Unilateral Penalty or Mutual Disaster? Assessing the Asymmetric Reduction Effects of Sanctions on Aggregate and Segmented Trade

ABSTRACT Is the impact of sanctions on two‐way trade between sanctioning and sanctioned countries symmetric? This paper compares the differential impact of sanctions on sanctioning and sanctioned countries, with evidence from aggregate trade, segmented trade, and industry‐specific trade. The results show that the impacts of sanctions on both sanctioning and sanctioned countries are negative, widespread, and asymmetric, with a more pronounced negative effect on sanctioned countries. Specifically, for sanctioning countries, sanctions have a more negative impact on trade in intermediate goods and forward participation in the global value chains, as well as on the agriculture, forestry, fishing, mining, and quarrying sectors. Conversely, for sanctioned countries, sanctions have a greater impact on final goods, backward participation in the global value chains, and the manufacturing sectors. By adopting a two‐way perspective and analysing at a segmented trade and industry‐specific level, this paper contributes to the literature on the impact of sanctions on international trade.