News

5 historic trade embargoes and their economic impact

9 min read

19 December 2014

Former editor

In light of Barack Obama’s pledge to end the trade embargo currently levied against Cuba by the US, we look at five of the most famous commerce and trade prohibitions.

Started in the 1960s by a combination of the Eisenhower and Kennedy governments, the Cuban trade embargo has represented one of the longest lasting restrictions and left Cuba resembling a nation still very much stuck in the 20th century.

Trade embargoes, when they receive enough support, can be one of the most effective ways at bringing about regime change. Restricting the inbound and outbound flow of goods such as agriculture or arms, a country’s coffers can quickly dry up and force a hand. 

Imagine as a business in the UK not being able to engage with EU or global buyers. Your ability to grow would be heavily curtailed – with a British market not able to take many businesses far.

History has been riddled with embargoes, and with the recent US/Cuba developments Real Business decided to have a look at five of the most interesting.

Cuba

The five decade-old tussle between the US and Cuba began when the Caribbean nation’s revolution led to a communist government and the beginning of a Fidel Castro administration.

A restriction on the flow of goods from what was previously Cuba’s biggest provider of products has caused unprecedented economic damage to the small country.

The US Chamber of Commerce predicts that the embargo has cost the US economy $1.2bn a year in lost sales and exports, with the Cuban government putting its loss at $685m per annum.

Fines levied on Americans bringing in Cuban goods, such as everybody’s favourite cigars, are big – meaning that very few have been tempted to test the limits of of the ban. Take a drive around Cuba, in a very old car, and the communist state still has the feel of a country operating in the 1950s.

Hope is at hand though, as new talks between the US and Cuba attempting to find a way of bringing to a close the embargo. With a final decision requiring the approval of the US Congress, there could still be some Republican pushback – but we could soon begin to see the inflow of modern products to Cuba.

China


Despite being the biggest manufacturer in the world, there are still some goods that China relies on imports for. After the Tiananmen Square massacre in 1989 both the EU and US announced an arms embargo with the world’s most populous nation.

Furthermore, the EU’s reluctance to view China as a “fully-fledged market economy” means that Brussels still imposes tariffs on Chinese goods.

The details of the embargo limit high-technology sales to China what could be used for military purposes. The result has been that China is forced to spend more money on research, rather than simply importing.

China has repeatedly, and most recently in 2010, requested an end to the ban – stating that it amounts to “political discrimination”. It may well be that the embargo is limiting the length to which the EU can form foreign policy and security relationships with China, but it seems that a general consensus cannot be reached.

The result of all of this is that China does most of its dealings with its Russian neighbours. While no end to the ban seems in sights, the EU and US will be uneasy with the growing trade channels between Russia and China and the military similarities that will be formed.

Northern Cyprus


With nobody but Turkey recognising the region as an sovereign state, rather a territory of the Republic of Cyprus under Turkish occupation, the area’s population are rather reliant on their unsurprisingly sympathetic neighbour.

Not only are there no direct flights to Northern Cyprus, but the trade sanctions also have a profound impact on its economic standpoint.

However, the recent struggles that the Greek Cypriot economy has found itself in – needing a €10 billion bailout in the aftermath of the global financial crisis and failure to live up to promises made when it became a member of the EU in 2004 – means that a coming together of the two regions could happen sooner taker than later.

The embargo-tied north is now growing faster than the south, leading many to think about the relative strength of the two combined. The issue has been helped by Turkey’s growing presence as an economic heavyweight, in turn meaning that additional aid as been made available for the Cypriot region.

With many EU countries now struggling to justify their position in the community, and the impact of some dropping out would have, it may make sense to draw a line under an embargo that has been in force since the 1970s.

North Korea

Everybody’s favourite little isolated fiefdom has some big restrictions levied against it when it comes to trade. The first, and most logical, involves arms and anything amounting to nuclear weaponry assistance.

The recent reported hacking by North Korea that has resulted in a number of embarrassing Hollywood emails surfacing has brought the issue of how isolated the Asian nation is to the rest of the world.

Quite amusingly, when you consider the Kim dynasty’s penchant for caviar, brandy and shark’s fin, there is a embargo against the importing by UK and US businesses of luxury goods into the region.

It is possible to trade with North Korea if you are from the US and UK, as long as you aren’t dealing with any one of the hundred or so blacklisted individuals, companies or government agencies.

For now, like Cuba, North Korea remains a country that has nowhere near the technological delicacies on show as the rest of the world. Famine is rife in many parts of the country, and until the powers that be make friends with global leaders it’s safe to say that it’s population will remain without many of the luxuries we take for granted these days. Frankly, that is not going to happen soon.

Iran

A quick trip to the GOV website reveals that: “The UK government does not encourage trade with, or investment in, Iran and has withdrawn all commercial support for trade. If you decide to trade with Iran, you do so at your own risk.”

So it’s a sink or swim stance for those wishing to engage with the rather volatile nation. There will be opportunities abound, but get involved at your own peril.

As you may have guessed, the theme of nuclear figures highly in the embargoes that currently exist between Iran and the rest of the world. Even though situations have cooled since Mahmoud Ahmadinejad ceded control of the country, the true intentions of its nuclear weapons activity remains unknown.

In 2013, after agreeing an interim deal with the European Union and other nations including the US and Russia, Iran said it would curb its uranium enrichment endeavours.

In return, sanctions relief valued at around £3.65bn would be provided to Iran as well as a lifting in sanctions on Iran’s petrochemical exports, imports of goods and services for its automotive sector and import and export of gold and the precious metals.