What would happen with sanctions against America?

April 28, 2006 10:26 AM

What would be the short and long term results of economic sanctions against America?

I'm doing some research for a story I'm writing, and was hoping for some opinions from a more informed crowd than myself. Let's imagine the world grew a pair and decided to impose sanctions against America: Canada cuts down on electricity, and softwood. Japan and China pull the plug on their huge number of exports. Europe forbids trade with American companies while handing out subsidies to compensate their populace.

Of note: nobody imposes oil sanctions. The outcome there is too obvious.

1) What would be the effect on America?
2) What would be the effect on the countries imposing the sanctions?
3) What would be America's short and long-term reaction?

posted by jon_kill to law & government (68 comments total)

It would hurt "the world" a lot more than it would hurt America, and everyone knows it. The standard of living in the US would decline somewhat, but the rest of the world would sink into recession, if not outright depression. Several of the world's major currencies could collapse.

But this is preposterously implausible. It's not going to happen. I can't think of any reasonable scenario where such a thing would take place. I can't even think of a reasonable scenario where anyone would seriously suggest such an action.

Fever dreams like "Boycott America until it ratifies Kyoto" don't count as "reasonable".
posted by Steven C. Den Beste at 10:33 AM on April 28, 2006

If the US launches a nuclear first strike against Iran, I could see it.
posted by empath at 10:35 AM on April 28, 2006

Thanks, Steven. If it helps, I'm thinking of a scene where someone gets shouted down in the manner you just shouted me down.
posted by jon_kill at 10:36 AM on April 28, 2006

But you didn't answer his question.
posted by empath at 10:36 AM on April 28, 2006

Canada cuts back on softwood exports?

The effect would be a loss of billions of dollars of trade revenue for Canada and thousands of happy American forestry workers.

We have to fight tooth and fucking nail to sell softwood to the US without punative sanctions.

And electricity? Why would we stop selling that? It's not like we can warehouse it. Again, we lose and US coal miners rejoice. And then all the coal pollution blows north into Canada. It's actually in our own interest to sell hydroelectric power to the US: US coal plants are the #1 source of air pollution in Ontario.

I dislike Bush as much as the next knee-jerk liberal, but I believe the relevant cliche is "cutting off your nose to spite your face".
posted by GuyZero at 10:40 AM on April 28, 2006

And electricity? Why would we stop selling that?

And my character will say, "To punish them." And then the yelling continues.
posted by jon_kill at 10:43 AM on April 28, 2006

If it helps, Steven is correct. Economic sanctions against the U.S. would hurt whoever imposes the sanctions far worse than it would hurt the U.S. I'll leave out the ridicule.
posted by Justinian at 10:44 AM on April 28, 2006

Oh, part 3: That depends on the situation. If it happened today, I doubt the U.S. would have to take any action. We could simply wait until the imposing nation cracked under the economic pressure of its own sanctions and gave up.
posted by Justinian at 10:49 AM on April 28, 2006

I suppose I should answer your specific questions. For Canada:

1) What would be the effect on America?

Little or nothing. Although we do buy a lot of US goods. it's hard to speculate why we'd both drop our #1 trade partners. But take a few billion dollars out of the US economy.

2) What would be the effect on the countries imposing the sanctions?

Complete economic collapse.

3) What would be America's short and long-term reaction?

Rolling over and going back to sleep. Unless they really did want our lumber and electricity, in which case they annex southern ontario. Quebec might be preferable, but most Ontarians would probably go along with the plan at that point.

And my character will say, "To punish them." And then the yelling continues.

Uh, yeah, but we can't do anything else with it. We build a billion-dollar hydro project in northern quebec and then... mothball it? Because we want to punish the US? Again, electricity isn't wheat. We can't just put it in a warehouse or on a ship and send it to China. It's use ot or lose it.

Here's the only way I can see it happening: the Cdn. government passes a law putting extreme export duties on exports to the US or stopping them altogether. 12 to 36 months pass and after the unemployment rate hits 20 or 30%, the government is voted out and the new government repeals the restrictions.
posted by GuyZero at 10:50 AM on April 28, 2006

I just don't see how "the rest of the world would sink into recession, if not outright depression. Several of the world's major currencies could collapse"

Are you claiming that US consumer spending is propping up the rest of the world's economies?
posted by bshort at 10:50 AM on April 28, 2006

Of note: nobody imposes oil sanctions. The outcome there is too obvious.

but if one looks at the countries who have the oil, that scenario is more likely than general sanctions ... europe, japan, china and other developed countries have too much to lose to risk cutting off trade with us, it's not going to happen

iran, although they have something to lose, may think that's not as important as being "right"
posted by pyramid termite at 10:53 AM on April 28, 2006

So, electronics and autos stop coming in? Two old, dying American industries are completely revitalized, hundreds of thousands of manufacturing jobs suddenly return to the US?

I don't know, I'm not good at this sort of thing, but thought I'd throw that out there
posted by poppo at 10:58 AM on April 28, 2006

Are you claiming that US consumer spending is propping up the rest of the world's economies?


Well, sort of. Not really propping up, that's no the right word. What you're suggesting is a forced autarky on the United States. We're too depedent on gains from trade specialization (and by we, I mean the world) to cut off a major component of world GDP. It'd be an impossible undertaking without the help of the United States. Countries would have to dump dollar reserves, many countries will simply lose money (look at the amount of foreign capital inflows on our trade balance) as investments are redistributed to American ownership at lower prices. Not to mention that all oil is traded on markets owned by Americans. We have very large energy reserves and large natural resources. Forced sanctions only work well for countries who cannot grow without imports (as the theory goes, largely non-arable countries with little diversity such as Iraq would be affected by sanctions). Loss of trade results in loss of GDP. The amount of this loss depends on the the proportion the trade was to the world GDP, of which the United States is a huge portion of the world GDP.
posted by geoff. at 11:00 AM on April 28, 2006

Is there any argument to be made down this avenue: "America has only 5% of the world's population, and their natural resources aren't sufficient to keep up with the current demand. If the international community as a whole decided America was a rogue state that needed neutralized, would a redistribution of wealth that excludes America from the picture be possible? I'm aware that such a redistribution of wealth would entail massive famines in the short term and significant chaos in the long term (akin to the communization of China or Russia). However, if America destabilizes international politics by, say, bombing Iran, such an action might be deemed necessary."
posted by jon_kill at 11:01 AM on April 28, 2006

What would probably be more plausible, and unambiguously damaging to the USA, would be if other countries (read: China) stopped buying up the USA's debt. Or simply insisted on buying it denominated in a different currency, like the Euro.

I don't have any great insight into how a trade embargo would affect the USA/everyone else. My gut tells me it would be hard on everyone. As a big net importer, the loss of American markets would be hard on export-driven economies (read: China). Americans would bitch and moan about how incredibly expensive all their electronic gadgets were. Without any competition, Detroit would raise prices and get lazy, which wouldn't matter, since nobody could afford to drive with gas at $15/gallon (I'm assuming you include Saudi Arabia and other OPEC states in "the world"). Forcing the USA to cover its own fuel needs would increase supply to the rest of the planet (unless OPEC restricted production), and that would do a little to offset the lack of the USA as an export market.

In this hypothetical scenario, what would happen to all the manufacturing plants owned by foreign companies in the USA? There's a big Samsung fab just up the road from me. What would happen to a kind-of foreign company like DaimlerChrysler?
posted by adamrice at 11:02 AM on April 28, 2006

bshort writes "Are you claiming that US consumer spending is propping up the rest of the world's economies?"

Hell yeah. And US consumer debt is propping up US consumer spending. And the housing market is propping up US consumer debt. Oh boy....
posted by mr_roboto at 11:08 AM on April 28, 2006

US mines more coal, paper prices and building material prices increase. Electronic stuff gets way more expensive for a year or two, until domestic production of electronics increases, and then it's just 20-25% more expensive than it used to be. American multinationals, like Coca-Cola and P&G, see big hits to their bottom lines, but many of their domestic employees remain employed. Firms like Boeing lose international revenue, but gain monopoly pricing power. Farmers fight tooth and nail for more price supports. American steel workers see their ranks swell, Companies that depend on inexpensive steel (Caterpillar, for example) are hard-hit as their input prices climb. Old, mothballed machinery is put to use. Resultingly, pollution increases.

Other companies, like Applied Materials, make a fucking fortune. Semiconductor manufacturing machines in Asia lay idle, and since Asia cannot ship them here, AMAT gets to replace all of them in the US.

Because we need to manufacture stuff again, engineering salaries go up. H1Bs are given to anyone who can design circuits, or design tools and dies. Unskilled Americans who work in the service sector take jobs in manufacturing.

Long-term, many of the gains from comparative advantage are lost, standard of living drops for just about everyone. Big frictional costs make the transition years pretty unpleasant for everyone effected. In the meantime, the market for used PP&E (that would otherwise be scrapped) improves. less stuff is thrown away, because replacement costs increase.

The government will probably impose a tit-for-tat strategy WRT to immobile foreign-owned assets in the US. If GE's factories in Japan are taken over by the Japanese government, the feds will seize the Honda plant. If the Japanese let GE keep their plants running, the Americans let Honda build more cars.

(all of these are guesses)
posted by Kwantsar at 11:09 AM on April 28, 2006

For a real-life example, see the 1973 OPEC boycott.

I doubt trade sanctions would have much effect. The US has a large, diversified economy, and plenty of natural resources of its own.

Moreover, coordinating sanctions between multiple independent states is extremely difficult. (See the sanctions against Iraq during the 1990s.) I doubt Canada would go along with any such action. In East Asia, Japan depends on US protection against China; Japan isn't going to join forces with China against the US.

adamrice: --other countries (read: China) stopped buying up the USA's debt.

Agreed. This would drive up long-term interest rates, causing an economic slowdown. Whether this would convince US policymakers to change course is a different question.
posted by russilwvong at 11:11 AM on April 28, 2006

Shrug, most of you don't get it. A global boycott against the USA would crush the USA. And no, the rest of the world wouldn't be crushed - it would have rather little effect on them. Anything the USA produces can be replaced somewhere else in the world; on the other hand, the USA is not self-sufficient at all, not even close.

The problem is that the rest of the world would never do this. The temptation to defect from the boycott would be extreme - after all, if you're the one country that WILL trade with the U.S., you stand to make a lot of money relaying the world's supplies through your nation to the U.S.

That problem does exist. And it is insurmountable, absent some kind of iron-fist world government that could enforce a global boycott with a naval and land blockade around the U.S. But if we ignore that problem, as the submitter is asking, then certainly the consequences of the boycott would be far more severe on the U.S. than on the rest of the world.
posted by jellicle at 11:12 AM on April 28, 2006

Let's imagine the world grew a pair and decided to impose sanctions against America: Canada cuts down on electricity,

That would hurt the NE and Great Lakes region very badly until they built new powerplants. If they hurried this along and didn't give a shit about pumping large amounts of coal-smoke into the atmosphere (where it would just go to Canada anyway if the stacks are tall enough), this would probably take a couple-few years.

and softwood.

Little to no effect. US lumber companies use trees cut down in Georgia instead of BC, at marginally higher prices.

A more important factor would be the tightly integrated auto manufacturing system in the US and Canada. If they couldn't send stuff back and forth, both auto industries would take a huge beating.

Japan and China pull the plug on their huge number of exports.

Americans do without electronic gadgets and Japanese cars for a couple of years until American companies start building TVs again. China and Japan endure very serious hard times.

Europe forbids trade with American companies while handing out subsidies to compensate their populace.

Thousands of people go out of business as American firms shut down. Ford and GM are major players in the European auto market. Daimler is very unhappy about effectively losing their US subsidiary.
posted by ROU_Xenophobe at 11:18 AM on April 28, 2006

jon_kill, the United States has large deposits of coal, something around 800 billion barrels if converted to synthetic fuel using something like the Karrick process. This process becomes feasible with sustained per barrel of $50 or more. At $72 a barrel oil it already makes since, if we were forced to do it there'd be immediate investment. Due to the volatility of the oil markets it doesn't make sense to invest in the conversion of coal or oil shales if traditional supplies will bring oil down to $20 a barrel as new supply lines become available. In autarky it becomes a necessity.

The current trend towards massive importing has to do with the labor cost advantage developing countries claim, not necessarily their natural resources. I'd still contend that the massive foreign investment in the United States would be auctioned off in some way to American buyers in a hypothetical boycott. These buyers would purchase it at a lower price than the foreign buyers (this is due to the inflationary effect that foreign capital inflows). Wealth would be redistributed right back to the United States.
posted by geoff. at 11:19 AM on April 28, 2006

jellicle writes "A global boycott against the USA would crush the USA. "

Why? The US has huge amounts of capital, a well-educated population, and tons of natural resources. The one problem would be an oil shortage, but a forced transition to a hydrogen economy or electric vehicles, coupled with massive investments in coal and nuclear power generation, could overcome that in less than a decade. Plus, without imports to cart around or international flights, the demand for petroleum would drop significantly.

Standards of living would drop, certainly, and public transportation would become much more popular, but "crush"? I don't see it.

jellicle writes "But if we ignore that problem, as the submitter is asking, then certainly the consequences of the boycott would be far more severe on the U.S. than on the rest of the world."

Do you think Japanese and European demand is enough to support continued growth in China? What happens in China when growth grinds to a halt, or reverses? I'm guessing social disruption on a massive scale.
posted by mr_roboto at 11:21 AM on April 28, 2006

This reminds me of the time a male friend said to me that if women would "stand up for themselves", they could rule the world. This would require an insane level of organization and loyalty that isn't humanly possible (and if it were, the men would simply mobilize in retaliation).
posted by orange swan at 11:22 AM on April 28, 2006

Everyone is missing the elephant in the room: oil.

The US imports 2/3 of it's oil. If even one country stopped seelling oil to the US, say Canada, which is about 10% of the supply (or Mexico, or Nigeria, or Venezuela), short-term price shocks would be huge in the domestic US market, probably enough to trigger a resession. Through trucking and electricity costs, everything depends on fuel: food, durable goods, you name it.

Supply is so inelastic right now, that finding an alternate importer would take many months to years. By the same token, the boycotter could simply turn around and make a long term deal with China, and probably not take a significant economic hit themselves.
posted by bonehead at 11:30 AM on April 28, 2006

Bonehead: I had discounted the oil sanctions, because the US has made its policy clear on such matters. However, since everyone has great arguments against other sanctions, I appreciate the oil input.
posted by jon_kill at 11:32 AM on April 28, 2006

I think that should there be a general boycott, and the US found itself short of some vital natural resource or industry, it would simply invade and take it, and there would be nothing that any country would be able to do to stop it.
posted by empath at 11:32 AM on April 28, 2006

Lets be honest here. If there were major sanctions against America, there would be devastating effects for the other countries.

Not because of economic collapse, but because America has a huge military and a shitload of bombs.

There would be a campaign of fear against some strategically located nations, and once a reasonable number of US citizens were convinced that these countries were evil, there would be an enormous war.
posted by I Love Tacos at 11:41 AM on April 28, 2006

oh, empath beat me. That's what I get for reading my e-mail before finishing my response.
posted by I Love Tacos at 11:41 AM on April 28, 2006

Other countries would be hurt very badly, unless they made arrangements to replace lost trade with trade to each other. Canada could sell to Europe, and Europe to Canada, whereas right now both of them trade to the US. There would great disruptions and transit would cost more.

The US would be hurt quite badly, though I don't know if they would be crushed. I may be wrong, but I thought I had heard that the US currently has a trade deficit, that is, it buys more from the world than it sells.
posted by jb at 11:42 AM on April 28, 2006

jb writes "Canada could sell to Europe, and Europe to Canada, whereas right now both of them trade to the US."

Yeah, but that would mean Europe trading a market of 300 million people for one of 33 million people. A lot of firms will go out of business...
posted by mr_roboto at 11:45 AM on April 28, 2006

Sorry, I missed that line of the question. That will teach me to scan.

I do think that by far the most likely scenario is the oil boycott. Because of all the interdependencies mentioned above, it's hard to see how a durable goods embago would last. Chavez weilds some power over the US economy, even indirectly. Exporters' leverage will grow with the Chinese and Indian economies grow. The US's main recourse will continue to be military.
posted by bonehead at 11:46 AM on April 28, 2006

The stats are online. In goods, the U.S. imports twice as much as it exports, and there's no counter-balance - it's just IOU's. Essentially, every day the rest of the world comes over to the U.S., hands over $2 in products. The U.S. sheepishly hands back $1 in products. The rest of the world considers the deal for a moment, says, "You can just owe me", and the deal is completed. The U.S. makes out like a bandit on this deal.

If this dealing stops, that banditry stops. Sure, the rest of the world doesn't get that $1 in goods from the U.S. that it was expecting. But on the other hand, it now has $2 in stuff that it can't give to the U.S. The rest of the world makes out fine if this dealing stops. But the U.S., which is accustomed to getting stuff for IOU's, is screwed. Go look through Walmart or Best Buy and count the U.S. products - there aren't any.

The electricity/fuel situation alone would be incredibly dismal. Rolling blackouts for 12 or 16 or 20 hours a day, everywhere. Private automobiles banned. Rationing. A frantic rush to use enriched uranium from nuclear weapons to fuel nuclear reactors. Construction firms drafted into service to build coal plants everywhere. National forests opened up 100% to logging, including the redwoods.

Food? Walk through your supermarket and see where the vegetables and fish come from. Agriculture is incredibly oil-dependent, so food prices would go through the roof. The U.S. produces enough calories to feed people, but variety would suffer massively.

Electronics? Takes years to build an electronics plant, even if you have the know-how. Nobody in the U.S. gets a new television for five years. Nobody in the U.S. gets a new computer for five years. Can you *imagine*?
posted by jellicle at 12:10 PM on April 28, 2006

Bicycle sales would skyrocket.
posted by jasondigitized at 12:12 PM on April 28, 2006

An oil boycott alone would blow up the entire oil producing world. A 25% reduction in demand (~US share of total demand) would send oil prices to $10 a barrel. Now drag in the fact that the export driven economies of E. Asia and N. Europe will get smoked and it gets real ugly real real quick. In the medium term the US would probably suffer the least. Additionally the increased impetus to develop less energy intense technologies would push the US even further ahead of the rest of the world once the failed boycott collapsed. Not to say it wouldn't suffer, just less then most other places.

Of course in reality this could never happen - world is too interconnected. Too many European companies have too much capital invested in the US and vice-versa.
posted by JPD at 12:15 PM on April 28, 2006

Oh also Oil is really not meaningful in the production of electricity in the US. Its nearly all Natural Gas, Coal, Hydro and Nuclear. Main use of Oil is Gasoline by a huge margin.
posted by JPD at 12:26 PM on April 28, 2006

jellicle has more or less got it right but there is a far more likely scenario. As I am sure you all know, the Iraq War was not over WMDs, regime change, Bush's Daddy, 9/11, Al-Qaeda, religion or even Israel (see http://www.presidentspoodle.com/blog/), it was about petrodollars or, more specifically, petroeuros. Saddam Hussein was switching from petrodollars to petroeuros. If all (or most) oil suppliers did the same and China (and maybe a few other major creditors) called in their debt, the US economy goes belly up five minutes later. And, yes, other major economies will be in deep doo-doo but not as deep as the US. Jeez, the panic over $3 a gallon gas should have shown you that. Wait till it is $12 a gallon.
posted by TheRaven at 12:31 PM on April 28, 2006

What would probably be more plausible, and unambiguously damaging to the USA, would be if other countries (read: China) stopped buying up the USA's debt.

To me, this is the more interesting angle, but it's problematic. US treasury debt is typically used to represent the "risk-free" rate of return. If the US were to stop offering treasuries outside the US or if external nations were to stop buying them, it'd do a number of the US, but it would have a negative effect on those other economies as well. Based on no hard thinking, I feel like it would be more of a shock to the non-US countries and that's the real weight the US has to throw around in these kind of negotiations.
posted by yerfatma at 12:32 PM on April 28, 2006

On post: TheRaven, please go back to bed.
posted by yerfatma at 12:33 PM on April 28, 2006

JPD wrote: Of course in reality this could never happen - world is too interconnected. Too many European companies have too much capital invested in the US and vice-versa.

I agree. It seems to me that this question relies on the premise that the world is run by governments. I think you could make a case that the world is actually run by international corporations, who would quickly move to take down, vote out, or otherwise replace any government participating in these sanctions and, thus, cutting off their revenue streams and subsidiaries.
posted by dseaton at 12:37 PM on April 28, 2006

Sure, the rest of the world doesn't get that $1 in goods from the U.S. that it was expecting. But on the other hand, it now has $2 in stuff that it can't give to the U.S. The rest of the world makes out fine if this dealing stops. But the U.S., which is accustomed to getting stuff for IOU's, is screwed.

It seems to me that this is in accurate in several respects, not least of which is that it ignores the relative size and health of the various economies in the world. The U.S. has a very large, diverse, and vibrant economy; it has very flexible labor regulations and a very agile marketplace; and it has a government which is (relatively speaking) not terribly dependent on tax revenues to sustain government spending and political stability. Now the rest of the world, by contrast - well, the world is a very large place, and different countries face different problems, but I think it's safe to say that the loss of the American consumer market alone would have profond economic and political effects on, say, China and Saudi Arabia, to name two prominent examples.

In other words, when a rich man loses $2, he's still much better off than the poor man who loses $1.

Saudi Arabia is a particularly interesting choice. Like many oil-exporting countries in the region, it's government is dependant on oil revenue to keep the populace happy. A total boycott of America would likely send oil prices plummeting, and there would then be a significant question of governmental stability. The House of Saud might well find itself ousted. Though I hesitate to speculate too far into middle eastern politics, I don't think it'd be too much of a stretch to say that this kind of economic and political unrest might cause sweeping changes in the region, with the possibility of severely troubling long-term consequences for the entire world.
posted by gd779 at 12:38 PM on April 28, 2006

I fail to see where jellicle has gotten it right yet. Yes we're running negative net exports but this isn't money for free, it brings down the US GDP, and it's money in the pockets for these countries. The $1 surplus is good for these economies. This whole argument is backwards. For the most part this is financed a lot by China buying huge amounts of US dollars in order to keep their currency stable. China & Japan would be screwed the most because A. ther dollar would suddenly appreciate against the rest of the world making all their manufacturing goods less cheap and they've got literally billions of worthless dollars in the bank. Jesus their whole economy would completely implode.

But on the other hand, it now has $2 in stuff that it can't give to the U.S. The rest of the world makes out fine if this dealing stops.

How having $2 of unsellable goods is now a huge undealt supply it's both bad for the market selling the good and a loss of revenue.

The fuel issue is the only one that's right on but it's the same problem the economies producing huge amounts of excess fuel expressly for the US would be nailed. China wouldn't be able to make up the slack because all of a sudden there not making any of their US based revenues, not to mention they've got a currency issue that's going to blow them up because they're no longer pegged to the dollar.
posted by bitdamaged at 12:51 PM on April 28, 2006

Kwantsar probably has the best answer so far. As others have pointed out, since the US is a net importer, the analysis shoudl focus on how the US will find access to raw materials and finished goods that it will be without and to look at how certain countries and industries outside the US deal with losing a huge market.

Raw materials: The US is a large country with lots of natural resources. Given time and high enough prices, the US will probably find a way to produce the raw materials it needs (wood, minerals, food, plants, etc). The trick is identifying the few things that we can't produce for ourselves in the quantities expected (oil, maybe a few rare minerals, and there are probably a few other important things). Those will lead to some massive changes. For example, a long term oil boycott may lead to us abandoning gasoline-powered engines. Very painful in the short term, but not a biggie in the really long-term.

Finished products: One of the things the US imports a lot of right now are finished products that are labor intensive. For example: shoes, some electronics, lots of toys, most clothes, etc. In the short-term, prices will skyrocket on some of these items, and some may not be available at all. In the medium-term there will be a much larger market for unskilled labor. Demand for illegal immigrants will skyrocket as the US builds replacement manufacturing capability. In the long-term, the price incentives will be in place for engineers to figure out how to fully automate the production of lots of these things.

Energy: The US will make extensive use of coal which will be much more polluting.

Outside the US: There will probably be huge unemployment in certain sectors of certain countries. Labor costs may go down even further, which will make some products even cheaper worldwide. Also, it would take real willpower on the parts of those countries with huge numbers of exports to maintain the embargo. The price of oil will go down significantly without the largest market, which would have the effect of making the rest of the world more oil dependant. The US is a significant exporter of grain, and a few countries such as Japan will have to find new sources. Since the US is fairly efficient as producing grains, prices will probably go up on those goods worldwide.
posted by Tallguy at 12:58 PM on April 28, 2006

Remember too that an embargo is really just a tax. Once prices got high enough, a black market would emerge and prices would stabilize. If the embargo didn't have serious enforcement/ teeth, the new prices might not even be that much higher in the US. Unless you think Canada and Mexico could police their entire border and ports perfectly.
posted by yerfatma at 1:27 PM on April 28, 2006

Oh, bonehead. If Canada cut off our oil we would fucking invade them.

You can make a lot of different arguments about what would happen if America was cut out of the global trade loop, and they are all just that - arguments. There is absolutely no precedent of data. Personally I think, given the size of the US Economy as a component of the global economy, set against many, many critical commodities we rely on imports for and have no easily exploitable capacity to produce in this extra-lean, just-in-time production environment, it is absurd to think that it would not be devastating to both parties in the short term. Global recession. And some very ugly events (riots, public emergencies to make Katrina look mild) ensuing around the globe and in the USA. I think there is no chance an effective embargo against the USA could ever be enforced. We can't keep even relatively civilized countries from cheating on embargos of little dictatorships.

Would it topple us eventually? I find the "lots of resources, educated populace" argument persuasive myself, but its always an issue of how much rot there is in our bones. I mean, take a 9/11, find an Enron. When it's put up or shut up time the bullshit comes out. I bet "just how much disruption would it take to topple America" is a favorite topic for late night bull sessions in the caves of Afghanistan and similar vacation spots.

So tell me this, jon_kill: what are the world's demands of America?
posted by nanojath at 1:33 PM on April 28, 2006

If the international community as a whole decided America was a rogue state that needed neutralized, would a redistribution of wealth that excludes America from the picture be possible?

Um, because they don't like McDonalds?

I'm aware that such a redistribution of wealth would entail massive famines in the short term and significant chaos in the long term (akin to the communization of China or Russia). However ...

20 million dead in Russia under Stalin. 20-30 million dead under Mao's Great Leap Forward. That's a lot of dead people for a confused hypothetical.

However, if America destabilizes international politics by, say, bombing Iran, such an action might be deemed necessary."

Necessary by who, exactly? Plenty of people are going to be unhappy if the US blows up Tehran's nuclear programme, but if you really think Europe/China/Russia is about to make any significant economic sacrifices on behalf of a bunch of crazed Shi'a Islamacists dream of a resurgent Caliphate, I think you're badly misreading the situation. Relief might be the primary EU & Russian response, because if the US doesn't do it, they'd have to, because nobody thinks Israel doing it a good idea.
posted by johnwilcox at 1:47 PM on April 28, 2006

But this is preposterously implausible.

I say, Mister Wells, this idea of yours is preposterous! To ride the chronophlogiston itself? No, no, this "time-travel" won't do! I suggest you write a gripping good yarn about a boy and his dog, something even a dullard, moron, or Hindoo-man could get behind!
posted by Optimus Chyme at 1:52 PM on April 28, 2006

Off-topic: Am I the only one who read a certain username as yer-fatwa instead of yer-fat-ma?
posted by eritain at 2:25 PM on April 28, 2006

yerf-mata
posted by sonofsamiam at 2:59 PM on April 28, 2006

Necessary by who, exactly? Plenty of people are going to be unhappy if the US blows up Tehran's nuclear programme...

..."China currently gets 13.6% of its oil imports from Iran. Beijing is also in the process of importing Iranian natural gas."

I think China will be very fucking concerned if the Western world starts nosing around down there.
posted by muddgirl at 3:40 PM on April 28, 2006

But anyway, a worldwide sanction is a crude form of economic warfare. Anyone who's taken a current politics of macroeconomics course should recognize that. Much more subtle would be for China to start quietly buying against (say) the Euro, instead of the dollar. Luckily (or perhaps unluckily) for us, the US economy is heavily tied to most of the Developed world.

I agree that the US would eventually bounce back, probably by going to war. Think about the US economy pre- (and immediately post-) WWII - we certainly were less of a super power, but we were much more isolationist and self-sufficient.
posted by muddgirl at 3:46 PM on April 28, 2006

I think China will be very fucking concerned ...

Concerned, sure. Let's assume they get hopping mad. That still doesn't get them to a place where they'd risk the much larger investment they have the US.
posted by johnwilcox at 4:12 PM on April 28, 2006

Anyone who's taken a current politics of macroeconomics course should recognize that. Much more subtle would be for China to start quietly buying against (say) the Euro, instead of the dollar.

Anyone who's taken such a course might also recognize a maneuver in the currency market against the US dollar could either be subtle or effective, but not both.

There are old pilots and bold pilots . . .
posted by yerfatma at 4:43 PM on April 28, 2006

Bonehead, if Canada cut off our oil, we'd buy it somewhere else. If everyone cut off our oil, short-term shock to the US economy, and we'd switch to coal, which pollutes Canada no end. But in reality, someone would cheat and sell it to us for $100/barrel. And probably less than that. China didn't support sanctions to real rogue nations, why are they going to kill their economy over the US? They'll just buy more oil and resell it to us at a markup.

How are you going to enforce sanctions? The US has naval superiority. The US buys the oil on the world market or through an intermediary who buys on the world market, and the destroyers escort the carriers to the ports. Trying to stop that would be an act of war, and there isn't a Western nation that's going to risk that.

The OPEC nations rely on the US to keep them alive -- if Egypt stopped getting the billions the US subsidizes them with, they'd collapse. What incentive do they have to participate?

There's a hell of a lot of foreign investment in the US to confiscate if the other nations started confiscating US investments. Not to mention the other nations wouldn't want to lose the value of all their dollars.

Anyway, if you want to see what sanctions look like, imagine the tariff wars of the late 1920s (Smoot-Hawley and the like), only by an order of magnitude, and then think about the Great Depression and its 25% unemployment rate. Basically, you crater the world economy. The US is much better suited to handle that than Europe or China or Canada is. The US suffers a bad recession with $8/gallon gas, a bad inflationary shock, but the economy shifts from service back to manufacturing as employment picks up big time as factories reopen to make up for lost imports—we probably take a lot of immigrants to handle the worker shortage.

Recall: most countries have a trade surplus with the US. They're sending us goods, we're sending them dollars. That gets cut off, we still have the goods, we're not losing sales, but meanwhile the dollar-denominated investments the rest of the world holds are worthless.
posted by commander_cool at 6:11 PM on April 28, 2006

A handful of guys flew a couple of planes into a couple of buildings and the recession caused by that act alone was staggering, almost everyone I knew was out of wor- and I live on the other side of the country from the attacks. I don't think the US economy could shrug off major trade sanctions, sanctions would be far far worse, economically speaking, than 9/11. I think the "crushed" predictions are closer to the truth.

All those "skilled workers" would not be busy building the necessary US-soil billion dollar RAM chip fabrication plants and American Independance, they would be unemployed, washing windscreens etc.

In a few years, the US economy would run the same way that North Korea's economy runs - like a vision of the past, left behind by the strides made in the world outside.
posted by -harlequin- at 6:33 PM on April 28, 2006

"wor-" = work
posted by -harlequin- at 6:34 PM on April 28, 2006

Sanctions on things like wood that the US already produces and is reluctant to buy, are just stupid. Sanctions are typically placed carefully on things that will hurt but not kill.

For example, the US cannot produce computers, and even if it had to (due to sanctions), it is not commerically viable to produce modern-grade computer parts without the sales of the entire world to pay for your infrastructure costs. So the US would pretty much lose most computer-based devices. Just that one little thing alone - no more computers - would make almost all industry in the USA cease to be functional in any recognisable form, assuming they didn't already go bust for numerous other reasons.
posted by -harlequin- at 6:49 PM on April 28, 2006

jpn_kill, some practical and real but unintentional answers to your question are being created now, not by political and policy fiats of other nations, but by the unforeseen yet very real effects of nature on U.S. food supplies and agricultural policy, as follows.

If you can assume for a bit that Nature has been a coalition of countries actively involved in boycotting the U.S. economy for the last couple of years on several fronts, you can already begin to see what can happen in coordinated boycott situations.

A key short term problem that many see developing already is nitrogen fertilizer availability, which enables much of the world's food production, including the U.S. In the last year, U.S. nitrogen fertilizer production has fallen precipitously, and costs have increased in some areas by 400% [PDF file linked], partially due to constrictions in U.S. natural gas supply, exacerbated by Katrina damages to Gulf natural gas production. A May 2005 letter to Congress from the Fertilizer Institute [MS Word .doc file linked] documents pre-Katrina problems, which were serious, but no where near what the first (and later) link shows.

At the same time, moderate to severe drought continues in much of the prime grain growing areas of the U.S. Combined with high fertilizer prices, many mid-Western farmers are expecting poor crop yields, and will likely not plant extensively this year. Yet a recent 2006 forecast report from the USDA cites 2005 as a record year for farm income and crop production, although it predicts only a slight pull back in the farm economy overall in the U.S. for 2006. But in the last couple of weeks, in anticipation of a 10% drop in U.S. corn production in 2006, futures prices for corn have risen sharply.

So, you have here a few factors coming together, which show you pretty quickly what short term disruptions of specific inputs (natural gas and nitrogen fertilizer plant capacity) could do to a domestic market, if artificially restricted as if by economic boycott.

Judgements about trade can be complicated, but it isn't entirely rocket science. We depend on trade, and we've long passed the point where economic self-sufficiency is in our interests.
posted by paulsc at 8:09 PM on April 28, 2006

A handful of guys flew a couple of planes into a couple of buildings and the recession caused by that act alone was staggering, almost everyone I knew was out of work

That's very much the voice of a very myopic under-30-year-old who hasn't spent much time outside of Silicon Valley white-collar computer workers. The minor blip in the 2001 economy was the third-worst recession in the last 25 years, and the worst of those three recessions wasn't nearly as bad as what Europe and Japan have experienced in their worst recessions over the same time frame. And it's hard to blame that tiny recession on a couple of airplanes when it occurred at the same time as an obliteration of paper wealth from the burst Internet bubble as well as a substantial Fed tightening over the previous year.

Again, any trade boycott of the US would be so leaky as to be utterly ineffectual, but even assuming an unprecedentedly effective boycott, the impact would be worse on the rest of the world than on the US. The technology to build chip fabrication plants is US technology--we have a free market, Intel or AMD or IBM would build a factory here, prices would temporarily rise so that only the highest bidders use the chips that are available, and then prices go back down. And why would chip makers in Taiwan participate in the boycott in the first place?

Would the US suffer? Absolutely. It would be perhaps the worst recession since the Great Depression, but we'd be talking about unemployment rates approaching what Europe has today rather than a shutdown. Exports are only about 10% of the US economy, and imports slightly more--we're remarkably self-sufficient, and it's only oil and the comparative advantage of other countries' cheap manufacturing labor that causes us to trade so much. But temporary economic dislocation is hardly a knockout punch, and the country would recover, assuming the government didn't panic and impose some sort of rationing scheme instead of letting market prices fluctuate in the short-term.

I don't know what PaulSC thinks his corn example proves. Corn prices are up because international demand is up (and because of new government regulation requiring ethanol production). Food is one of the few things the US exports. If the US is shut out of selling its corn, corn prices decline in the US and rise in the rest of the world. We have a lot of spare food-growing capacity (the government pays people not to farm at the moment), so even a bad crop year isn't going to hurt us. We're at no risk for North-Korea-style starvation.
posted by commander_cool at 10:13 PM on April 28, 2006

It would almost be cool if the world did try to impose sanctions on us so we could all laugh about the pundits having this exact same discussion. And I'm still waiting to find out exactly what the world's demands are. What potential gain is being offered to the world in exchange for this loss of trade?
posted by nanojath at 12:39 PM on May 1, 2006

nanojath: to lessen the United States' nee the global economy's contribution to global warming?

From what's been said, it sounds like everybody would be hurting badly economically in the short to medium term. Which presumably would mean less products being produced, less energy being consumed. So it might actually reduce the forthcoming effects of global warming.
posted by badlydubbedboy at 4:37 PM on May 1, 2006

paulsc has it (or, at least, beat me to the contribution I would have made), but commander_cool appears to have missed the point. So some development of it ...

For every calorie of food you consumed at breakfast, 10 calories of hydrocarbon-derived energy was required in fertiliser, pesticide, irrigation, processing and transportation. You have elected to dislocate production of the largest component of that input (the fertiliser) from where it is consumed. You are now vulnerable to interruptions in the supply of that critical resource, either deliberate or otherwise.

Hydrocarbons quadruple agricultural yield. You do not have sufficient spare agricultural capacity to compensate for a 75% reduction in yield.

Your options to restore domestic fertiliser production are diminishing. Your own gas reserves are nearly exhausted. Mexico and Canada will shortly have insufficient reserves to meet its own needs and will cease exports to you. China is buying up Trinidadian gas on long term contracts. All of these are decisions made by a free-market, the support of which you have made synonymous with your identity. Meanwhile, an alienated Latin America is nationalising its reserves.

The short term consequence is a large rise in the basic cost of food, putting systemic pressure on your entire economy. You have hardwired your society around the model of the suburban McHouse made accessible and habitable only through the continuous supply of hydrocarbon, and fundable only through the availablility of cheap hydrocarbon. Neither condition will prevail as you divert gas to food production. You have the highest ever levels of consumer debt, five times more money in circulation than are covered by banks, and already rising levels of foreclosure. General failure of your economy will be triggered by failure of the banking system, triggered in turn by spiralling mortgage foreclosure rates driven by spiralling energy cost associated with maintaining food production.

The medium term consequence is periodic interruption of your food supply, putting pressure on your society. You have one of the lowest numeracy and literacy rates in the developed world. You have one of the lowest levels of social mobility in the developed world and a fully established under-class. Your have almost no social infrastructure, no capability for institutional response and no culture within which either can be constructed (as witnessed in your inability to prepare for- or respond to New Orleans). Violent social disorder seems probable.

This does not require third-party sanction, although the effects can be intensified or ameliorated by third-parties. Your antagonistic neo-conservative policies have ensured that there are many who fear you, but none whom you can regard as friends. There will be few politicians who will be able to persuade their voters to to make economic sacrifice at Nation State level to render assistance.

Interestingly, Europe has to a much larger extent retained the principle of co-located food production and consumption, stronger social infrastructures and denser living arrangements, which should make it more resistant under these circumstances.

Replacement of the dollar by the yuan/Euro? Return of a chastened and needy U.S. to multilateral institutions and international law? An easing of the stranglehold on the International Monetary Fund and resumption of (diminished) flow of development capital to the third world? There is a silver lining to this cloudy scenario, from the perspective of the international community.
posted by falcon at 4:35 AM on May 3, 2006

The short term consequence is a large rise in the basic cost of food

Again -- your scenario is wishful thinking. The American farm industry has been internally prepared for the contingency of a world without ammonia fertilizer since shortly after the Oklahoma City bombing in 1995. In the mid-1990s, Koch Pipeline doubled the regulated price of anhydrous ammonia transportation overnight without it even meriting a headline in the newspaper because the impact on the economy was so small. The US has so much food overcapacity that it pays farmers not to grow anything. And the raw ingredients in food is a small fraction of what the US spends on food. The rest of the world needs the US more than the US needs the rest of the world.

There will be few politicians who will be able to persuade their voters to to make economic sacrifice at Nation State level to render assistance.

Again, you have a fundamental misunderstanding of basic economic principles. It's the boycott that will force economic sacrifice in the rest of world. Breaking the boycott will create economic benefit, because trade improves economic welfare for both countries. European nations can't wait to break the boycott for real bad actors like Saddam-era Iraq or Iran -- why are they going to hold the line for a wealthy Western democracy with whom they do billions of dollars of business? What's in it for them? Especially when one or two nations break the boycott and reap the benefits thereof. You think Mexico can afford to exist if it stops trading with the US?

You have one of the lowest levels of social mobility in the developed world

This is absolutely false (as the Arab underclass in Europe can tell you), and, in any event, irrelevant to a rational person, given that the average American in "poverty" has a higher standard of living (more living space, more high-tech possessions) than the median European.

social infrastructure, no capability for institutional response and no culture within which either can be constructed (as witnessed in your inability to prepare for- or respond to New Orleans

I have to laugh at the arrogance falcon exhibits here: about 50,000 Europeans died in a single 2003 heat wave that was like an average South Texas summer--more than from every hurricane in the US over the last thirty years added together, even though hurricanes do far more destruction to the response system and physical infrastructure. Europe can't handle a 38-degree day because everyone is on mandatory vacation, and you want to criticize how the US responds to disaster?
posted by commander_cool at 4:42 PM on May 3, 2006

Again -- your scenario is wishful thinking.

The poster asked for opinions on what the likely consequences of sanctions (and, by self-indulgent extension, sanction-like conditions) would be on America. The consequences are the consequences, wished for or not.

The American farm industry has been internally prepared for the contingency of a world without ammonia fertilizer

Ultimately, the only test will be the size of the population in relation to the carrying capacity of the food production system in the absence of hydrocarbon input. Given the extent to which the system floats on a hidden hydrocarbon subsidy, and the difference in energy yield between hydrocarbon and its next best substitute, it is unlikely that the American farm industry's internal preparations have been based on an accurate assessment of what is required, or can be be sufficient in any circumstance.

It's the boycott that will force economic sacrifice in the rest of world

I'll concede my post was unsufficiently clear. I advance a "single point of failure" scenario in which a critical resource upon which you depend is withheld. There are many circumstances under which such a scenario could occur that are not the result of a discretionary boycott. Your response is irrelevant in the most likely (and, ultimately, inevitable) scenario in which the resource is withdrawn because its suppliers need it more than they need the proceeds from its sale to you, or of anything you might sell to them. It is rather naïve, for example, to imagine that nations will prefer to trade the gas they need to pump their aquifers in exchange for iPods and other baubles and trinkets.

This is absolutely false ... I have to laugh at the arrogance ...you want to criticize how the US responds to disaster

Well, the only relevance of those points to my contribution is to substantiate my assertion that the consequence of such a sanction would be severe societal disruption (in contrast, say, to severe economic disrpution).

It's probably impossible to be specific without derailing the thread and insulting everyone into the bargain, so let me withdraw them and make the point it in a more general way.

While there is much to admire about a society constructed around the principles of individualism and the free market, such an arrangement can only work successfully in the presence of equal opportunity, which in turn can only exist under conditions of an adequate supply of critical resources.

Under conditions in which the supply of a critical resource is inadequate (by critical, I mean having the capacity to affect life or death, such as food, or air conditioning), tensions arising between those who have access to those critical resources and those who do not are much greater than in societies in which there is greater capacity and willingness on the part of the State to intervene.

My assertion is that they will be sufficiently high that the U.S. will undergo severe societal disruption.
posted by falcon at 6:25 AM on May 4, 2006

The poster asked for opinions on what the likely consequences of sanctions (and, by self-indulgent extension, sanction-like conditions) would be on America.

And your opinion is demonstrably wrong. The price of hydrocarbons was much higher in the 1970s in response to the OPEC sanctions then, the US economy was much more reliant on hydrocarbons then than now, and no one came close to starving. As critical resources go, the US is much better situated than its trading partners--which means that any sanctions movement would quickly fall apart, and there would be a new world order where the countries that buck the sanctions trend first have a huge economic and political advantage over those who let irrational anti-American hatred overwhelm common sense.
posted by commander_cool at 11:01 AM on May 4, 2006

I'll also note that your scenario isn't responsive to the author's query, which took "oil sanctions" off the table.
posted by commander_cool at 11:10 AM on May 4, 2006

And your opinion is demonstrably wrong. The price of hydrocarbons was much higher in the 1970

Thank you. You seem unable to distinguish between the cost of hydrocarbon and the availability of hydrocarbon, or to engage with a scenario in which countries are unable to "buck the sanctions trend" due to overriding needs of their own, so you'll forgive me if I discount your feedback. For my part, whether your opinion is right or wrong, I still find it interesting (otherwise, what is the point of being here?).

I'll also note that your scenario isn't responsive to the author's query, which took "oil sanctions" off the table.

I'm discussing fertiliser and food, which was put on the table by paulsc. A large fraction of fertiliser is derived from hydrocarbon. Fertiliser sanctions, hydrocarbon sanctions, and a failure in the supply of fertiliser due to voluntary or involuntary interruptions in the availability of hydrocarbon are all different scenarios.

[Forgive me, but I assume my dialogue in this thread is with the author, not you, and that if he was unhappy he'd tell me. Aren't comments supposed to be limited to 'answers or help in finding an answer'? If a difference of opinion, or in your case an inability to differentiate between analysis and 'irrational anti-American hatred', is causing you discomfort, shouldn't you be sending me a private email or something? Thanks]
posted by falcon at 3:31 AM on May 5, 2006

Falcon, your comments evidence a fundamental misunderstanding of how markets work. If supply decreases, the price increases until demand matches supply. If China can make more money selling oil to the US than using it itself, it will do so.

Since 1970, the US economy has tripled, and its energy usage is up 40%. The US produces more GNP per barrel of oil than anyone else in the world.

Imagine a scenario where the whole world agrees not to sell oil to the US. The worldwide price of oil now drops to $50/barrel, while within the US it rises to $100/barrel, about the price of extracting it from current American fields to maintain current energy usage. Why would, for example, Egypt refuse to sell oil to the US at $90 instead of to the boycotting countries for $50? (As it is, the US sends $4B/year of aid to Egypt -- is Europe going to make that up to keep Egypt in the boycott?) Why wouldn't a boycotting countries buy extra oil and resell to the US? The boycott falls apart within months, if not days -- or the nations behind the boycott quickly bankrupt themselves trying to maintain it by subsidizing countries that have multi-billion-dollar incentives to cheat.

Fertiliser sanctions, hydrocarbon sanctions, and a failure in the supply of fertiliser due to voluntary or involuntary interruptions in the availability of hydrocarbon are all different scenarios.

None of which has any chance of causing food shortages in the US for reasons which you continue to ignore.
posted by commander_cool at 10:16 PM on May 6, 2006

If China can make more money selling oil to the US than using it itself, it will do so.
If selling oil to the US meant that 40 million Chinese peasants were unable to pump aquifer water, then the amount of money China could make selling that oil would be irrelevant.

For scenarious under which the trading of oil remains a discretionary activity, you are absolutely correct. However, you have failed to grasp that the basis of my contribution is a scenario in which a compulsion greater than economic profit is driving behaviour. Such scenarios are comparable to 'sanctions', plausible and imminent.

None of which has any chance of causing food shortages in the US for reasons which you continue to ignore.
I can imagine that 'continue to ignore' and 'continue to dispute' are as synonymous for you as 'analysis' and 'irrational anti-American hatred'. That's OK. Note to thread starter - my apologies. All done here.
posted by falcon at 6:31 AM on May 11, 2006