A theory of economic sanctions as terms-of-trade manipulation

Abstract

How can a country design economic sanctions to maximize their economic cost to the sanctioned country at the lowest cost to the sanctioner? I consider this problem from the perspective of international trade and draw a close connection between trade restrictions as economic sanctions and trade restrictions as terms-of-trade manipulation. This connection has useful implications for the design of trade taxes as sanctions: Small sanctions increase welfare in the sanctioning country. Sanctions target the same goods as terms-of-trade manipulation. Sanctions ignore elasticities of demand and supply in the sanctioning country.