THE IMPACT OF INTERNATIONAL TRADE

SANCTIONS ON GLOBAL SUPPLY CHAINS AND

BUSINESSES
IA1 Presentation by Dhaivat Sridhar
SRN Number – R21MB024
Contents At a Glance

1. Definition and Types of Trade Sanctions

2. Reasons for Implementing Trade Sanctions
3. Effect on Global Supply Chains
4. Effect on Individual Businesses
5. Recent Example: Effect of Russia-Ukraine War on Global Supply Chains and Sanctions
on Russia
6. Managing the Impact of Trade Sanctions
7. Emerging Trends and Future Outlook
8. Conclusion

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Definition and Types of Trade Sanctions
Trade sanctions refer to “restrictions imposed by one country or a group of countries on the
trade activities with another country or countries. These sanctions are typically
implemented as a tool of economic or political pressure in response to certain actions or
policies of the targeted country that are deemed undesirable by the imposing nations.”

Sanctions can be unilateral, imposed by a single country, or multilateral, involving a

coalition or international organization.

Trade sanctions can take various forms, such as: -

• Embargoes
• Tariffs and import/export restrictions (non-tariff restrictions)
• Financial sanctions
• Technology and arms embargoes

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Reasons for Implementing Trade Sanctions

The objectives of trade sanctions may vary and can include: -

1. National security concerns – punishing a country for

violating international norms or agreements, deterring
specific behaviors

2. Human rights violations - promoting human rights or

democracy

3. Political or Economic disputes - addressing other political

or economic concerns.

4. Preventing Nuclear/ weapons proliferation – combating

terrorism

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Effect on Global Supply Chains
The effect of trade sanctions on global supply chain include: -

1. Disruption – due to delays, increased costs, and shortages of essential goods.

2. Increased costs - due to limited access, higher tariffs or duties

3. Reduced market access for export-oriented industries relying on target country’s markets – due to increased
compliance requirements for trading with targeted countries

4. Supply chain restructuring/ Shifts in trade routes and partners – in the form of changing suppliers, relocating
production facilities, or establishing new distribution channels.

5. Uncertainty and risk – difficulty in predicting future trade policies, regulations, and potential changes in
sanctions. This uncertainty can make long-term planning difficult and deter investment in affected markets.

6. Compliance and legal complexities - Companies need to navigate various regulations and ensure they are not
inadvertently violating sanctions. This can require additional resources and expertise to stay compliant, adding
administrative burdens to supply chain management.

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Effect on Individual Businesses
The effect of trade sanctions on individual businesses include: -

1. Limited Market Access and Sales

2. Supply Chain Disruptions
3. Financial Impact
4. Competitive Disadvantage
5. Legal and Compliance Risks
6. Uncertainty and Investment Decisions

It's important to note that the specific impact of trade sanctions can vary from business-to-business depending on factors
such as the nature of the business, the industry sector, the geographic scope of operations, and the ability to adapt
to changing market conditions.

Businesses may employ various strategies, such as diversifying markets and suppliers, seeking exemptions or
licenses, or exploring alternative business models, to mitigate the effects of trade sanctions.

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Recent Example: Effect of Russia-Ukraine War on Global Supply Chains

1. Energy supply disruptions: Ukraine is an important transit country for natural gas and oil pipelines supplying Europe. Any disruption to
these energy flows due to the conflict can have a significant impact on global energy markets and supply chains.

2. Grain and agricultural exports: Ukraine is known as the "breadbasket of Europe" and is a major exporter of grains, including wheat
and corn. Disruptions in Ukraine's agricultural production and export capabilities can affect global food prices and supply chains,
particularly for countries reliant on Ukrainian grain imports.

3. Steel and metallurgical industry: Ukraine is a significant producer and exporter of steel and other metal products. The conflict can
disrupt the production and export capacity of Ukrainian steel mills, impacting global supply chains in industries such as automotive,
construction, and manufacturing that rely on these materials.

4. Transport and logistics: The conflict can disrupt transportation networks and logistics operations, impacting supply chains that rely on
shipping routes, ports, and rail connections in the region. Delays, disruptions, and increased costs for freight transport can affect the
timely delivery of goods and components.

5. Currency and economic stability: Escalation of the conflict can lead to currency depreciation, inflation, and economic instability in the
affected region. This can impact trade flows, investment decisions, and the overall business environment, affecting supply chain
operations and decisions.

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Sanctions on Russia

As a result of the Russia-Ukraine conflict, several countries and international bodies have imposed trade sanctions on Russia. These sanctions
are intended to exert economic and political pressure on Russia to encourage a resolution to the conflict and to deter further destabilization in
the region. Here are some examples of the trade sanctions imposed on Russia:

1. European Union (EU) Sanctions: The EU has implemented a series of economic sanctions on Russia since 2014. These sanctions
include restrictions on trade in specific sectors, such as defense, energy, and dual-use goods. They also target Russian entities involved
in the conflict, imposing asset freezes and travel bans on individuals, and limiting access to EU capital markets for Russian state-owned
banks and companies.
2. United States Sanctions: The United States has imposed various sanctions on Russia, including targeted sanctions on individuals and
entities involved in the conflict. These measures include asset freezes, travel bans, and restrictions on access to U.S. markets and
financing. The U.S. has also implemented sectoral sanctions targeting Russia's financial, energy, and defense sectors.
3. United Nations (UN) Sanctions: The UN has not imposed comprehensive trade sanctions on Russia but has passed resolutions
condemning Russia's actions and calling for a peaceful resolution to the conflict. The UN has also established an arms embargo on the
separatist-held territories in eastern Ukraine.
4. Other Countries' Sanctions: Several other countries, including Canada, Australia, Japan, and Norway, have implemented their own
sanctions on Russia in response to the conflict. These sanctions generally align with those imposed by the EU and the U.S. and focus
on targeting individuals, entities, and sectors involved in the conflict or violating Ukraine's sovereignty.

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Managing the Impact of Trade Sanctions

1. Diversification, diplomacy and efficient negotiation with suppliers and markets

2. Scenario planning and risk assessment

3. Compliance with regulations and export controls

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Future Outlook of Trade Sanctions

1. Increasing use of trade sanctions

2. Targeted and Sector- Specific Trade Sanctions
3. Collaboration and Coordination
4. Extraterritorial Reach
5. Evolving Technological Challenges
6. Further Impact on Global Supply Chains
7. Compliance and Enforcement
8. Diplomatic Resolutions and Negotiations

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Conclusion – Key Takeaways for Affected Parties of Trade Sanctions

• The importance of proactive planning and risk assessment before investment decisions
• Building resilience in global supply chains (through diversification, diplomacy and negotiation)
• Adapting to changing geopolitical landscapes (mitigation of exposure)

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THANK YOU