On Aug. 2, 2017, President Donald Trump signed into law a bill that strengthened the sanctions against Russia that the Obama administration . “Russian President Vladimir Putin ordered an influence campaign in 2016 aimed at the US presidential election,” the bill concluded.
The economic sanctions cap a months-long debate about how to punish Russia for interfering in the 2016 election. The issue has been front and center throughout the Trump presidency as two investigations, the first one by the FBI and currently one by special prosecutor Robert Mueller, seek to find out whether the Trump campaign colluded with the Russians to gain an edge of Hillary Clinton.
Neither investigation has concluded as of Aug. 2 there is any evidence of collusion by the Trump campaign, but the Office of the Director of National Intelligence concluded on Jan. 6 that “Putin and the Russian Government aspired to help President-elect Trump’s election chances when possible by discrediting Secretary (of State Hillary) Clinton and publicly contrasting her unfavorably to him.” This statement has led many people, particularly Democrats, to allege that Trump would not be president without Russia’s help — although there is still no proof of that.
The new sanctions, among other things, make it more difficult for Russia to export military weapons and build oil pipelines, and they also restrict Trump’s ability to repeal the sanctions imposed by the Obama administration during the presidential transition period.
The sanctions punishing Russia for interfering in the 2016 presidential election are far from the first economic sanctions the U.S. has imposed on Moscow in recent years. In fact, the U.S. has imposed several sanctions against Russia, beginning in 2014 as a response to aggressive behavior in Ukraine and the annexation of Crimea.
During the past three years, a lot of ink has been spilled discussing the political relationship between the U.S. and Russia as well as the economic sanctions, but there has been far less ink devoted to perhaps an even more crucial question — what is the scope of U.S.-Russia business ties?
Let’s take time to finally answer this question.
“Minuscule” Trade Ties
Russia is certainly a long-shot away form being one of America’s top trading partners.
However, we had no idea that Russia was a smaller trading partner based on the total amount of imports and exports than nations like Chile, Spain, Indonesia, and the United Arab Emirates. In 2016, Russia was the USA’s 30th-largest trading partner.
This U.S. government report says that Russia is not among the top 30 in U.S. export value of goods, and is 24th in U.S. import value of goods. Altogether, the U.S. exported about $5.8 billion worth of goods to Russia and imported about $14.5 billion. By comparison, the U.S. exported about $267 billion worth of goods to Canada and imported about $463 billion worth of goods from China.
It occurred to us that Russia’s low standing as a U.S. trading partner could be the result of all the sanctions imposed after Russia invaded Ukraine. It is true that the total amount of trade with Russia declined from about $38.2 billion in 2013 to about $34.4 billion in 2014, $23.4 billion in 2015, and $20.3 billion in 2016, according to this report. However, Russia was only the USA’s 23rd-largest trading partner in 2013 according to the U.S. Trade Representative, not even ranking among the top 15 in total trade, exports, or imports.
On March 18, 2014, days after Russia annexed Crimea and before the first of the 2014 sanctions, Fortune magazine published an article entitled “U.S.-Russian trade relationship? There really isn’t one.” In the article, trade expert Carl Weinberg told the magazine that trade ties between the two nations was “minuscule.”
“U.S. goods exports to Russia totaled just $11 billion in 2013, equivalent to less than 0.1 percent of U.S. GDP,” Weinberg said. “U.S. goods imports from Russia totaled $27 billion, just under 0.2 percent of U.S. GDP. The direct financial linkages between the United States and Russia are also small.”
The amount of investment the two nations have in each other is also declining and relatively insignificant, reports FXCM Market Insights, which analyzes how news developments affect financial markets. U.S. direct investment in Russia declined from more than $20 billion in 2009 to about $9 billion in 2015.
“In 2016, U.S. investment in Russia is less than 1 percent of the U.S. total of more than US$5 trillion around the world,” the article reports. “Russian direct investment in the U.S. totals around US$8 billion, which represents about 2 percent of Russia’s US$404 billion in foreign investment around the world.”
What About U.S. Companies in Russia?
It should be pointed out that the United States is more important economically to Russia than Russia is to the U.S.
In 2014, the U.S. was Russia’s ninth largest trading partner, according to a Russia Insider report. In 2011, the U.S. was the fifth largest importer of Russian products and the eighth largest exporter. Thus, sanctions will have a noticeable effect on Russia’s economy.
It’s worth pointing out that although Russia is not that important to the U.S. economy and, thus, sanctions will have little effect on the U.S. overall, there are a few industries and businesses that have been active in Russia. The U.S. industries that export the most goods to Russia moneywise include aircraft and components, automobiles and auto parts, drilling equipment, industrial equipment, and pharmaceuticals, according to the FXCM report. The industries that import the most Russian goods in terms of value are fertilizers, fuel oils, petroleum, steel, and uranium.
The Russian-American Chamber of Commerce says there are more than 10,000 American businesses in Russia or Russian businesses in the United States, according to Forbes. The American businesses in Russia according to a different Forbes article include:
* Boeing: In Russia for decades, Boeing said in 2011 it plans to invest $27 billion in Russia.
* Ford: The auto maker began selling four new models in 2015.
* General Electric: GE has a joint venture with an oil company.
* Morgan Stanley: The financial services firm is seeking to buy several shopping centers.
* Pfizer: The pharmaceutical company has a joint venture with a pharmaceutical company.
* Starbucks: The coffee shop opened its 100th store in Russia in 2016.
Should you invest in Russia? Neither the U.S. Department of State nor Export.gov, which is dedicated to helping U.S. companies export, has a rosy scenario.
The 2017 Export.gov report details Russia’s economic and political problems, but does say that investing in Russia could be beneficial in the long run because of the nation’s growing number of consumers, low-cost labor force, and natural resources. The State Department’s 2016 Executive Summary focuses more on the shorter term.
“American firms seeking to invest in the Russian Federation should be aware that the Russian investment climate continues to be marked by high levels of uncertainty, corruption, and political risk, making thorough due diligence and good legal counsel essential for any potential investment,” the summary says. “Conditions for foreign investment are unlikely to improve in the near term.”
Regards,
Ethan Warrick
Editor
Wealth Authority
