Secondary sanctions substantially reduce third-country trade with sanctioned states

What's this about?

People disagree about whether side penalties cut trade with a punished country by a lot.

These penalties target firms or states that still trade with the punished state.

What supporters say

• Side penalties spread harm beyond the punished state through banks, supply lines, and middle firms.
• Trade in key goods, such as cars or tech, may fall when firms fear harsh penalties.
• Firms that need Western banks, markets, ships, or tech may choose to stop deals.

What critics say

• Trade can move through new routes, firms, or states instead of ending.
• States that do not join the penalties may keep trading or even trade more.

How to read this

The number of points on each side does not show who is right; the strength of each point matters.

The bottom line

The evidence does not show that side penalties cut all trade by a lot.

They can sharply cut some goods, routes, and firms’ deals, but trade often finds new paths.

The claim is that secondary sanctions—penalties aimed at companies or countries that do business with a sanctioned state—substantially reduce trade even when those third parties are not legally required to follow the restrictions. The evidence supports that conclusion in some exposed markets, but not as a general rule for overall trade.

The case for

Secondary sanctions can pressure foreign companies to comply voluntarily. Firms may fear losing access to the sanctioning country’s banks, markets, insurance, technology or financial system. U.S. enforcement guidance, for example, warns of blocked transactions and loss of access to American markets. Research on supply chains in neutral countries suggests that these risks can influence companies’ decisions, even when their governments have not imposed the same sanctions. This shows a credible mechanism, though it says more about why firms might comply than about how much trade falls. 1

The strongest evidence concerns sensitive goods and exposed firms. Companies that depend heavily on Western banking, shipping insurance, technology or customers may find some transactions too risky to continue. Studies of automobile re-exports and export-sanctions evasion indicate that enforcement pressure can reduce direct shipments and discourage at least some intermediaries. This supports a narrower version of the claim: secondary sanctions can substantially reduce particular trade routes, products or firms’ transactions. 2

Broader research also finds that sanctions imposed by one group of countries can affect businesses elsewhere through finance, supply chains and intermediaries. These spillovers show that secondary sanctions can transmit economic pressure beyond the original target country. But the research does not provide a single estimate of how much secondary sanctions reduce total trade volumes. 3

The case against

The main problem is that trade may be rerouted rather than eliminated. Research on export sanctions finds that restrictions often change the geography of commerce: direct shipments decline, while intermediary countries handle more of the trade. (see Figure 1) In the automobile case, enforcement pressure constrained some middlemen, but re-exports through other countries continued and in some cases expanded in the same product category. (see Figure 2)

That means a fall in direct exports from one third country does not necessarily mean that less of the product reaches the sanctioned state. Alternative payment systems, transport routes and trading partners can preserve much of the underlying commerce. Secondary sanctions may therefore reduce visible or easily monitored trade without producing a comparable fall in total trade.

Country-level relationships can also offset outside pressure. Analyses of Kazakhstan’s economic ties with Russia report continued cooperation despite sanctions. A study of Kazakhstan’s customs union found wider spillover effects, but could not separate the role of secondary sanctions from other sanctions and economic pressures. (see Figure 3) Regional ties and commercial incentives may be strong enough for some non-sanctioning countries to maintain or even expand trade. 5

The effects are therefore uneven. Firms with strong links to Western markets may withdraw, while companies with alternative finance, regional relationships or less sensitive products continue trading. Available studies also do not consistently distinguish secondary sanctions from primary sanctions, ordinary trade restrictions, wartime disruption or firms’ independent assessments of risk. That makes it difficult to apply findings from one country or product to global trade. 4

The bottom line

The evidence moderately supports a qualified version of the claim, but not the broadest one. Secondary sanctions can substantially reduce selected, sanction-sensitive trade flows—especially direct shipments involving firms exposed to Western financial and commercial systems.

However, the evidence does not establish that they generally cause a substantial reduction in aggregate trade between third countries and sanctioned states. Rerouting, alternative partners and country-specific adaptation can offset declines in direct commerce. The mechanism is well supported, and some product-level effects are clear, but there is no clean, general estimate showing how much total third-country trade falls because of secondary sanctions.