Trade Sanction

What is a 'Trade Sanction'

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.

BREAKING DOWN 'Trade Sanction'

Trade sanctions are "laws passed to restrict or abolish trade with certain countries," according to economicshelp.org.

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 their foes.

Reasons for Trade Sanctions

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.

Trade Sanction Mechanisms 

Three common kinds of trade sanctions are: quotas, tariff, 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 is preventing 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. 

Types of Trade Sanctions

Trade sanctions can be either unilateral or bilateral. Unilateral sanctions are enacted by a single country, while bilateral sanctions are enacted by a group or block of countries. Bilateral sanctions are generally considered less risky, because no one country can be held responsible for the sanctions effect. However, unilateral sanctions can be very effective, if enacted by an economic power. 

The Downside to Trade Sanctions

A problem with sanctions can be that their impact is felt by innocent, impoverished citizens, and not government officials or elites driving and enacting policy.