Post

1/ "Secondary Sanctions" - What are they, and how do they work? Since Donald Trump is floating them against Russia's trading partners, and with absolutely no expectation he won't change his mind again next week and declare Zelenskyy the real villain, I thought I'd do a (long, sorry) explainer.

2/ First, what are sanctions? Sanctions are rules that make it illegal for my citizens to conduct certain forms of business with whomever the sanctions target. Who they apply to (targets), and what kind of business they cover (scope), can be vary in breadth.

3/ For example in terms of targets the EU sanctions individuals, entities (companies or organizations) and entire regimes. And in terms of scope they might ban travel, freeze assets, restrict sales of certain goods or ban all financial interactions.

4/ Sanctions tend to have a range of objectives: a) Symbolically signalling outrage and punitive intent; b) Denying a state weapons or the inputs it needs to make weapons; c) Applying economic pressure toward policy changes or regime change

5/ I should note at this point that this can all get hideously complicated for business to navigate, and governments to enforce. Eg. Banks and other financial entities have to spend millions on "Know Your Customer" stuff to make sure they're not accidentally doing business with sanctioned entities.

6/ Moreover, once you sell a good to a 3rd party it's generally out of your hands. There are limits to how much you can reasonably expect the seller of a microchip to vet a potential client to make sure they're not going to onsell it to someone who onsells it to someone who onsells it to Russia.

7/ A challenge sanctions have is that they're limited by how indispensible you (and those who join you) are to the sanctioned party. If you won't sell Canada AK-47's but the US will sell them M4 Carbines, then your sanctions are an inconvenience but not a true impediment to Ottawa's war machine.

9/ Secondary sanctions attempt to deal with this problem by imposing measures against companies in 3rd countries, or the 3rd countries themselves, if those coutnries don't apply (or enforce) the same sanctions regime you do.

10/ There are two ways to go about this - firm level, or regime level. At the firm level, you're aiming to discourage individual companies from doing certain forms of business with a sanctioned state or its citizens.

11/ Effectively what you're saying is that if say, a Chinese firm sells high tech airline components to Russia, you're going to put them on a list that makes it illegal for US firms to buy from them, illegal for US investors to invest in them, and illegal for US banks to handle their transactions.