What Is a Trade Sanction?

Trade sanctions are laws passed to restrict or abolish trade with certain countries.

Trade sanctions are a subcategory of economic sanctions, which are commercial and financial penalties imposed by one or more countries, and targeted against a country, organization, group, or individual.

Key Takeaways

  • Trade sanctions are laws passed to restrict or abolish trade with certain countries. 
  • Trade sanctions are a subcategory of economic sanctions, commercial and financial penalties targeted against a country, organization, group, or individual.
  • Sanctions can be unilateral, imposed by only one country on one other country, or multilateral, imposed by one or more countries on different countries. 
  • Trade sanctions are imposed to make it more difficult for the nation(s) bearing the sanctions to trade with the nation(s) imposing them. 
  • The most common types of trade sanctions are quotas, tariffs, non-tariff barriers (NTBs), asset freezes or seizures, and embargoes.

Understanding Trade Sanctions

Trade sanctions are trade penalties imposed by one nation onto one or more other nations. Sanctions can be unilateral, imposed by only one country on one other country, or multilateral, imposed by one or more countries on a number of different countries. Sometimes, allies will impose multilateral sanctions on unfriendly states.

Trade sanctions have the express purpose of making it more difficult if not impossible for the nation(s) bearing the sanction to trade with the nation imposing it.

Trade sanctions act as a sort of stick and carrot in foreign and economic policy in international politics and trade. Governments impose sanctions with the express purpose of changing the behavior and policy of another government or state.

While trade sanctions often produce their desired results over time, one major problem with sanctions can be that their impact is often felt more powerfully by innocent, impoverished citizens, and not government officials or the business leaders and other elites driving and enacting the country's policy.

The United Nations uses economic and military sanctions, including embargoes and other sanctions, instead of or in addition to military interventions against regimes the UN Security Council

Types of Trade Sanctions

Trade sanctions can be either unilateral or bilateral. Unilateral sanctions are enacted by a single country, while a group or block of countries enacts bilateral or multilateral sanctions.

Bilateral sanctions are generally considered less risky because no one country can be held responsible for the effect of the sanctions. However, unilateral sanctions can be very effective, if enacted by a large economic power. 

Trade Sanction Mechanisms 

The most common types of trade sanctions are quotas, tariffs, non-tariff barriers (NTBs), asset freezes or seizures, and embargoes.

  • Quotas are government-imposed trade restrictions that limit the number, or monetary value, of goods that can be imported or exported during a particular time period. 
  • Tariffs are barriers between certain countries or geographical areas, taking the form of high import (and occasionally export) taxes, levied by a government. 
  • Non-tariff barriers are non-tariff restrictions on imported goods. NTBs can include licensing and packaging requirements, product standards, and other requirements that are not specifically a tax. 
  • Asset freezes or seizures prevent assets owned by a country from being moved or sold. 
  • An embargo typically implies a more severe form of sanctions. An embargo most commonly means an official ban on trade (and other commercial activity) with a particular country or geographic region.