Do economic warfare and sanctions work?

Do economic warfare and sanctions work?

Economic warfare and economic sanctions have a long history. But are they as powerful as military action?

Stephen Broadberry, Professor of Economic History at the University of Oxford and CAGE project lead discusses three centuries of evidence.

What results are to be expected when one country tries to damage another’s trade or resources? This question is salient today: In Europe, economic warfare is being practised in the Russia-Ukraine conflict. Worldwide, economic sanctions are in place in greater number than ever before. We think there are lessons to be learned from history and examine three centuries of evidence. “History doesn’t repeat itself, but it often rhymes” (Mark Twain).

Definitions

Conventional warfare aims to destroy the adversary’s fighting power by means of direct attack in battles. Economic warfare has the same aim, but different means: fighting power can be destroyed by attacking the economy through blockade, bombing or sabotage. Although the concept of “economic warfare” was first defined around World War 1, the practice was not new and had historical roots in earlier centuries of conflict. Economic sanctions are legal embargos on foreign transactions. Mulder (2022) sees the origin of economic sanctions in a perception that the British blockade of Germany during WW1 was decisive in the Allied victory. If depriving a country of vital food imports was just as powerful as military action, could a revisionist power be forced to back down with just the imposition of an embargo? Could economic sanctions then be a strategic substitute for military action?

Economic warfare and sanctions can operate on both supply and demand: supply-side measures target a country’s supply (or capacity), disrupting production and blocking imports. Demand-side measures target a country’s means of acquisition (or funding), blocking access to foreign currency from export revenues and borrowing.

Economic warfare and sanctions since 1688

This is the title of a book to be published later this year by Cambridge University Press, edited by Stephen Broadberry and Mark Harrison. Here, we briefly highlight three key features:

• Economic warfare and sanctions: we integrate two connected topics that are divided by largely distinct literatures.
• Three centuries of evidence: casting our net deep and wide, we find continuities (over time) and similarities (over space).
• Case-study approach: sanctions are often analysed through large-N studies, but for economic warfare, instances are too few and too varied for any other method than case studies.

Key Themes

Preparations-conduct-consequences

This provides a general framework for analysing the case studies.

Preparations: How did policy makers prepare for an approaching conflict? What consequences did they expect? And did they use backward induction to evaluate their adversary’s options?

Conduct: This is the implementation stage when preparations proved themselves (or not). It was also the stage when the adversary exercises agency. Expectations about the conduct stage must also influence preparations.

Consequences: If the desired consequences were not realised, it was necessary to establish what went wrong? Did the preparations lack foresight, or did conduct lack competence or commitment?

Moving target

The “Sender-target” model is widely used in the sanctions literature. It contains a metaphor of a stationary or slow-moving object in the sender’s crosshairs and assumes that when the sender imposes a sanction, the target faces a single choice, to comply with the sender’s demand or suffer the costs of the sanction. However, this is an over-simplification: historical case studies show that the target often had many alternatives to comply/suffer. Outside options could be military as well as economic and anticipatory as well as reactive (concurrent). Failures of backward induction are everywhere in the history of economic warfare and sanctions. Senders generally under-estimated the range of options open to their adversary and the adversary’s capacity to adopt them.

Impact is followed by adaptation

Impact was commonly expected to precipitate economic collapse. But the canonical studies of Olson (1962, 1963) on the blockades of British food supplies during the World Wars and the US attack on Germany’s ball bearing industry in World War 2, showed the opposite. Particular goods (food, ball bearings) were targeted because they were thought to be essential, but Olson argued that every “essential” good has inessential uses. When essential supplies were disrupted, essential uses could be protected by cutting out inessential uses: no grain for livestock, no ball bearings for handcarts. Impact was thus generally followed by adaptation, not collapse.

Adaptation is costly

It is tempting to think that adaptation is the end of the story, and that economic warfare and sanctions therefore don’t work. But adaptation increases the adversary’s costs and this also has consequences.

Olson pointed out that the sudden loss of an “essential” resource sharply increased its marginal value. Immediately, resources were concentrated on the most essential uses, which did not suffer cutbacks, but the burden was redistributed to less essential uses, which did face cutbacks. Economic measures may not seem to be having much effect immediately, but costs accumulate over time.

Displacement of costs

Who paid the costs of adaptation? Indiscriminate measures attacking trade or infrastructure affected civilians directly, while smart sanctions or precision bombing may seem to lessen the impact on civilians. However, it must be remembered that impact was followed by adaptation. The regime found ways to protect essential uses, and cutting back on inessential uses meant restricting civilian supplies. So whether measures were indiscriminate or smart, civilians always had to do the work of adaptation and bear the costs, eroding the distinction between combatants and non-combatants. This is what we call the displacement effect.

Cause and effect

Did economic warfare and/or sanctions help or hinder the achievement of policy makers’ aims? And why is it so difficult to be sure? The effects of economic measures on outcomes were indirect and operated with variable lags. Over the time required for economic adaptation, external shocks and internal stresses ensured other things were not held equal. Also, the outcome would be decided not only by economic adaptation but also by the adversary’s endogenously chosen military response. In short, there was no clean identification of causality.

In chapter 3 of the book, Stephen Broadberry and Tamas Vonyo show that the total burden of the war on food consumption in Germany in 1918 compared to 1913 was a decline of nearly one half. But this total burden was the sum of two components: (1) the burden of blockade, decided by the Allies and (2) the burden of war mobilisation, decided by the Hindenburg-Ludendorff Army Command. The burden of war mobilisation was much greater than the blockade burden, since the decline in domestic food production was three times the size of the loss of food imports. Does that mean that the blockade was not so important? We would argue no, since Germany was crushed between the two burdens, not by one of them on its own.

Complementary force

This World War 1 example illustrates that, for the Allies, their blockade of Germany and the deployment of fighting power in France operated together as complements, not substitutes. This turns out to have been the case in all the other studies of economic warfare examined in the book.

Economic warfare could not achieve victory on its own, but it could accelerate victory by conventional warfare.

Turning to sanctions, our conclusion is similar, but with the deterrent value rather than the deployment of complementary force playing a crucial role. Interwar sanctions on Italy and Japan were ineffective because the Allies were unprepared for war. Before rearmament, the Allies did not have a credible threat to use force and the Axis powers retained outside options that they could exploit, forming new alliances or new trading partnerships, conquering new resources or escalating violence.

Conclusions

Under what conditions did economic warfare and sanctions work, then? Three centuries of experience suggest two requirements:

Economic measures could be productive given time

• Adaptation and displacement took time.
• During that time, very little would seem to be happening.
• Rather, time, patience, diligence and commitment were needed.

Complementary force or a credible threat of force was needed to contain the adversary’s responses

• Economic measures were best applied in a package with fighting power or war readiness.
• Without this, economic warfare and sanctions were like one hand clapping.

• This article first appeared in Advantage Magazine Summer 2025