Global sanctions can be a powerful policy tool when the right mix of conditions is met. They can weaken the economic and military capacities of rogue states, and deter military aggression and other violations of international law. But they can also have serious and unintended consequences. This article examines the interwar experience and argues that more research is needed on the costs and risks of this policy instrument, particularly its effects on innovation and trade diversion and evasion.
Sanctions grew in importance in the interwar period. They were used in an era of growing autarky, as governments sought to limit the revenue of countries they considered threats to peace. This meant that, unlike today, the global economy was far less integrated, and it was hard to find alternative markets for goods produced by sanctioned countries. As a result, sanctions diminished world exports and caused price deflation that weakened currency blocs.
Today, the world is far more connected, and globalization has lowered risks of military escalation. But this has also increased the ability of rogue states and their financial elites to evade sanctions through trading partners. Sanctions impose costs that are far greater than the cost of a war and can have broad ripple effects on innovation, which is why the development of better tools for estimating the impact of sanctions should be a priority for researchers.