After the 7 October 2023 Hamas attacks, the military operations in Gaza by Israel and their humanitarian consequences have sparked debates on the imposition of trade sanctions on Israel. As of July 2024, the offensive by Israel has led to the deaths of over 37,000 Palestinians. The potential indirect death toll could exceed 186,000 due to factors like destroyed healthcare infrastructure and food and water shortages. With extensive destruction of housing and displacement affecting 80% of Gaza’s population, various countries, such as Turkey and a group of others, have taken measures like suspending trade or ceasing arms trade to show their disapproval. Some European governments have openly advocated for trade sanctions in response to the situation.
Economic sanctions are widely used in foreign policy, with the UN managing multiple ongoing sanctions and the United States imposing numerous sanctions since the early 2000s. Research has indicated that effective economic sanctions are more likely when they impose significant economic costs, are led by international institutions, focus on moderate policy changes, target allies, and are directed at democratic regimes.
This analysis employs a multi-country, multi-sector trade model to explore the impact of tariff sanctions on Israel based on existing studies. By calibrating the model using the OECD Inter-Country Input-Output table, different coalitions of countries are compared to assess the effects of sanctions. The model assumes countries that voted in favor of Palestine’s UN admission to be the sanctioning group. It finds that export tariffs have a slightly more substantial impact than import tariffs, with a combination of both types resulting in varying degrees of GNI decrease for Israel.
The analysis delves into the effects of sanctions by sector, showing that some sectors like fossil fuels and textiles would experience a significant decline in purchasing power of wages due to sanctions. High-tech sectors such as IT and computers would be high-impact targets for sector-specific sanctions, given Israel’s economic reliance on these sectors. Overall, the study suggests that wider coalitions imposing sanctions yield more significant economic effects on the target country.
The study also assesses the consequences of trade sanctions on Israel’s trade with other countries, highlighting significant reductions in exports and imports from the sanctioning group and corresponding increases in trade with non-sanctioning countries.
Ultimately, the results of the study demonstrate that trade sanctions can have considerable effects on Israel’s economy, especially when imposed by larger coalitions targeting high-tech sectors.
