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The motivation may be in accordance with international law, or based on more illegitimate goals. Economic and financial sanctions that are justified by international law may also be viewed as instances of economic coercion. In other cases, illegal attempts to modify the policies of other states, or to weaken or contain other states as a means of preparing for further hostile acts, are the motivation for economic coercion. Regardless, the term “economic coercion” refers only to states’ use of the law to order economic agents under their jurisdictional reach to cease certain activities. In contrast, the use of military force to cause economic damage, for example by blockading another nation’s ports, is an act of war and not economic coercion. Indeed, economic coercion is an attractive option for major powers precisely because it is a means short of war to coerce rivals. There are two main types of economic coercion measures: trade measures (embargoes on imports, for example, or on exports of certain goods or services), and financial measures (restrictions or prohibitions on certain kinds of capital flows). In both cases, states that impose such measures (“sending states”) are trying to leverage a relationship of asymmetric dependence that favours them over the states being targeted. An intended effect of such measures is to inflict a degree of economic damage on target states that is at least greater than the damage being incurred by sending states. Over time, however, target states can take steps to reduce the impacts of these measures - such as securing alternative markets, sources of supplies, or sources of capital - which tend to achieve varying degrees of success over time. Economic coercion measures range from targeted actions directed at particular entities, industries, or commodities, to broader efforts intended to generate significant macroeconomic shocks. For multinational companies, their strategic planning must always take into account the possible use of such measures, and they can benefit from an acute awareness of the international security landscape. For governments, both deploying and responding to economic coercion requires specific expertise and a readiness to act quickly - and, in some cases, forcefully - in relevant markets. Longer-term, the repeated use of strong forms of economic coercion are likely to contribute to greater decoupling between the economies of major powers, as they each seek to become more resilient to the use of economic coercion by others.

Economic Coercion

KEY TRENDS

Geoeconomic Shifts