To lift the US economy, lift sanctions on America's foes
Profit, not patriotism, keeps companies afloat.
Cambridge, Mass. — At a time when the United States is faced with its largest economic crisis since the Great Depression, why does the US government remain committed to being the world's most active user of economic sanctions?
Given the economic circumstances facing the country and President Obama's goal of mending the US image abroad, the US government must reevaluate its sanctions policies.
In the research I have conducted on the international response to US economic sanctions, I've made several surprising discoveries about the effects the sanctions have on their targets' trade with other countries. In studying more than 100 cases of US-imposed sanctions from 1950-2000, I found that the United States' allies have consistently exploited the commercial opportunities created by US sanctions for their own benefit.
US allies have tended to trade far more with the states it has sanctioned than other countries. Part of this is because the US has lots of commercially competitive allies. It is also because these states use their alliances with the US as political cover to shield their companies from American retaliation. In effect, this means that the US subsidizes the economies of its allies to the detriment of its own businesses.
The US sanctions against Iran and Cuba illustrate this point well. Sanctions against Iran have forced American oil companies either to do their business elsewhere or give up their trade to foreign firms. It is not a coincidence that after Halliburton was scathingly rebuked by Congress for business dealings with Iran through its Dubai-based subsidiary that the company moved its entire headquarters to Dubai in 2007.
Halliburton moved because it was more profitable for it to do business in Dubai than it was to for it to stay in the United States. When the US government prevents its companies from doing their business profitably, how can we expect them not to leave?
In a capitalist society, profits – not patriotism – keep companies afloat (at least in theory).
At a time when there is growing anger over government hand outs to unprofitable firms, it does not make sense that the US government is forcing companies with profitable opportunities to flee the country.
As for US sanctions against Cuba, in the past five decades Canada, Japan, Spain, Britain, France, and Italy have all played an active role in sanctions-busting on Cuba's behalf. One of the main reasons that these countries are even commercially competitive in Cuba is because of the absence of competition from US businesses.
When American businesses have the opportunity to compete in Cuban markets, the results are impressive. After Congress lifted most of its sanctions on the export of food and medicine to Cuba in 2000, US trade in those products rose from $6 million in 2000 to $350 million by 2006.
How many new jobs would be created if US companies could once again fully trade with Cuba? After nearly 50 years, US sanctions have failed to bring about regime change in Cuba and cost US companies untold billions of dollars in lost opportunities.
Instead of maintaining beggar-thyself policies of largely symbolic effectiveness, the United States needs to allow pragmatism and its commercial needs to guide its foreign trade policies.
Remarkably, some of the same congressmen who supported the "Buy American" provision in the stimulus package similarly supported the Helms-Burton Act in 1996, which legislatively-mandated the US sanctions against Cuba.
If Congress can vote to "Buy American," why can't it vote to "Sell American? "
American sanctions cost Americans jobs. With a new administration and a major economic crisis before us, there is a unique opportunity for policymakers to overcome the entrenched interests that support the sanctions against countries such as Iran and Cuba and do something positive for the American economy. The best part: It won't cost us our tax dollars.
Bryan Early is a research fellow with the Dubai Initiative at the Belfer Center for Science and International Affairs at Harvard's Kennedy School. He is conducting research for his book on how economic sanctions affect international trade.