The futility of economic sanctions in a globalized and interdependent world: a data-driven game theoretical study

The study addresses whether economic sanctions are effective in achieving political goals in an increasingly globalized and interdependent world and evaluates which counter-sanction measures can mitigate sanctions. Sanctions—such as trade restrictions, boycotts, and asset freezes—have proliferated, yet they impose economic costs on both sender and target and can have adverse political and humanitarian consequences. Vulnerable countries seek countermeasures, including supply-chain decoupling, individual retaliation, and newly proposed collective "resilience" strategies. However, comprehensive, data-driven evaluations of the effectiveness and feasibility of these countermeasures under varied geopolitical scenarios are lacking. To fill this gap, the authors propose a data-driven game-theoretical framework grounded in global trade data to model the sender–target interaction across threat, sanction, and counter-sanction stages and to quantify countries’ capability to sanction and vulnerability to sanctions.

Prior work has examined initiation, mechanisms, and outcomes of economic sanctions, including their political objectives and humanitarian impacts (e.g., Hufbauer et al., Pape, Eaton & Engers, Morgan et al.). Studies debate decoupling feasibility in a deeply integrated global economy and explore limited cases of countersanctions/retaliation. While specific cases provide theoretical and empirical insights into countermeasures, the literature lacks a systematic, data-driven assessment of counter-sanction effectiveness across scenarios. This paper builds on sanctions theory, international trade models, and network-based perspectives to evaluate countermeasures such as decoupling, individual retaliation, and collective retaliation using global input–output data.

The authors develop a three-stage sequential game (threat, sanction, counter-sanction) with perfect information between a sender and target. At the threat stage, the target chooses to comply or violate; at the sanction stage, the sender chooses to sanction (via import restrictions) or not; at the counter-sanction stage, the target chooses whether to retaliate. Retaliation strategies modeled: (a) decoupling (permanent severance of trade linkages between sender and target); (b) individual short-term retaliation (temporary import restrictions by the target on the sender); and (c) collective short-term retaliation (temporary import restrictions by the target and bloc members on the sender). Payoffs include economic components (GDP changes) and political components (benefits/costs from compliance, reputation effects, and deterrence), and the game is solved by backward induction. Economic impacts are quantified using two trade models linked to a global supply chain network built from GTAP 10 MRIO tables (141 countries/regions, 65 sectors): (1) an adaptive multi-regional input–output (MRIO) model for short-term demand-driven effects where no new trade links can be formed; and (2) a general equilibrium model with input–output linkages for long-term decoupling effects. Sanctions and retaliations are implemented as hypothetical deletions of specific bilateral sectoral import links; GDP losses are measured via the hypothetical extraction method. The study defines pre-sanction trade-to-GDP (PT) ratios by sector, the largest PT ratio (LPT) across sectors between country pairs, and uses these to characterize each country’s capability to impose sanctions and vulnerability to sanctions. Effectiveness of sanctions is the probability that the "comply–not sanction" equilibrium is achieved; effectiveness of retaliation is the reduction in sanctions’ effectiveness under threat of retaliation. For collective retaliation feasibility, a bloc (size three in main analyses) is formed by the target with partners most important to the sender (highest LPTs); each member’s expected payoff gain from joining versus not joining is evaluated, and feasibility requires all members to have positive gains.

- Capability–vulnerability asymmetry: A small set of giant economies dominate sanction capability (Pareto-like distribution), whereas vulnerability is more uniformly distributed; smaller economies are somewhat more vulnerable. This indicates that while many countries depend on global trade and face sanction risk, practical sanction power is concentrated in large economies. - Sector targeting matters: Import restrictions are most effective when they hit sectors with the target’s highest pre-sanction trade-to-GDP (PT) ratios with the sender. The analysis assumes imposing countries target that sector to maximize effect. - Decoupling is impractical: Permanent severance of trade ties (decoupling) causes persistent GDP losses for both sides, often exceeding the losses from short-term measures in less than a year, making it a costly and ineffective countermeasure. In illustrative scenarios, equilibrium long-run GDP reductions from decoupling ranged roughly from about 0.3% to over 13%. - Individual short-term retaliation works better under high bilateral interdependence: When sender and target are deeply interdependent (e.g., China–US; Germany–France), the target’s individual short-term retaliation substantially reduces sanction effectiveness compared with high unilateral interdependence cases (e.g., China–Indonesia; US–Singapore). - Collective short-term retaliation adds incremental effect but limited in highly interdependent dyads: Bloc-based retaliation further reduces sanction effectiveness beyond individual retaliation; however, the incremental reduction is smaller under high bilateral interdependence than under high unilateral interdependence because the target itself contributes most of the impact with limited additional leverage from partners. - Feasibility dilemma for collective retaliation: Although collective retaliation can be effective, it is often infeasible. Major contributors in a prospective bloc—those with deep economic ties to the sender—experience negative payoff gains from joining, making them unwilling to participate. This creates a conflict between effectiveness (requiring strong contributors) and feasibility (contributors’ incentives). - Overall: Deep, diversified interdependence complicates the weaponization of trade; risks for vulnerable economies stem mainly from imbalanced trade relationships with giant economies.

The findings show that in a globalized network of trade, sanction power is concentrated among large, central economies, while many others share comparable levels of vulnerability. The game-theoretical and data-driven approach demonstrates that common countermeasures differ sharply in their efficacy: decoupling imposes long-term costs and fails to deter; short-term individual retaliation is particularly useful when both sides are highly interdependent; and collective retaliation, while potentially potent in imbalanced relationships, is often not feasible because major contributors have little incentive to join. These results directly address the research question by quantifying when and how countermeasures can reduce sanction effectiveness and by clarifying the structural conditions (bilateral vs unilateral interdependence) under which they work. The broader implication is that escalating economic coercion is unlikely to yield stable political gains without incurring substantial economic losses, suggesting that cooperation and dialogue are more sustainable strategies for economic and political stability.

This study introduces a data-driven, game-theoretical framework that integrates global input–output data to evaluate sanctions and counter-sanction measures. It quantifies countries’ sanction capability and vulnerability and assesses the effectiveness and feasibility of decoupling, individual short-term retaliation, and collective short-term retaliation across representative geopolitical scenarios. Key contributions include: (1) demonstrating the concentration of sanction capability among giant economies; (2) showing the impracticality of decoupling; (3) identifying conditions where individual and collective retaliation reduce sanction effectiveness; and (4) revealing the feasibility–effectiveness trade-off that undermines collective retaliation. The analysis suggests that engagement, cooperation, and diplomatic dialogue are more viable long-run strategies than punishment and isolation. Future research should incorporate richer political and behavioral factors, consider other forms of sanctions (e.g., capital flows, arms embargoes), and model dynamic adaptation in trade networks over longer horizons.

- Political, social, and historical factors not explicitly modeled: The framework captures core economic mechanisms but omits elements like historical grievances, national pride, regime stability, and domestic politics that shape real-world sanction dynamics due to measurement challenges. - Decision-maker incentives: Leaders’ personal political/electoral and financial considerations are not included; integrating such payoffs could alter strategic choices. - Scope of sanctions: The analysis focuses on trade sanctions and hypothetical scenarios; results may not generalize to other sanction types (e.g., targeted financial sanctions) without adaptation. - Static short-term network assumption: Short-term models assume no rapid diversification or formation of new trade links; longer-duration sanctions would require modeling dynamic network adaptation and policy interactions.