Biden called the actions “another blow to the Russian economy,” which has been hit by comprehensive financial sanctions announced following Moscow’s invasion of its neighbor. The United States and Europe have cut Russia’s big banks off from global financial channels, blocked the country’s access to cutting-edge technology, and blacklisted wealthy corporate executives who support and profit from Putin’s regime.
“The free world is coming together to confront Putin,” the president said in a speech from the White House.
Amid calls from Ukrainian President Volodymyr Zelensky for military support, the coordinated allied moves were a further sign that Biden remains committed to using financial weapons to thwart what he called Putin’s “ruthless assault” on Israel. Ukraine.
Russia’s battered economy will contract by at least 15% this year, according to the Institute of International Finance, an association of global banks. The White House said Friday that 30 years of Russia’s integration into the global economy was erased in a matter of weeks.
“It is undeniable that the Allied sanctions have had a serious effect on the Russian economy and it is important to remember that they would remain in place for some time even if the war in Ukraine ended today,” said Daniel Tannebaum, Global Head of Sanctions for Olivier Wyman. “And there are still other levers to be pulled.”
President needs congressional approval to change Russia’s trade status, end so-called ‘permanent and normal trade relations’ and treat the country as a pariah with nations like Cuba and Korea North. European changes must also be approved by national legislatures.
House Speaker Nancy Pelosi said the House will pass legislation next week to formalize the policy change.
The president said the allies will also seek to prevent Russia from borrowing from the International Monetary Fund and the World Bank.
“Putin is the aggressor and he must pay the price,” the president said.
Elina Ribakova, deputy chief economist at the Institute of International Finance, said Friday’s actions will bolster allies’ “maximum pressure campaign,” though they pale alongside measures already imposed, including a ban on U.S. purchases. of Russian oil.
In a largely symbolic move, the administration also plans to ban Russian seafood and liquor imports, which totaled $550 million last year. And Biden intends to ban US exports of luxury goods favored by Russian oligarchs who support Putin.
The United States has already halted purchases Russian petroleum and energy products, which accounted for about 60% of the $26 billion in goods imported from Russia in 2021. Biden’s announcement will have a limited effect on future U.S. orders from Russian companies, according to Ed Gresser, who led the US Trade Representative’s Economic Research Unit until last year.
Indeed, the policy change, if approved by Congress, would reinstate import levies set in the Smoot-Hawley Tariff Act of 1930. The measure, which many economists believe worsened the Great Depression , imposed high tariffs on manufactured goods produced abroad. But he left raw materials largely unscathed, to the benefit of US factory owners.
“Russia is quite unusual as a large, complex economy that is a producer of natural resources,” Gresser said.
For some critical Russian products — like palladium — tariffs will remain at zero, Gresser said. The industrial metal is used to make catalytic converters for automobiles. Other imports such as plywood, which enter the United States duty free, would be subject to a 30% import tax.
European policymakers could do more harm to Putin.
Bilateral trade between the EU and Russia amounts to around 281 dollars billion a year, or about 10 times the US-Russian trade. (Last week, Canada announced it would strip Russia and Belarus of their most-favoured-nation status, subjecting goods from those two countries to a new 35% tariff.)
The key question is what the EU is doing about tariffs on Russian energy products. Earlier this week, the European Commission, the executive arm of the union, announced a plan to cut European imports of Russian natural gas by two-thirds this year.
Russia provides around 40% of EU gas supplies, with Germany, Poland, Finland and Hungary particularly dependent on Russian sources. Austria and the Czech Republic get all their gas from Russia, according to the IIF.
“Russia cannot grossly violate international law and at the same time expect to enjoy the privileges of being part of the international economic order,” the EC president said. Ursula Von der Leyen said Friday in Versailles, France, an outline of a fourth European sanctions package to be presented on Saturday.
Allied sanctions imposed to date have already weighed on the Russian economy. The ruble has lost almost half of its value, the country’s stock exchange has been closed for more than a week and foreign companies are fleeing.
The war also weighs on the American economy. Gasoline prices hit a record high of $4.23 a gallon this week, which will worsen inflation, which is already at its highest for 40 years. And on Friday, the University of Michigan’s consumer confidence reading fell to 59.7 from 62.8 as Americans grew increasingly gloomy about the outlook.
As the Russian economy collapses, Putin has started talking about retaliation. On Thursday, he approved a legislative proposal aimed at nationalizing the assets of foreign companies that have left the Russian market since the start of the war. At least 350 multinationals have abandoned or frozen their operations in Russia, according to a count by Jeffrey Sonnenfeld, Professor at Yale University School of Management.
Even those backing the financial salvos against Russia fear they will hasten a dismantling of global trade rules that generally prohibit punitive tariffs. In 2019, President Trump threatened to impose an escalating series of tariff increases on goods from Mexico to force his government to crack down on immigration, but later abandoned the idea.
Chad Bown, an economist at the Peterson Institute for International Economics, said Friday’s action could set an unfortunate precedent for the handling of routine trade disputes.
“This thing today with Russia is unequivocally OK,” Bown said. “It’s just, does that make it too easy to resort to something like this in the future?”