Yes, imagine being a business in a country under the US sanctions. Without ability to import cheaper foreign parts, what would happen? In a country large enough one would imagine it would lead to the appearance of the home industry that would provide a substitute. More expensive, and of lower quality, sure, but Rome was not built in a single day.

> Without ability to import cheaper foreign parts, what would happen?

We'd lose the economies of scale that come with being a major exporter to Europe and South America, for starters. Which would lead to an R&D disadvantage. Which would further widen the gap. Strategically protecting industries is very different from blanket sanctions / capital controls.

That's why I said "large enough country", that'd would allow to retain the scale somewhat. And if you look at the examples of Iran/EU trade and Russia/EU trade, perhaps the exports won't even go down that much, so perhaps doubling down on R&D to keep being competitive would even be feasible.

Imagine putting nuclear weapons on your lawn and pointing at your neighbour and being surprised that they decide not to trade with you.

Imagine being Thailand in 1997: the stock market plunges 75% in one day, GDP contracts ~10%, a wave of bankruptcies, poverty and inequality skyrocketing while the government has to go begging to the IMF, accepting any and all demands that they make, no matter how unpopular.

You're better off being China.

? That crisis was literally started by misguided attempts at currency controls (!) i.e. Thai pegging their currency to USD and unable to 'hold the wall against the sea' so it eventually came crashing in.

So yes, Thailand 1997 demonstrates very effectively one of the challenges with currency controls.

Currency controls come with a cost, that has to be considered.

Capital controls are controls what kind of capital can enter and exit the country and when - e.g. transaction taxes or exchange controls (limiting how much currency you can buy or sell).

Currency pegs are when the government tries to maintain a particular value against another currency. E.g. maintaining a $ peg by buying or selling US treasuries on the open market.

They are not the same thing at all.

Currency pegs should probably additionally be separated into two groups, as, well - "too high" (UK and Thailand) and "too low" (China).

The crisis could be characterized as an attempt to adhere to the impossible trinity: https://en.wikipedia.org/wiki/Impossible_trinity

When the government is buying and selling currency at some rate commensurate with capital coming in and out of the country -> it's a capital control.

Reacting to capital leaving the country uncontrolled is not a capital control.

It's a reaction to capital leaving the country uncontrolled.

Fixed exchange rate regimen != capital controls.

> Capital controls come with huge costs, it's another form of import/export controls. Imagine being told the part you need to manufacture your car is 4x the normal price because of intense focus on capital controls, or worse, that you can't get it.

Lack of capital controls can come with a bigger costs, for instance if your country is weakened through the loss of strategic industries (or failure to gain them) while your businesses followed market incentives. The difference is that many of those costs are billed irregularly, so it's easy to pretend they don't exist by focusing on regularly billed things (e.g. price of widget now).

I don't know why you got downvoted, but capital controls are very much the other side of the same coin.

My take is that we should aim for balanced international trade (not quotas, but balance), and that would require either capital controls or import/export controls at least to establish, and probably (but more flexibly) to maintain that order.