On Tuesday, when we noted that Russian (Border) Trade Agreements are nothing new, we pointed out that it was the Six Hundred and Ninety First anniversary of the Treaty of Noteborg. Then, yesterday, when we wrote on the subject of Historical Trade Treaties, we noted that it was the Two Hundredth Anniversary of the Anglo-Dutch Treaty of 1814, also known as the Convention of London.

The reason for these posts were to point out a number of things:

• Trade, Treaties, and Embargoes are nothing new,
• Today’s trade agreements and partners are not necessarily tomorrow’s trade agreements and partners,
• The outcomes are not always what you would expect.

Trade, Treaties, and Embargoes are nothing new

Written peace treaties, with economic ramifications, have been around for at least 4,500 years. For example, archaeologists have found clay cylinders dating from about 2,500 BC that record a treaty between the two Sumerian cities of Lagash and Umma that were looted 18 miles apart. The second cylinder describes a one-time penalty of 144,000 gur of grain that Umma had to pay Lagash.

And while the Continental System was one of the most comprehensive attempts at an embargo throughout all of history, the concept of an embargo, which is the partial or complete prohibition of commerce and trade with a particular country, the origin of the embargo is in the blockade, which was initially designed to cause military exhaustion and starvation, but which evolved over time to target the populace (to build internal dissension in the enemy) as well as the military. And blockades have been around for over 2,500 years. For example, back in 458 BCE, the Athenians blockaded the island of Aegina in the Saronic Gulf during the first Peloponnesian War.

Trading Agreements and Partners are in constant flux

A trading agreement generally only lasts as long as the agreement is beneficial to both parties. Once it is no longer beneficial, one of three things will generally happen:

• it will be executed minimally to completion, if it ends soon,
• it will be renegotiated, if it doesn’t end soon but both parties want to maintain a relationship, or
• it will be broken, and one or both parties will risk penalty or retaliation because they feel it can’t be worse than the current agreement.

The outcomes of a Trade Agreement, Treaty, or Embargo are not always what you expect

In the case of an agreement, the agreement might go exactly as planned. The first party might deliver to the second party the exact quantity of goods specified for the exact duration specified in the agreement, and then stop. The agreement might work out so good for both parties that they double down and trade even more. Or, it might work out so bad that they almost immediately negotiate an end to the agreement.

In the case of a treaty, it might strengthen relations or it might weaken relations.

But in the case of an embargo, the exact opposite of what is desired can happen. It might be the case that all parties in the coalition respect the embargo and stop trading the designated goods and services to the party for which the embargo applies. And it might be the case that some parties in the coalition refuse to respect the embargo and continue to trade with the embargoed party anyway.

But even if the first case is the reality, it is not necessarily the case that the embargo will have the desired effect. It could be the case that the embargo, designed to weaken a party, actually strengthens a party. Sometimes the ancient^* proverb is right and the enemy of my enemy is my friend and the embargo, instead of hurting the intended party, causes them to strengthen their trading relationship with another party and makes two parties you want weakened stronger.

And, going back to Tuesday’s post, just like the Continental System backfired on France, as it only made Britain and Russia stronger when Russia started trading with them again in 2010, any embargoes on Russia, which is no longer the Super Power they once were, is just going to backfire on any western country that hopes that the embargo is going to weaken Russia. All the embargo is going to do is strengthen Russian ties with its Middle Eastern and Asian neighbours, and China in particular. The New Silk Road will be here sooner than you think.

So what does this mean for your Supply Management Organization?

^* An early expression of this concept is found in a Sanskrit treatise on statecraft dating to the fourth century BC.