15:00 - 16:40
P4
Room: South Room 225
Panel Session 4
Yuleng Zeng - Sanction Shocks, Economic Integration, and Military Spending
Thies Niemeier - The Broken Shield - US Secondary Sanctions and Countermeasures
Leonhard Hummel - Who benefits from the Russia sanctions? – Trade destruction and diversion since 2014
The Broken Shield - US Secondary Sanctions and Countermeasures
P4-02
Presented by: Thies Niemeier
Thies Niemeier
University of Konstanz
Although a considerable literature identifies the trade effects of primary sanctions, no study has yet determined the extent to which secondary sanctions affect third-party trade with a target. Nor has any study analysed when and why third-party countermeasures against secondary sanctions are effective. I use the 2018 reinstatement of secondary sanctions on Iran as a natural experiment to identify the impact of secondary sanctions on exports by third countries to a target. The empirical approach is a Differences-in-Differences-Specification using monthly self-reported export data from 70 countries to Iran between 2015 and 2019. The results show that the secondary sanctions decreased exports of 27 countries by, on average, 75 percent of their 2017 levels. Further, I develop a theoretical argument that third countries' countermeasures on the firm level, such as blocking mechanisms or financial circumvention institutions, will be ineffective. The threat by the sender of secondary sanctions is credible in comparison to the threat by a third country to target its firms. Therefore, any countermeasure must use diplomatic or economic actions at the state level to be effective. I test the argument against case studies of third-country countermeasures against secondary sanctions, including an evaluation of the ability of European Countermeasures to mitigate the effect of the 2018 Iranian secondary sanction reinstatement. Consistent with the argument, European Countermeasures were ineffective. The findings have important implications for the use and design of secondary sanctions and related countermeasures.