Biden called the actions “another blow to the Russian economy,” which was hit by comprehensive financial sanctions announced following Moscow’s Feb. 24 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.
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.
Friday’s actions will bolster the allies’ “maximum pressure campaign,” though they pale alongside measures already imposed, including a ban on U.S. purchases of Russian oil, according to Elina Ribakova, deputy chief economist at the Institute. of International Finance.
In a largely symbolic move, the administration also plans to ban Russian seafood and alcohol imports, which amounted to $550 million last year. And Biden intends to ban US exports of luxury goods favored by wealthy Russian oligarchs who support Putin.
The United States has already halted imports of Russian petroleum and energy products, which accounted for about 60% of the $26 billion worth of goods that American buyers imported from Russia in 2021. Biden’s announcement will have a limited effect on future U.S. purchases from Russian firms, according to Ed Gresser, who headed the U.S. Trade Representative’s economic research unit until last year.
That’s because the policy change, if approved by Congress, would reinstate import levies set in an infamous piece of legislation known as the Smoot-Hawley Tariff Act of 1930. The measure, which, according to many economists, made the Great Depression worse, imposed high tariffs on foreign-made manufactured goods. 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 potentially do more damage to Putin’s economic empire.
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 union’s executive arm, 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 being particularly dependent on Russian sources. Austria and the Czech Republic get all their gas from Russia, according to the IIF.
“Russia cannot flagrantly violate international law and at the same time expect to enjoy the privileges of being part of the international economic order,” said European Commission President Ursula Von der Leyen. Friday in Versailles, France, presenting a fourth package of European sanctions to be presented on Saturday.
Allied sanctions imposed to date have already weighed on the Russian economy. The ruble has plunged, 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 contribute to worsening inflation which is already at its highest level in 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 economic outlook.
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.