What is an embargo?

An embargo is a government order restricting trade with a particular country or the exchange of certain goods. An embargo is usually created as a result of unfavorable political or economic circumstances between countries. It is designed to isolate the country and create difficulties for its governing body, forcing it to act on the issue that led to the embargo.

KEY FINDINGS

• An embargo restricts the trade or exchange of certain goods with a certain country, usually as a result of political or economic problems between countries.
• The embargo is intended to cause negative consequences for the economy of the affected country.
• Trade embargoes imposed by the United States are often based on United Nations mandates.

How the embargo works

An embargo is a powerful tool that can affect a country both economically and politically. The ability to easily trade goods around the world is the key to maximizing the economic prosperity of a country. When this becomes impossible, it can have serious negative consequences.

Decisions on trade embargoes and other economic sanctions by the United States are often based on mandates from the United Nations (UN), an international organization established in 1945 to promote political and economic cooperation. Allied countries often come together by entering into joint agreements to restrict trade with certain countries. This is often done to bring about humanitarian change or reduce perceived threats to international peace.

The embargo does not necessarily apply to all goods entering and leaving the country. Sometimes only certain goods, such as military equipment or oil, fall under the embargo. 

Embargo types

There are several different types of embargo. A trade embargo refers to a ban on exports or imports to or from one or more countries. They can then be narrowed down more specifically. For example, strategic embargoes protect animals, people and plants.

In particular, a military embargo prohibits the exchange of military goods with a country, while an oil embargo only prohibits the trade in oil, and an embargo on endangered animals prevents trade in such animals. An embargo can be political, economic, security, environmental or public health.

The term "embargo" is also used in the media industry. When information is released under an embargo, it means that it cannot be released or shared before a certain set date. Companies often ban press releases.

Introduction of an embargo

The President of the United States has the authority to impose embargoes and other sanctions in time of war under the Trade with the Enemy Act.

Another law, the International Emergency Economic Powers Act, gives the president the power to impose trade restrictions during times of national emergency.

In the US, the Office of Foreign Assets Control, a division of the Treasury Department, administers economic trade embargoes. The office plays a central role in tracking down and freezing the sources of funding for terrorist and drug-related organizations.

US trade embargoes

The US has imposed several lengthy embargoes on other countries, including Cuba, North Korea and Iran. In the 1980s, several countries, including the United States, imposed a trade embargo against South Africa in opposition to apartheid.

US embargoes and economic sanctions against certain countries specifically prohibit trade in certain types of goods, such as weapons or luxury goods, but allow other forms of trade. In contrast, comprehensive embargoes are more punitive in that they prohibit all trade with a country.

Since the September 11, 2001 attacks, US embargoes have increasingly targeted countries known to be associated with terrorist organizations that pose a threat to national security. More recently, US embargoes have become more widespread, setting the stage for a series of trade wars.

When former President Donald Trump began his term in 2016, he promised to make it easier for consumers to buy American goods. He began imposing import taxes on certain goods entering the country, leading some countries such as China to respond with punitive measures of their own. In 2018, Trump imposed protective tariffs of $8,5 billion on solar panel imports and $1,8 billion on washing machine imports. The intended target was China.

Several embargoes have targeted the US in the past. For example, in the 1970s, the US economy was hit by an oil embargo imposed by member countries of the Organization of the Petroleum Exporting Countries (OPEC). This particular embargo caused fuel shortages, rationing, and gas prices skyrocketing.

Impact of the embargo

Efficiency

With the aim of influencing the actions and policies of another country, embargoes are usually ineffective. For example, the US embargo against Cuba since the late 1950s had little effect on changing the country's communist program and the treatment of its people.

Similarly, Russia's political actions in the 21st century have resulted in numerous countries imposing sanctions on the country; however, these sanctions have done little to deter Russian actions, such as its invasion and annexation of Crimea from Ukraine in 2014. Even after the annexation, the sanctions did little to stop Russia's cyber warfare and its troop buildup on the border with Ukraine.

In February 2022, Russia again invaded Ukraine. US President Joe Biden announced on February 22, 2022, sanctions against Russia in response to military aggression against Ukraine, including the advance of Russian troops into two separatist regions in eastern Ukraine. The Biden administration said it was "the first tranche of sanctions that go well beyond 2014 and are in coordination with allies and partners in the European Union, the UK, Canada, Japan and Australia."

The sanctions are mostly economic in nature and include blocking two state-owned Russian financial institutions, Vnesheconombank and Promsvyazbank, and their subsidiaries that finance the Russian military. Other sanctions included a ban on buying new Russian government debt and a ban on US companies and individuals from buying sovereign debt on the secondary market. Five members of the Russian elite and their families were also targeted.

Aftermath

Embargoes usually hurt the economies of economically weaker countries than economically stronger countries, and it usually hurts the citizens of a country more than its leaders, especially countries with autocratic rule such as Iran. And often these embargoes do little to change the policies and actions of the embargoed country.

Embargoed countries usually see their citizens lose access only to essential goods and services. Businesses in an embargoed country also miss out on trade and investment opportunities, hurting their profits and even their livelihoods.

In addition, an embargo usually results in a tit-for-tat retaliation, which means that the embargoed, counter-embargoed country further negatively affects trade, business, and citizens of both countries.

Special Considerations

Countries' ability to trade globally will also suffer if they do not join the World Trade Organization (WTO), the international organization that controls the rules of global trade between nations. The WTO promotes and manages free trade for its members. As a result, participants often only trade with each other. The WTO currently has 164 members. Twenty-five countries and jurisdictions have observer status, including Iran and Iraq.