The Evolution of Russian Trade Law Amidst U.S. Protectionism
Katya Bakulina is a Creative Writing major (previously Interntional & Comparative Politics). She grew up in Rybinsk, Russia.
The economic cooperation between the United States and Russia has changed dynamically in the past few decades due to the political conditions, financial goals, and approaches to trade. After the Cold War, an attempt was made on the side of liberal International Relations theory to integrate Russia into the global economy; this has been followed by inter-bipartisan conflict and substructure, thus making Russia react by annexing Crime, engaging in a military action that invaded Ukraine in 2022 has led to more sanctions and trade restrictions (Klein). These policies significantly impact the Russian economy, its leaders, people, and world market systems. This paper focuses on the relationships between the USA and Russia in terms of trade, the actions taken by the USA on this sphere, the counteractions of the Russian side, and general social and economic conditions in this sphere.
Political ideologies and strategic indicators have always determined the trade relations between the United States and Russia. So, limited economic relations and cooperation were present between the two nations because they were antagonistic states with diametrically opposite political and economic systems. However, in the period after the collapse of the Soviet Union in 1991, attempts were made to integrate Russia commercially. The United States granted Russia's "most favored nation" status in 1992, allowing for normalized trade relations (World Trade Organization).
A significant shift in the relations between the USA and Russia in the sphere of trade happened in 2012 when Russia finally entered the WTO with the support, inter alia, of the United States. This was expected to enhance the growth and development of the economy through the removal of tariffs as well as liberalizing foreign investments to increase market efficiency. However, the relations of the two countries never went into a completely cold state (World Trade Organization). The war between Russia and Georgia in 2008, as well as Moscow’s belligerence in international politics, created an impression that Russia was violating international principles.
The Russian Federation annexed the Crimean Peninsula in 2014, and the event had a significant impact on the development of regulation. As a result, the United States and its partners began to apply measures in the form of sanctions on Russian persons, organizations, and industries they deemed relevant to finance, energy, and defense sectors, among others (Council on Foreign Relations). Such actions put a lot of pressure on the two countries' trade relationship, and this has led to the current relationship between the USA and Russia.
Addressing the key events of the relations, it is necessary to mention that US trade policy toward Russia is closely connected with national security interests, economic rivalry, and attempts to restrain Russian behaviors. The most important factors in influencing trade policy are sanctions, tariffs, and export controls. The first and most notable measure expressed in legislation with respect to Russia was the Magnitsky Act of 2012. Earlier, the law targeted Russian individuals who were involved in the violation of human rights, but later, the law was amended to expand economic sanctions (Treasury Department). This move meant a transition to a higher degree of pushing the Russian leadership to follow certain policies using trade and financial measures.
They have increased even more after the Russian invasion of Ukraine in the year 2022. The Biden administration offered a package of sanctions, which included lifting the prohibition on the purchase of Russian oil and gas, isolating Russia from the international financial systems, and limiting access to such technologies and products as semiconductors and military equipment (OFAC, 2022). Their intent was to deprive Russia of the resources necessary for maintaining its military campaign and to undermine its economy in general. The European Union and the other sympathetic nations did it in harmony to ensure that they applied maximum pressure on the targeted countries (European Council).
Besides sanctions, the United States has also been able to use export controls to limit the acquisition of hi-tech products by Russia. This prohibits the sale of superior semiconductors ideally used in military and industrial applications. Also, restrictions on operations at Russian financial institutions have further chimed the bells of operational globalization for Russian business ventures (Brookings Institution). These measures are part of a larger scheme of economic isolation derived from the anti-Russian sentiments that have emerged in an attempt to limit the country’s control in international markets for the protection of Western assets.
In response to growing trade barriers, Russia has prepared certain measures to help minimize its negative effects. Moreover, the Russian government has aimed to enhance a self-sufficient economy, diversify the markets, and embrace new policies to maintain the stability of its internal economy.
One of the major approaches has been integration with Asian countries, especially China and India, as well as other non-G-7 countries. The other key end-point that is quite apparent today is that with Western markets severely limited due to sanctions, Russia seeks to sell its oil, natural gas, metals, and other raw materials to the countries willing to defy the US and EU sanctions (Klein). Trade specifically with China has increased, with Russia relying on China’s financial systems to facilitate business that the Western counterparts have blacklisted (Reuters).
In addition to the external cooperation, the domestic Russian market has been developed in accordance with the policy of import substitution. The government also advocated for and wanted the domestic industries, especially the agricultural and manufacturing industries, to supply the country with products other than those from Western countries (International Monetary Fund). These efforts have somewhat yielded some results. However, they have not helped to fully recover from the ramifications of sanctions on the economic front.
Nevertheless, the following countermeasures are still a significant concern. To sum up, one can state that Russia’s economy has faced certain losses. According to the International Monetary Fund (2023), the Russian GDP has reduced by 3.5 % in 2022 and may not show further growth in the near future as a result of limited investment opportunities as well as a lack of investor confidence. Furthermore, the absence of many global competitors in Russia, as well as a lack of technological advancement and diversification of the Russian economy. Currently, the Russian economy has not undergone diversification; therefore, its major source of income is from the exportation of energy products with minimal focus on hi-tech and manufacturing industries. The import substitution policies were designed to improve domestic capacities but were not successful to an optimal extent. On the one hand, these concepts lowered reliance on foreign products. On the other hand, they have not brought out severe inventions or shifts in the economy as per technological progression.
Although trade policies and sanctions are imposed on the governments and companies, their impacts are seen among the Russian population. A direct effect has, therefore, been inflationary pressures as the manufacture and import of merchandise are still limited, and the supply chain is greatly impacted. The value of the ruble has continued to drop, and this has led to an increase in the general prices of essential commodities, causing the average Russian to struggle to make essential purchases (Brookings Institution).
The effect on employment and economic growth has also not been a friendly one due to the emigration of companies from Western countries. Major international companies such as McDonald's and Starbucks, as well as leading IT companies, halted their business in Russia due to the invasion of Ukraine in 2022 (Reuters). This resulted in massive layoffs and restricted the population’s ability to consume foreign brands and services, which would become characteristic of Russian cities.
Excluding the economic impact of the restrictions, other effects on Russia include social and political aspects. Such actions of the government have only further cemented people’s feeling of detachment from the West and possession of nationalist and anti-American sentiments (European Council). In many ways, Russians use this economic situation to vent their anger at the political leadership, which was already dissatisfactory before the economic crisis, but the state-controlled media ultimately puts the blame on Western countries.
In the long run, the impact of this trade policy draws from the ability of the United States to exert pressure on Russia while avoiding adverse humanitarian impacts. Although the sanctions have negatively affected Russia’s economy, they have also forced Russia to look for non-western economic partners, thus lowering the impact of Western restrictions on a long-term basis. Moreover, a long-term economic crisis can increase internal instabilities in Russia that directly affect the general stability of world security and trade.
Issues of bilateral trade relations between the United States and Russia were looked at the annual level, showing how strategic concepts intersect with political rivalry. While the post-Cold War years tried to make for international divisions, the deterioration of relations due to the latter events, such as the Crimean annexation and the Ukraine invasion, led to the place of extensive sanctions and restrictions on trade. The US has inflicted economic blows on Russia’s economy and its Armed Forces, financial capabilities, and oil and gas industries, while Russia, on its part, has responded with economic independence and trade diversification.
These policies have brought social and economic effects, which include inflation, loss of jobs, and also increased nationalism in Russia. Sanctions have indeed played a role in reducing Russia’s international pressure, although their efficacy in the long run is still doubtful. In the future, the policy towards Russia and the USA has to keep both the economic pressure on Moscow and the possibility of changing the line in geopolitical and international relations projects, not deepening the worldwide conflict and increasing people’s suffering. The firms are likely to remain competitive and significantly different with strategic adaptations in the long run.
For example, Russian organizations may prefer to have localization of supply chains and manufacturing in order to de-link themselves from Europe. The result will be that Western firms may experience a slowdown in accessing the latest foreign technologies and will have to turn to either China or develop localization R&D efforts themselves or sourcing from Asian countries, the Middle East, and Africa, where their focus will shift. The more the government comes in and offers more support, there may be changes to industries where favorable sectors and state enterprises may be given a boost. In this way, the firms will be transformed in structure so they are less affected by Western trends, but they may be less globally competitive.
Bibliography
Brookings Institution. (2022). The impact of sanctions on the Russian economy. https://www.brookings.edu
Council on Foreign Relations. (2020). Russia: Sanctions and responses. https://www.cfr.org
European Council. (2022). Sanctions against Russia: A comprehensive overview. https://www.consilium.europa.eu
International Monetary Fund. (2023). Russia’s economic outlook under sanctions. https://www.imf.org
Klein, M., & Pomeranz, D. (2022). Russia's economic realignment: Challenges and opportunities. Journal of International Economics, 58(4), 112-130.
Reuters. (2022). Western companies exit Russia: Impact on employment and consumers. https://www.reuters.com
Treasury Department. (2018). Magnitsky Act sanctions update. https://www.treasury.gov
World Bank. (2023). Russia’s economic downturn under sanctions. https://www.worldbank.org
World Trade Organization. (2012). Russia’s accession to the WTO. https://www.wto.org
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