How do US sanctions affect EU trade with target countries?

In class we discussed whether sanctions work or not. This article written by Jiawen Yang, Hossein Askari, John Forrer, and Lili Zhu looks at how US economic sanctions affect the European Union’s trade with targeted countries. They start by stating the assumption that when US sanctions are imposed, target countries switch their trade form the United States to other countries. This is what is known as the third-country effect. Since the European Union is the largest economic entity other than the United States they would be an attractive option to countries under US sanctions. The article argues that even though these third-country trade promotions are normally assumed, US economic sanctions may hurt trade between EU and target countries due to network effects.

The paper references data provided by Hufbauer that found that more severe US-inspired sanctions encourage target countries not only to redirect their trade away from the United States and toward third countries but also to enlarge their commerce with the world at large. The paper then references studies done by Caruso which find that unilateral extensive sanctions had a large negative impact on other G-7 countries (France, Germany, Italy, Japan, the U.S., the U.K., and Canada). The study also found that limited or moderate sanctions induced a slight positive effect on other G-7 countries. Caruso concludes that the first finding confirmed the hypothesis of negative network effects.

The study in this paper finds that in their sample year of 2003 total gains of EU trade due to US-inspired unilateral sanctions are estimated to be approximately $25.1 billion. They find that unilateral sanctions imposed by the US appear to have a positive impact on EU trade with target countries in 2003. Their reasoning behind this finding is that most unilateral sanctions in effect in 2003 were moderate/limited in nature and had been in effect for a while which follows the second finding of the Caruso study.  

I agree with the assertion of this paper where they say severe sanctions effect third countries negatively while limited or moderate sanction effect third countries positively. The more severe sanctions would put more of a burden on the target country’s economy which would have a negative impact on that country’s trade as a whole leading to that country trading less with third countries. Whereas the limited/moderate sanction put less of a burden on the economy of the target country, this makes it easier for them to simply switch to a third country for their trade. 

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