Bystander on the Fence: Sanctions in a Multipolar World

Jan Morgan and Anchi Xia

Papers from arXiv.org

Abstract: We provide a theory of optimal trade sanctions with three strategic players: Home (sanctioner), Foreign (target), and Bystander. Bystander may act unilaterally or ally with either party subject to a participation constraint. We derive three novel results. First, members of a coalition generically set different tariffs either under Stackelberg timing or when transfers are imperfect. Second, as sanctions tighten, Home's welfare can improve even beyond the unilateral terms-of-trade optimum due to strategic interactions. Third, we characterize feasible sanctions targets when Home and Foreign compete for Bystander's support. An alternative implementation arises with competition: Home lets Foreign win, but Foreign's transfer to Bystander implements the sanctions target. We apply our model to sanctions against Russian crude. In a calibration exercise, cooperation among India, China, and Russia best matches observed data. Sanctions could have been roughly 70% more effective had China and India acted unilaterally or had the sanctioning coalition made them a better offer.

Date: 2026-10
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