Economic sanctions in more simple words can refer to creation of any inefficiency in making profits of one actor (which may be a specific person, party, group or country) from bilateral or multilateral economic relations, with a different set of political, security, and economic goals, designed, implemented and tracked by another player.
There is now much contemplation in raising the question of whether the economic sanctions imposed by the United States will affect the economic situation of America as well. If so, what is the extent of this impact which is interesting for the public opinion, the elites and statesmen in trying to find out whether the sanctions against the Islamic Republic of Iran by the American statesmen are logical or irrational.
Sanctions, a Lose-Lose Game
In principle, there is no doubt that economic sanctions affect the sanctioner (sender) country, and there will certainly be burdens of varying costs on the US government, people, and businesses. Just as any option incurs some costs that are provided by overlooking other possible choices. It is well known that every choice is accompanied by the loss of opportunities. As a result, it is clear that economic sanctions in any case have at least some of the consequences of a lose-lose game.
The same can be supported by citing a report released by the Peterson Institute for International Economics (PIIE), which shows that the average cost-to-sender index generally revolves around figure 2, and with the passage of time even where they have succeeded on sanctions targets; the increasing trend on sanctions costs is thoughtful and noteworthy [1].
The table below presents the average US sanctions spending in the three periods of 1945-69, 1970-1989, and 1990-2000, respectively, where sanctions were successful or failure. This indicator is also expressed at the bottom line for other countries with the same distinction (whether sanctions succeed or not).
But the question here is whether the estimated amount of costs is enough to deprive rational justification of unilateral economic sanctions in the cost-benefit computational logic? The PIIE report indicates that the sanctions spending column for the sanctioner country (marked in red) shows figures of 1.4 to 2.1, with the US-based unilateral sanctions index around 1.8. This means that for every single unit of economic loss to the target country, the United States suffers 1.8 units of economic damage, which is deliberately or unintentionally ignored by the global media.
In understanding this ratio, it should be noted that the costs incurred are economic costs, not accounting costs. That is, in economic costs, all the lost benefits are estimated to make a decision, whereas in accounting costs only the expenses incurred to implement that decision are calculated.
Implications of Sanctions for Sanctioners
In response to the essential question on the consequences and impacts of US sanctions on Iran on the US economy and a proper understanding of the benefits and costs (as both sides of the cost-benefit equation), on the one hand a list of the “benefits” of the sanctions must be prepared and a realistic calculation be made of the end result of each of these sanctions to achieve those benefits.
But on the other side of the cost-benefit equation, there is a list of the major “costs” associated with the American economy, most notably:
- Losing US firms’ overseas investment opportunity in Iran’s manufacturing market;
- Loss of Iranian consumer goods and services market;
- Loss of low-cost labor, land, and low-cost manufacturing factors in Iran and vice versa, increased frictional costs for US manufacturing firms;
- Expanding foreign trade with Iran in all products that have been a commercial advantage for both parties, including new industrial technologies and equipment, military tools, therapeutic drugs, cereals, rugs, pistachios and saffron.
All of these and other issues that can be reviewed are directly or indirectly affecting the US economy and have diminished the special share of the United States in GDP. Of course, the prolonged period of cold relations between Iran and the United States, make it difficult to have a precise estimation of the losses inflicted on US economy.
But for the mental approximation, a simple model can be used; for example, according to a World Bank report on the volume of foreign trade between Iran and the United States at the end of the Pahlavi period (which marks its peak in March 1978) some $3700 million in US exports to Iran have been recorded [2], which accounts for 0.0025 of the US GDP in the same year (1978), which was $ 2352 billion [3]. That is, trade in goods and services with Iran accounted for 0.0025 of the volume of the US trade.
Further details of Iran’s capacity to help the US economy become bigger can be estimated from the migration of about fifty thousand Americans to Iran and the flow of technology, industrial equipment, agricultural and consumer goods from the world’s largest economic giant to Iran, the second largest economy in the region. As statistics show, between 50 and 70 percent of Iranian rice, wheat, and cereals came from the United States in the 70th. [4] If we take a “rough estimate” of the volume of Iran-US trade relations in the current period, we will reach the conclusion that, assuming this ratio is fixed (0.0025), in 2019 the US would lose some $59 billion for lack of economic ties with Iran.
From another angel, the Michigan Journal on International Law predicts that sanctions have cost US companies $15 to $19 billion in annual sales, equivalent to the loss of 200,000 to 260,000 jobs [5]. Of course, the profits from foreign investment aimed at shaping the value chain, reducing overseas production costs and increasing diversification in the trading portfolio of the parties, and dozens of other emerging phenomena that have been invented and welcomed in foreign economic relations over the past four decades, have not been calculated. It will also make the amount of damage very impressive. This fact comes to light when we recognize the same $59 billion estimated to be about half of the total US foreign trade volume with the People’s Republic of China in 2019 as two trading giants.
Suggestions
Preparing media packages in the context of public diplomacy and elite discussions and international formal negotiations aimed at clarifying US sanctions costs against the Islamic Republic of Iran can play a significant role in a revision by the US public opinion, policymakers and executives in cost-benefit estimation. In this regard, it is worth noting that the magnitude of the damage caused by US unilateral sanctions against Iran had better be expressed in terms of dollars and then debated and challenged rather than in terms of percentages and proportions.
Another notable point is that Iran should increase US costs of sanctions so as to turn the sanctions into a tool against the United States. Of course, this important task requires macro arrangements and policymaking as well as sound and calculated plans.
On the other hand, the attention and persuasion of the elites and the public at large is necessary to prove that US decision-makers do not have the option of imposing sanctions on Iran to exert maximum pressure on Tehran through alternatives such as special military action or political and economic initiatives. This implies that the US entry into a negotiated agreement will be pursued broadly and seriously around the common interests of Iran and the United States. However, the conventional conclusion of these predictions does not comply with the actions of American statesmen in the “action” scene. The formal assassination of the Islamic Republic of Iran’s Quds Force Command in Iraq by the explicit order of the US President is the latest concrete example of this claim which was responded by Iran’s missile attacks on formal and strategic American positions in the region and brought back Iran-US relations few steps in an unprecedented way.
PS:
[1]: Economic Sanctions Reconsidered, 3rd ed., Chapter 5, page127
[2]: Euronews
https://farsi.euronews.com/2018/08/01/economic-sanctions-effects-iran-usa-40years-import-export
[3]: World Bank
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=US
[4]: Iranian Economy Website
http://www.ireconomy.ir/en/page/18804/
: [5] Richard W. Parker, (2000) The Problems with Scorecards: How (and How Not to) Measure the Cost-Effectiveness of Economic Sanctions, Volume 21, Issue2, page 244
[5]: Tasnim website quoting Reuters
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