Economic Bullying: Why tariffs and sanctions hurt but don’t work

Import tariffs, one of the most frequently used weapons of economic warfare, especially under Trump’s administration, were applied to both American allies and adversaries. However, instead of punishing foreign suppliers, tariffs penalize the consumers in tariff-imposing countries by targeting cost-efficient foreign suppliers.

As a result, Trump’s tariffs make things more expensive for American consumers — both directly, by raising the prices of imported products, and indirectly, by encouraging domestic (American) manufacturers, shielded by tariffs, to raise their prices. Contrary to popular belief, higher tariffs do not necessarily boost output or employment. Instead, tariff-induced price hikes contribute to inflation and increase the financial burden on consumers.

This weakens the argument that tariffs are a tax on foreign suppliers. In reality, they serve as a form of cross-subsidization of American businesses by American consumers. In the process, the US government also benefits by collecting additional customs revenue — all of which is eventually paid for by American consumers. For example, a garment manufacturer in Tirupur, India, operating on 5-10% profit margins won’t absorb a 50% tariff but will likely shut down instead. Worse, Trump’s tariffs will also encourage suppliers from countries with lower import duties (compared to India) to raise prices, further punishing American consumers.

In other words, tariffs function as a hidden domestic subsidy — American consumers paying higher prices so American businesses can be sheltered from competitively priced imports. When tariffs force more efficient foreign producers to shut down — which they will, as few can survive a 50% tariff — the long-term effect is fewer choices and higher prices for American households.

Trump’s tariff wars make this clear: they impose visible costs on foreign exporters by reducing demand for their export products, but they inflict even heavier costs on the American people by driving up consumer prices. What they won’t do is extract strategic political concessions from the targeted countries.

Economic sanctions — i.e., direct and indirect financial penalties such as asset freezes, cutting access to cross-border payment systems, or trade embargoes — the other favored tool, work no better. The logic seems simple on the surface: squeeze an adversary economically and financially so hard that citizens turn against their governments and leaders. The reality is exactly the opposite. Sanctioned populations often rally more tightly around their governments. Political leaders portray sanctions as proof of foreign hostility, casting themselves as defenders of national sovereignty.

Russia is a textbook example. Sanctions have undoubtedly strained its economy. But has it ended the Ukraine war? No. Governments will cut welfare, infrastructure, or civilian spending before they cut war spending. Oil revenues are important to Moscow, but they are not its sole lifeline.

Far from weakening Vladimir Putin politically, sanctions give him the perfect narrative: the West as villain, himself as protector. The harsher the sanctions, the easier it gets for him to sustain that argument.

Why Economic Coercion Backfires

A major error in Washington’s strategy is the assumption that inflicting economic and financial pain on adversaries will force them to surrender politically. It doesn’t. Instead, suffering breeds anger and resistance, making the affected populations more defiant. Consequently, it incentivises political leaders and governments in power to stand firm, and project strength and decisive leadership.

India exemplifies this. Trump’s repeated taunts — calling India a profiteer of Russian oil, or threatening punitive import duties and worse economic sanctions — only make it more likely for Prime Minister Modi to resist. Politically, standing up to foreign pressure will strengthen, not weaken his position. The same dynamic is visible in Brazil, which faces similarly steep tariffs yet wears them as a badge of defiance rather than surrendering to Trump’s tariff brinkmanship.

The Pursuit of Commercial Interests

If tariffs and sanctions don’t achieve their stated political aims, why are they used? Simply because they are easy to impose, especially if you’re a superpower like the US, and also the world’s largest importer.

When it comes to Russia, there is a perfect “official” pretext — to choke its war machinery by preventing India from buying Russian oil and military hardware.

However, it’s no secret that, besides India, China, the EU, and Turkey also buy Russian energy. Thus, India alone stopping Russian imports won’t significantly hinder war financing.

The real motive behind Trump’s tariff actions against India is to force it to switch to costlier American energy and defense equipment — not necessarily to choke Russian war machinery and stop the Russia-Ukraine war. He is simply trying to give this cold pursuit of profit a populist moral cover.

The true motive is commercial. The US wants India to buy American energy and military equipment, which tend to be costlier than those supplied by Russia. India is a large importer, and the President sees the country as a high-potential market to push American energy and defense sales. Furthermore, the US seeks a large alternative market for its agricultural exports to reduce its dependence on China. India fits the bill. Its affluent urban households are also the prime targets for American dairy products.

This explains the shameless American bullying by “Trump and company.”

The most practical coercive economic measure is the EU’s new price cap on Russian oil — set at 15% below market prices. EU companies and insurers can only facilitate Russian oil exports if they’re priced under the cap. This reduces Russian oil revenues while maintaining global oil supplies, avoiding price spikes that would have penalized oil importers and consumers. This is a model worth adopting, rather than punitive tariffs and all-out economic sanctions, which are ineffective.

To conclude, coercive economic measures — punitive tariffs and sanctions — are not as powerful tools of statecraft as they appear. They are blunt instruments that rarely deliver the intended political outcomes. They increase costs for consumers, harden the resolve of adversaries despite economic pain, and create opportunities for leaders to rally their populations against foreign threats.

They hurt. But they don’t work.

(Ritesh Kumar Singh is a business economist and CEO, Indonomics Consulting Private Limited.)

Views are personal, and do not represent the stand of this publication.