(Trade) War and Peace: How to Impose International Trade Sanctions

82 Pages Posted: 24 Jul 2022 Last revised: 12 May 2023

See all articles by Gustavo de Souza

Gustavo de Souza

Federal Reserve Bank of Chicago

Naiyuan Hu

Singapore Management University

Haishi Li

The University of Hong Kong

Yuan Mei

Singapore Management University - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 4, 2022

Abstract

Trade sanctions are a common instrument of diplomatic retaliation. To guide current and future policy, we ask: What is the most cost-efficient way to impose trade sanctions against Russia? To answer this question, we build a quantitative model of international trade with input-output connections. Sanctioning countries simultaneously choose import tariffs to maximize their income and to minimize Russia’s income, with different weights placed on these objectives. We find, first, that for countries with a small willingness to pay for sanctions against Russia, the most cost-efficient sanction is a uniform, about 20% tariff against all Russian products. Second, if countries are willing to pay at least US$0.7 for each US$1 drop in Russian welfare, an embargo on Russia’s mining and energy products - with tariffs above 50% on other products - is the most cost-efficient policy. Finally, if countries target politically relevant sectors, an embargo against Russia’s mining and energy sector is the cost-efficient policy even when there is a small willingness to pay for sanctions.

Keywords: trade sanctions, tariff, tariff competition

JEL Classification: F13, O24

Suggested Citation

de Souza, Gustavo and Hu, Naiyuan and Li, Haishi and Mei, Yuan, (Trade) War and Peace: How to Impose International Trade Sanctions (June 4, 2022). Available at SSRN: https://ssrn.com/abstract=4153921 or http://dx.doi.org/10.2139/ssrn.4153921

Gustavo De Souza

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Naiyuan Hu

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore

Haishi Li (Contact Author)

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Yuan Mei

Singapore Management University - School of Economics ( email )

90 Stamford Road
178903
Singapore

HOME PAGE: http://https://sites.google.com/site/meiyecon/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
275
Abstract Views
939
Rank
171,357
PlumX Metrics