Are sanctions effective? Can trade wars be won?

Abstract

AbstractThe chapter outlines the development of modern trade theory, starting with Adam Smith and David Ricardo. It reports the plea for protectionist trade barriers advanced by Friedrich List, inspired by Alexander Hamilton. It shows that the dispute between free traders and protectionists has never ended and is raging today, for example in development policy. It describes the theory of the ‘optimal’ tariff and how it characterizes the trade war unleashed by President Trump. It deals with the problem of whether and how to compensate those who lose through the distributive effects of trade. It shows that since the turn of the century, millions of jobs have been relocated between trading countries. It sketches trade policy until 1945, including the problem of war debt and reparations, the Great Depression, and protectionism between the World Wars. It examines the effectiveness of economic sanctions and sets up a framework for how to plan successful sanctions and trade conflicts. It chronicles Trump’s trade war and concludes that it was economically unsuccessful and politically damaging, but that it had some traits that can be justified, mainly regarding the defence of technologies and infrastructures. The chapter finally looks into the relationship between trade expectations and the causes of war and finds that judging by past experience, there is a potential for armed conflict today.