CPGA Working Paper 2026-15: Perverse Trade Sanction Effects

Abstract

Using established econometric techniques and disaggregated data that include intra-national trade flows, we estimate the direct and extraterritorial effects of complete trade sanctions on international trade. Across sectors, the direct effects of complete trade sanctions are negative, as expected. However, their extraterritorial effects are predominantly positive, working in the opposite direction of the direct effects. At the extreme, the extraterritorial effects of complete trade sanctions may fully offset their direct effects and lead to a perverse scenario in which the target’s overall trade rises in the aftermath of sanctions.