the rights of the minorities
1988 The U.S., EU, Japan
Burma Improve human rights
1988 The U.S.,
Japan, Germany
Burma Improve human rights
1988 The U.S.,
Britain
Somalia Improve human rights 1989–1990 India Nepal Reduce communication with
China
1989–1990 The U.S. China Tian’anmen Square incident
1989 The U.S. Sudan Improve human rights
1989 Turkey,
Azerbaijan
Armenia Withdraw troops from Nagorno–Karabakh
1990–1991 UN Iraq Release the hostages and
withdraw troops from Kuwait
1991–2003 UN, The U.S. Iraq Destroy weapons of mass destruction and overthrow the Saddam administration 1990–1993 The U.S. Salvador
(Brazil)
Improve human rights and end civil war
1990–1993 The U.S., Western Countries
Kenya End political oppression and establish democracy 1990–1997 The U.S.,
Belgium, France
Zaire Establish democracy
1990 FSU Lithuania Request for the abolition of the declaration of independence 1990–1997 The U.S.,
Saudi Arabia
Jordan, Yemen
Implement the United Nation’s embargo against Iraq
1991–2001 UN, The U.S., EU
Yugoslavia, Serbia
End the civil war in Bosnia and Croatia
(Continued)
374 From Trade Surplus to the Dispute over the Exchange Rate
Table 12.1: (Continued)
Time Attacker Target Motivation
1991 The U.S. China Stop the spread of weapons 1991–1992 The U.S. Thailand Restore the Constitution
system 1991–1997 The U.S., The
Netherlands
Indonesia Improve human rights and end conflicts in east Timor 1999–2002 The U.S., The
Netherlands
Indonesia Independence of east Timor 1991–1994 The U.S., UN,
OAS
Haiti Restore democracy 1991 The U.S., EC FSU Support the restoration of
the Gorbachev administration
1991–1995 FSU/Russia Turkmenistan Improve the rights of the minorities in Russia 1991–1995 The U.S. Peru Restore democracy and
improve human rights 1992–1998 ECOWAS, UN Liberia End conflicts
2000–2006 ECOWAS, UN Liberia Stop supporting the united front of the revolution in Sierra Leone
1992 EU, France, Germany
Togo Restore democracy and improve human rights 1992–1993 The U.S.,
Britain
Malawi Restore democracy and improve human rights 1992–2000 EU, Spain Equatorial
Guinea
Restore democracy and improve human rights
1992–1994 EU Algeria Restore democracy
1992–1998 The U.S. Cameroon Restore democracy and improve human rights 1992–2002 The U.S. Azerbaijan End the embargo against
Armenia 1992 EU, The U.S.,
Germany
Cambodia Oppose the Khmer Rouge and establish a democratic system
1992–1999 FSU/Russia Estonia Improve the rights of the minorities in Russia 1992–1994 China France Cancel the selling of arms to
Taiwan
1992–1995 The U.S. Nicaragua Enhance army control and solve expropriation claims
(Continued)
Economic Sanctions and Free Trade 375
Table 12.1: (Continued)
Time Attacker Target Motivation
1992–2003 UN Libya Extradite terror suspect Pan Amu
1992–1998 FSU/Russia Latvia Improve the rights of the minorities in Russia 1993–1994 The U.S., UN North Korea Relinquish nuclear weapons 2002 The U.S., UN North Korea Relinquish nuclear weapons 1993 The U.S., EU Guatemala Stop the coup
1993–2002 UN Angola End the civil war and
promote democracy 1993–1998 The U.S., EU Nigeria Improve human rights,
establish a democracy, and stop selling drugs
1993 The U.S. Sudan End the support for
international terrorism 1993–1997 FSU/Russia Ukraine Accept Russia’s control of
Black Sea fleets and relinquish nuclear weapons 1993–1996 FSU/Russia Kazakhstan Nuclear safety and military
rights in Russia; energy resources
1994–1995 Greece Macedonia Change the country’s name 1994–1995 Greece Albania Release arrested Greek
leaders 1994–1995 UN, The U.S. Rwanda Stop civil war 1994–1998 The U.S., EU,
Japan
Gambian Restore democracy 1995–1998 The U.S. Peru, Ecuador End boundary conflicts
1995 EU Turkey Improve human rights
1996–1999 EAC Burundi Restore democracy
1996–2000 The U.S., EU Niger Restore democracy 1996–1998 The U.S.,
Western Countries
Zambia Improve human rights and reform the Constitution 1996–1998 The U.S. Columbia Stop selling drugs and
improve human rights
1996 The U.S.,
SACM
Paraguay Stop coup attempt 1997–2003 UN, ECOWAS Sierra Leone Stop civil war
1998–2001 The U.S. India Stop India’s nuclear test (Continued)
376 From Trade Surplus to the Dispute over the Exchange Rate
Table 12.1: (Continued)
Time Attacker Target Motivation
1998–2001 The U.S., EU Yugoslavia, Serbia
Stop the violence in Kosovo and overthrow Milosevic’s regime 1998–1999 Turkey Italy Extradite leaders of the Kurdish
Workers Party
1999–2002 The U.S., UN Afghanistan Extradite terrorist Laden 1999–2002 The U.S., EU,
France
Ivory Coast Restore democracy 1999–2001 The U.S.,
Japan
Pakistan Restore democracy 2000 The U.S. Ecuador Prevent coup attempt
2001–2005 The U.S. Haiti The opposition party boycotted the election
2002 The U.S. World Court Sign a law supporting anti-terrorism
2002 The U.S., EU Zimbabwe Oppose suppression of the internal opposition 2003–2004 The U.S. Guinea-Bissau Oppose coup 2003–2005 The U.S., EU,
AU
Central African Republic
Oppose the military coup
2004 France, UN Ivory Coast Stop the civil war
2003 UN Congo Stop the tribal war
2005 EU Guinea Promote a democratic election
and political reform 2005 The U.S., EU,
Sweden
Uzbekistan Prevent the government from suppressing the public 2006 The U.S., EU White Russia Oppose election malpractices 2006 The U.S., EU,
Israel
Hamas Relinquish violence and terroristic means
2006 Russia Georgia Territory dispute and hostile speeches
2006 The U.S., EU, Australia, New Zealand
Fiji Oppose the overthrowing of the government elected by the public through a military coup Source: G. Haufbauer, J. Schott, and K. Elliott, Economic Sanctions Reconsidered, pp. 20–34.