Tariffs: Another form of sanctions? Strategies for countering economic pressure

Tariffs and sanctions are often viewed as distinct economic tools, but they share a fundamental similarity: both are used to exert economic and political pressure. While tariffs are typically justified as measures to protect domestic industries, they can also function as punitive actions—much like sanctions—against specific countries. The impact of tariffs can be just as severe as sanctions, affecting economies, industries, and international relations.

Given their similarities, it is crucial to explore not only how tariffs act as sanctions but also how nations, businesses, and individuals can counter their effects. This article examines how tariffs function as economic sanctions and presents strategies for mitigating their impact.

Understanding Tariffs and Sanctions

Tariffs are taxes imposed on imported goods, making foreign products more expensive and less competitive in the domestic market. Governments justify tariffs for reasons such as:

• Protecting domestic industries
• Reducing trade deficits
• Generating revenue
• Retaliating against unfair trade practices

Sanctions are economic or political measures imposed by one country (or group of countries) to restrict trade, financial transactions, or access to resources.

Unlike tariffs, which mainly affect specific products or industries, sanctions can be broader, targeting entire economies, financial institutions, or even individuals. Sanctions are often used to:
Enforce international law, punish human rights violations, deter military aggression and influence political behaviour

How Tariffs Act as Economic Sanctions

Although tariffs and sanctions have different formal justifications, their impact can be strikingly similar. Here’s how tariffs can serve as de facto economic sanctions:

Targeted Economic Pressure – Tariffs can be imposed on specific industries to weaken a country’s economic position, just as sanctions do. For example, the U.S.-China trade war saw the United States impose high tariffs on Chinese goods, not just as a means of protecting American industries but also as a method of forcing China to change its trade policies.

Retaliatory Measures and Trade Wars – When tariffs are imposed in an aggressive manner, they often lead to retaliation, creating economic friction similar to that seen with sanctions. Countries respond to tariffs with their own countermeasures, escalating trade disputes into broader economic standoffs, similar to sanction-driven conflicts.

Political Leverage – Tariffs, like sanctions, can be used as a tool of political leverage. A country might impose tariffs to push another nation into negotiating trade deals, changing policies, or complying with international norms. For instance, the Trump administration imposed tariffs on Mexico to pressure it into tightening immigration enforcement, demonstrating how tariffs can serve a geopolitical function beyond mere economic protectionism.

Economic Isolation and Supply Chain Disruptions – Severe tariffs can isolate a country from key markets, similar to sanctions that cut off trade and financial flows. For example, the steel and aluminium tariffs imposed on certain nations have disrupted global supply chains, making it difficult for companies to access essential materials, much like sanctions restricting access to critical resources.

Industry-Specific Sanctions Disguised as Tariffs – Some tariffs are designed to function like sanctions by targeting specific industries that are crucial to a country’s economy. For example, tariffs on semiconductor exports to China have been framed as trade measures but also function as economic pressure aimed at weakening China’s technological advancements.

The Blurred Line Between Trade Policy and Economic Warfare

While tariffs and sanctions are distinct in their official purposes, their effects often converge. Tariffs can devastate economies, disrupt markets, and exert political pressure just as effectively as sanctions. As global trade tensions intensify, it becomes clear that tariffs are not just economic tools but also instruments of economic coercion, and understanding tariffs in this broader context is essential for policymakers, businesses, and consumers alike

Ways to Counter Tariffs and Sanctions

While tariffs and sanctions create economic challenges, governments, businesses, and individuals can take strategic actions to mitigate their impact. Here are some key countermeasures:

Diversification of Trade Partners:

Countries facing high tariffs or sanctions can seek alternative markets to reduce dependence on any single trading partner. Strengthening regional trade agreements, such as the ASEAN Free Trade Area (AFTA) or the African Continental Free Trade Area (AfCFTA), helps bypass restrictions.

Strengthening Domestic Industries:

Investing in local manufacturing and production can reduce reliance on imports and lessen the impact of tariffs. This can involve:
Expanding domestic supply chains
Providing subsidies to affected industries
Encouraging research and development in key sectors

Currency and Financial Strategies

Nations facing sanctions or tariffs can:

Shift to alternative payment systems – Countries like Russia and China have developed their own financial messaging systems (e.g., CIPS) to bypass U.S.-controlled SWIFT sanctions.

Use currency swaps – Trading in local currencies rather than the U.S. dollar reduces exposure to financial sanctions.

Engaging in Trade Negotiations and Dispute Resolution:

Countries and businesses affected by tariffs can challenge them through international organizations like the World Trade Organization (WTO) or negotiate bilateral agreements to ease restrictions.

5. Strategic Import Substitution

When tariffs make foreign goods expensive, governments can promote import substitution industrialization (ISI)—encouraging local production of previously imported goods. Examples include:

Russia’s response to Western sanctions by developing domestic agricultural production
China’s push for self-sufficiency in semiconductor technology amid U.S. restrictions

Strengthening Regional and Bilateral Trade Agreements:

Forming trade alliances helps create new market access. For example:

The European Union (EU) negotiating free trade agreements with other countries to bypass U.S. tariffs

The Regional Comprehensive Economic Partnership (RCEP) allowing Asian economies to counter U.S.-China trade tensions

Encouraging Foreign Direct Investment (FDI):

Countries facing sanctions or tariffs can attract foreign investors by offering incentives such as tax breaks, regulatory ease, and special economic zones to encourage local production.

Expanding Grey Market and Alternative Supply Chains:

Some nations develop alternative trade networks to bypass tariffs or sanctions. For example, companies in sanctioned countries use intermediary nations or “parallel trade routes” to access restricted goods.

Lobbying and Legal Action:

Businesses and industry groups impacted by tariffs can: Lobby governments to adjust tariff policies and
take legal action in international trade courts to challenge unfair trade practices

Digital and Technological Adaptation:

Digital trade and cryptocurrencies provide alternative economic channels. Some sanctioned countries have explored blockchain-based financial systems to bypass restrictions.

Conclusion

Tariffs and sanctions are both tools of economic pressure that can have severe consequences for businesses and nations. However, they are not insurmountable. Through diversification, domestic strengthening, trade negotiations, and financial innovation, countries and businesses can develop strategies to counter the effects of economic restrictions.

As globalization continues to evolve, finding ways to mitigate the impact of tariffs and sanctions will be essential for maintaining economic stability and political sovereignty. The key lies in adaptability, resilience, and proactive policymaking.

Emmanuel Okoroafor writes from UK. He is the Managing Director and CEO of Hobark Consultant Management Services LTD; a business with primary focus on human capital management, and the Founder of Mepon Ltd.