Why are international sanctions decreed by the US government obeyed by the targeted “sanctioned persons,” who are foreign nationals generally out of reach of penalties from American authorities? The answer is simple but apparently unknown to many people. The sanctioned persons are not expected to do anything to obey. What the sanctions do is to prohibit Americans (as well as nationals of third countries) from dealing with the foreign sanctioned persons (which include individuals and entities), and the criminal penalties target Americans.
Sanctions are like tariffs or embargoes: they first hit the very subjects of the sanctioning government in order to affect the foreign targets. The embargo of 1808-1809 provided an advance example.
On September 25, the US government sanctioned a number of Chinese maritime shipping companies for allegedly delivering oil to Iran. The Wall Street Journal correctly explains what this means (“U.S. Sanctions Chinese Firms for Allegedly Shipping Iranian Oil,” Wall Street Journal, September 25, 2019):
U.S.-based companies and individuals are barred from conducting business with the newly blacklisted firms, and others who are found to be continuing transactions with them risk punitive action by the U.S. as well.
Oil traders and shipping brokers, many of them American or nationals of friendly countries, were soon struggling to replace the dozens of tankers hit by the blacklisting. Within a few days, oil shipping rates jumbed jumped–by 18%, to $45,000 a day, for very large crude carriers (“U.S. Ban of Cosco Tankers Rattles Oil Transport,” Wall Street Journal, September 27, 2019).
These new sanctions are allowed by Executive Order 13846 (“Reimposing Certain Sanctions with Respect to Iran”), signed by President Donald Trump on August 6, 2018 (after he had denounced the 2015 nuclear agreement between the US government, several allied governments, and the government of Iran). Other presidents have issued similar orders before, including Barack Obama. Not surprisingly, Executive Order 13846 confirms, in seven pages of tight legalese, that the threat of penalties for violating the sanctions targets Americans and other catchable businessmen in friendly countries—for example:
the Secretary of the Treasury, in consultation with the Secretary of State, shall … prohibit any United States financial institution from making loans or providing credits to the sanctioned person totaling more than $10,000,000 in any 12-month period …
prohibit any United States person from investing in or purchasing significant amounts of equity or debt instruments of a sanctioned person;
restrict or prohibit imports of goods, technology, or services, directly or indirectly, into the United States from the sanctioned person …No entity owned or controlled by a United States person and established or maintained outside the United States may knowingly engage in any transaction, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran …
Penalties assessed for violations of the prohibition … may be assessed against the United States person that owns or controls the entity that engaged in the prohibited transaction.
“Sanctions” are nominally imposed on foreigners, but the actual penalties target Americans.
Perhaps, in certain cases, international sanctions of this kind are justified, but the way they work implies that their justification requires two demonstrations. First, it must be demonstrated that the sanctions are desirable, perhaps as an alternative to a just war. Second, it must also be demonstrated that the sanctioning government is justified to conscript and coerce its own nationals (or nationals of third countries) for this task.
READER COMMENTS
Phil H
Oct 1 2019 at 6:48am
There is one other mechanism that is worth mentioning: Sanctions can target flows of money. If an international trade transaction is settled in US dollars, it must flow ultimately through a US bank. I think you can imagine America’s financial institutions as a kind of infrastructure, belonging to and maintained by the government along with its private partners, the banks. If the US government is no longer willing for its financial infrastructure to be used by certain foreign nationals, it should not have to allow that to happen.
This depends on the dollar’s supremacy as the medium of international trade, of course. But it’s an important reason why US international sanctions have bite that EU/Chinese sanctions lack.
Thaomas
Oct 1 2019 at 7:25am
This tries to prove the wrong thing. Of course sanctions impose costs on ourselves (and our allies) as a means of imposing costs on others, but no one except President Trump (and Navarro?) ever argued otherwise. The proper question is are the benefits of the improvement in the behavior of the sanctioned entity [I guess this could also include deterring other entities contemplating the same behavior being sanctioned] (if any) greater than the costs to the sanctioning entity. “Improvement” could be either that the sanctioned entity dissists from the behavior being sanctioned (assuming that has been well communicated — certainly not the case in Trump’s war on trade with China) or the harm don to the sanctioned entity is sufficient to reduce its ability to engage in the sanctioned behavior. None of these conditions seem to be met with respect to the war on trade with China starting with a clear conception of what behavior we wish the Chinese government to change.
Jon Murphy
Oct 1 2019 at 7:52am
This is a very important point and one that is also emphasized by Mark on Scott Sumner’s recent post:
The sanctions are a violation of the liberty of domestic citizens and it is an injustice by the government. Now, governments have the power to inflict injustices; their coercive rights allow this. But in any liberal and free society worth the name carries with it a presumption of liberty. That is: the burden of proof for a government to violate liberty lies with the government, not with the person whose liberty is being violated.
Further, since these violations are being done to individuals who have no to minimal connection to the accused and not the accused themselves, the burden of proof must be even higher.
Thus, simple excuses like “benefits exceed costs,” or “optimal tariff math says so,” or “because they’re bad, mmm’kay?” are not sufficient reasons to impose sanctions.
Thaomas
Oct 2 2019 at 8:44pm
I agree, but usually optimal tariff and cost benefit arguments are employed to constrain departures from market outcomes. The President’s war on trade cannot be justified on optimal tariff (in this case it would be the same as cost benefit analysis) grounds. ICE’s immigration deterrence/deportation activities go far beyond what could be justified by cost benefit analysis.
Pierre Lemieux
Oct 4 2019 at 9:22pm
That occurs in the armchair theorist’s mind. In the real world of politics and bureaucracy, as illuminated by Public Choice economics, it is rather different.
To go deeper, consider Anthony de Jasay’s challenge:
Thaomas
Oct 5 2019 at 8:32am
Make whatever kind of honest argument you think is best. I think pointing out that (using some “procedurally defined interpersonal comparisons of utility”) the costs of tariffs to consumers and non-tariff protected producers (in principle including all the public choice illuminated costs) exceed the benefits to the protected industries plus government revenue is better than just pointing out the tariffs constrain the liberty of consumers and non-tariff producers.
Jon Murphy
Oct 5 2019 at 11:59am
I disagree. Focusing solely, or even primarily, on costs and benefits I find is very disappointing. It’s mere accounting and nothing more. It does not tell us whether or not an action should be undertaken. All it tells us is whether or not an action can be undertaken.
By way of an extreme example, from a strict cost-benefit analysis, the holocaust would be net beneficial if there were only more Nazis (this is an example Bryan Caplan likes to use in class). However, not a single person I can think of would be persuaded by such an argument. The ethical context matters a whole lot. That is why I am emphasizing justice in my original comment. As Frank Knight once said (quoted by Coase): “problems of welfare economics must ultimately dissolve into a study of aesthetics and morals.”
Warren Platts
Oct 5 2019 at 4:01pm
Right. Therefore, sanctions against Americans who do business with Nazis are fully justified regardless of the economic consequences. But then you write:
That is a contradiction. If the egregious behavior is so bad that sanctions are justified regardless of the cost-benefit analysis, then there is no injustice caused by the imposition of sanctions, nor is there a violation of the liberty of home citizens.
As for China, sanctions are fully justified by any reasonable estimation. The evidence is clear beyond a reasonable doubt that China engages in murdering innocent human beings in order to steal and sell their bodily organs. No cost-benefit analysis can justify such atrocities. The numbers of victims are probably measured in the hundreds of thousands. Therefore, sanctions against Americans that do business with a blatantly criminal regime are fully justified. There is no injustice nor violation of liberty.
Jon Murphy
Oct 5 2019 at 5:27pm
There is no contradiction. I am using the framework Adam Smith develops in Theory of Moral Sentiments and Wealth of Nations (see also his Lectures on Jurisprudence).
Pierre Lemieux
Oct 6 2019 at 6:42pm
In reply to this thread, a couple of points:
We know from welfare economics that policy evaluation ultimately requires value judgments.
In the best case, cost-benefit analysis will make these value judgments more transparent. (I think this is the argument for CBA, plus the fact that it slows down Leviathan.)
We should strive for value judgments that require the least moral credulity, to paraphrase de Jasay. (For example, such moral judgments presumably don’t include the idea that individuals who work in the steel industry have a higher moral value than those who buy goods made with steel.)
As was mentioned, we must stay alert for contradictions.
Mark Brady
Oct 2 2019 at 6:40pm
“Perhaps, in certain cases, international sanctions of this kind are justified.”
Two questions. (1) Pierre, please explain what you have in mind. Inquiring minds want to know. And (2) Pierre, can anything be justified? Popperians want to know.
Thaomas
Oct 2 2019 at 8:57pm
Basically, sanctions would have to pass the “just war” tests. Is the sanctioned state doing something that harms the interest of the sanctioning state’s residents (or possibly the interests of some other state that the sanctioning state wished to protect)? Are the sanctions likely to be effective in changing the sanctioned state’s behavior or deterring similar behavior in the future by the sanctioned state or others? Are they proportionate, their harm to residents of the sanctioned and sanctioning state not excessive in relation to the change in behavior of the sanctioned state being sought?
Mark Brady
Oct 4 2019 at 1:39am
Thank you, Thaomas, those are good questions to begin the discussion.
Pierre Lemieux
Oct 4 2019 at 9:35pm
Mark: On your first question, my answer would go (perhaps more prudently) in Thaomas’s direction. I think that just wars are theoretically possible. If that is right, sanctions in their stead would be justified. I would add that general obligations through taxes instead of the conscription of specific persons are a condition of the justification.
Your second question is the one-million-dollar question. (Thanks, and keep the change.) I never thought that, in Popper, nothing can be justified, but I might have missed some elephant there. Or you simply mean that truth is always provisional? Given this caveat, I would say three things. First, positive statements can be provisionally “justified” by empirical confirmation of a logical theory. Second, normative statements (about values) can be “justified” by logical reasoning that doesn’t violate confirmed positive facts. Third, the imposition of values can only be justified by consent, at least implied consent in a Hayekian/Humean/Jasayan conventional setup or in a Buchanan kind of way. Makes sense?
Thaomas
Oct 6 2019 at 9:36am
@Jon Murphy
Oct 5 2019 at 11:59am
Utilitarian-cost/benefit arguments can work if there sufficient agreement on valuing the costs and benefits. The typical “accounting” for the net loss from a tariff assumes that we agree that a dollar of income is the same whoever receives or parts with it.
I do not think the Holocaust is a good example for two reasons. First, I agree that Utilitarianism is not an easy argument to make in highly non-marginal (Holocaust/no Holocaust) changes. Second, If we value all lives equally, the Holocaust probably would fail a cost benefit analysis.
I completely agree that “problems of welfare economics must ultimately dissolve into a study of aesthetics and morals.” I just seem to me that in most real life policy decisions faced in democratic capitalist societies, cost benefit analysis is a good way of thinking about the practical effects of those aesthetic and moral judgements.
Jon Murphy
Oct 6 2019 at 10:18am
Indeed, but that is, by definition, impossible. Both costs and benefits are subjective. For a more thorough discussion on this, I highly recommend James Buchanan’s Cost and Choice. Also good, though a bit more advanced, is the collection of essays he and Thirlby edited LSE Essays on Cost.
Costs are whatever you have to give up in order to achieve a certain action. They are not simply monetary costs but the highest valued alternative use. That is going to vary from person to person since each person faces different alternatives. Thus, each person is going to have differing opinions on the costs, making “sufficient agreement” (however one wishes to define that), impossible in a strict utilitarian framework.
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