IGCSE Economics 0455 – Globalisation and Trade Restrictions: Embargoes
International Trade and Globalisation
Globalisation and Trade Restrictions – Focus on Embargoes
In the study of international economics, trade restrictions are policies that governments use to limit the flow of goods and services across borders. An embargo is one of the most severe forms of restriction.
What is an Embargo?
An embargo is a government order that completely prohibits trade (imports, exports, or both) with a particular country, group of countries, or specific goods. It is usually imposed for political, security, or humanitarian reasons.
Key Characteristics
Scope: Can cover all trade or be limited to specific commodities (e.g., arms, oil).
Duration: May be temporary (e.g., during a conflict) or long‑term.
Legal Basis: Often enacted under national security or foreign policy legislation.
Enforcement: Customs authorities monitor shipments; penalties for violations can include fines or imprisonment.
Reasons for Imposing Embargoes
To exert political pressure or signal disapproval of a regime’s actions.
To protect national security by preventing the transfer of strategic goods.
To enforce international sanctions agreed upon by bodies such as the United Nations.
To respond to human rights violations or acts of aggression.
Economic Effects of Embargoes
Embargoes can have wide‑ranging impacts on both the imposing and target economies:
Exporters in the imposing country: Lose market access, potentially leading to reduced output and unemployment.
Importers in the target country: Face shortages of essential goods, higher prices, and possible black‑market activity.
Global supply chains: Disruption can raise costs for third‑party countries that rely on the affected goods.
Political outcomes: May achieve diplomatic goals, but can also entrench hostility.
Comparison with Other Trade Restrictions
Restriction
Definition
Typical Use
Economic Impact
Tariff
A tax on imported goods.
Protect domestic industries, raise revenue.
Raises import prices; may reduce import volume.
Quota
A limit on the quantity of a good that can be imported.
Protect specific sectors, manage balance of payments.
Creates scarcity; can raise domestic prices.
Subsidy
Financial assistance to domestic producers.
Boost competitiveness, support strategic industries.
Distorts market prices; may provoke retaliation.
Embargo
Complete prohibition of trade with a country or on certain goods.
Political pressure, security, humanitarian concerns.
Severe market disruption; can lead to shortages and black markets.
Case Study: The United Nations Embargo on Iraq (1990‑2003)
Following Iraq’s invasion of Kuwait, the UN imposed a comprehensive embargo that prohibited the export of oil and most other goods to Iraq. Key outcomes included:
Sharp decline in Iraq’s oil revenues, leading to budget deficits.
Severe shortages of food, medicine, and industrial inputs.
Rise of informal smuggling networks.
International debate over the humanitarian impact versus political objectives.
Advantages and Disadvantages
Advantages
Disadvantages
Can exert strong political pressure without military action.
Often harms civilian populations more than political elites.
Signals clear condemnation of undesirable behavior.
May damage the imposing country's exporters and jobs.
Can be coordinated internationally to increase effectiveness.
Risk of retaliation or escalation into broader conflicts.
Suggested Diagram
Suggested diagram: Flowchart showing the decision‑making process for imposing an embargo, from political trigger to economic impact assessment.
Key Points to Remember
An embargo is a total ban on trade with a target, unlike tariffs or quotas which are partial restrictions.
It is primarily a political tool, but its economic side effects can be profound.
Understanding the intended and unintended consequences helps evaluate its effectiveness.
Practice Questions
Explain why a government might choose an embargo over a tariff when dealing with a hostile nation.
Discuss two potential economic disadvantages for the country that imposes an embargo.
Using the case study of the UN embargo on Iraq, assess whether the embargo achieved its political objectives.