Chandler Bentley
Mrs. Straub
AP Economics
March 31, 2015
United States and EU Trade Sanctions Against Russia
The political rift between the United States and Russia has been one stemming back all the way to World War II. The battle between communism and democracy, individualism and collectivism, Western and Eastern has put these two economic superpowers at odds for decades. Up until recently, economic trade had been realized between the two, utilizing specialization and comparative advantage to provide diverse goods and services for each party. However, since the Russian invasion of Crimea, an embargo has been placed on Russian goods by the United States as well as the European Union (EU). But the question remains, does the marginal benefit outweigh the marginal cost of issuing trade sanctions upon Russia and how does this affect our standard of living here in the United States?
The United States is one of the biggest players in the world when it comes to the international market. Free trade provides diversity and the ability to produce more total goods and is viewed by many economists as more effective than isolationism. That being said, the trade embargo that has been issued upon Russia may seem like a major setback in the trade market for the United States. This is not nearly the case. As reported by trade.gov, Russia ranks only 29th on the United States total exports list and 20th on our import list[1]. 
This ranking provides little concern of shortages of many needed goods for the American people as the amount of goods and services actually being imported and exported to and from Russia is less than a percent of the United State’s total imports and exports. Not only this, but the trade embargo placed by the United States and the EU “targets are those considered ‘materially or financially supporting actions undermining or threatening Ukraine’s sovereignty, territorial integrity and independence.’” (BBC News). Although tensions have been rising, so far embargos have not even been placed on all Russian goods, only those produced by companies suspected to be affiliated with the invasion of Crimea.
This ranking provides little concern of shortages of many needed goods for the American people as the amount of goods and services actually being imported and exported to and from Russia is less than a percent of the United State’s total imports and exports. Not only this, but the trade embargo placed by the United States and the EU “targets are those considered ‘materially or financially supporting actions undermining or threatening Ukraine’s sovereignty, territorial integrity and independence.’” (BBC News). Although tensions have been rising, so far embargos have not even been placed on all Russian goods, only those produced by companies suspected to be affiliated with the invasion of Crimea.
The effect of this trade embargo however reached far beyond simply trading of goods and serviced between the two countries. As of recently, both the United States and the European Union have imposed asset freezes on multiple banks suspected of supporting these actions in Crimea. This asset freeze has impacted ”not only bank accounts and shares but also economic resources such as poverty.” (BBC News). Sanctions upon banks can disrupt monetary policy as the banks’ ability to produce money plummets through less loaning partners. These sanctions upon Russian banks have lead the Central Bank of Russia to approach possibilities of lowering interest rates in an effort to recognize economic growth[2]. Russia is already beginning to see a decrease in real GDP and is “expecting negative economic GDP (gross domestic product) growth” (Kostin) in the coming years. However, in an effort to stimulate the economy following these trade sanctions brought forth by the United States and the European Unions, the decrease of interest rates would cause the inflation rate in Russia to rise even more from the 16.7% that it is at right now. 
Because of this extremely high inflation rate, the balance between decreasing inflation and increasing productivity is a delicate one and it seems that the sanction put upon Russian corporations is creating even higher tensions between not only Russia and Western civilization, but within Russia itself.
Because of this extremely high inflation rate, the balance between decreasing inflation and increasing productivity is a delicate one and it seems that the sanction put upon Russian corporations is creating even higher tensions between not only Russia and Western civilization, but within Russia itself.
Although this situation is simply economic right now, tensions continue to rise and possibility for further escalation are possible in the near future. Recently, the United States has “impose[d] asset freezes and travel bans on 20 individuals” which has “made the dispute with Mr. Putin intensely personal.” (Razumovskaya). This increase in tensions has escalated this economic matter into a highly political and personal one. As has been evident, the effect of previous embargos and sanctions upon Russia have been relatively ineffective, but “that could change in the next week or so.” (Graham). It is this increased escalation of economic effect upon Russian businesses that has caused this matter to intensify greatly in the past couple of weeks. These sanctions upon banks and corporations within Russia, while “not specifically prohibit[ing] foreign-based banks” from continuing business with these institutions, it has made them “radioactive.” (Dubowitz). This made business to decrease significantly within Russia and in trading with other countries even outside of those which the sanctions extend.
In total, the economic sanctions placed upon Russia have been relatively ineffective until recently. This increase in sanctions placed upon Russian businesses and corporations have made this issue evolve into more than simply an economic one. Although the United States and countries alike have caused issues within the Russian economy, this matter now extends far beyond that of money and GDP and into a global issue with a possibility of war. Only time will tell what economic and political effects these sanctions have upon Russia and the rest of the world.
Bibliography
"Sanctions on Russia Are 'economic War'" CNBC. 30 Jan. 2015. Web. 31 Mar. 2015.
"Russia Inflation Rate | 1991-2015 | Data | Chart | Calendar | Forecast." Russia Inflation Rate | 1991-2015 | Data | Chart | Calendar | Forecast. Web. 31 Mar. 2015.
"How Far Do EU-US Sanctions on Russia Go?" BBC News. Web. 31 Mar. 2015.
"Top U.S. Trade Partners." U.S. Department of Commerce. U.S. Department of Commerce. Web. 31 Mar. 2015.
"U.S., Russia Trade Sanctions Over Crimea." WSJ. Web. 1 Apr. 2015.
"Even With Sanctions, U.S. Sales to Russia Hit New High." Real Time Economics RSS. Web. 1 Apr. 2015.
[1] For entire list of trading partners and contributions to United States net exports and imports, visit http://www.trade.gov/mas/ian/build/groups/public/@tg_ian/documents/webcontent/tg_ian_003364.pdf
[2] To see more information on the battle between inflation and economic growth, visit http://www.cnbc.com/id/102382917 for an exclusive interview of Andrey Kostin, CEO of VTB Bank.
FINALLY, a post about an interesting topic! Russia is indeed a bear to be reckoned with still, even since the passing of the USSR. The main cause for concern is what Russia will do in response to these sanctions. Their economy is a powerful one, but fragile too, given how it has been bolstered over a relatively short period of time. How far can sanctions go to deter Russia from actions detrimental to stability of neighboring regions? Thus far, these sanctions have hurt their economy and economic policy, but Russian military activity has seen a massive spike. Russian regulars fighting in Ukraine with armored and support units, mobilization of the entire Northern fleet, including their aircraft carrier Kuznetsov, increased patrols and aerial activity in the Baltic, and brash warnings from the Putin administration seem to be Russia's response to these sanctions. It is likely that Russia is simply flexing its muscles, as it loves to do, but it is threatening to cause further turmoil, as it did before Ukraine descended into civil war. So while the US economy can remain somewhat secular from the Russian, these sanctions pose a serious threat to the security and stability of territories which Russia can directly influence. This could in turn cause massive economic troubles in those regions. Russia is holding these territories hostage, and the continuation of sanctions will likely force their hand. China is another country to watch, now that animosities between the Bear and the Dragon have subsided and economic flames have been rekindled. Again, very nice article, and thank you for choosing a serious and interesting subject!
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