Biden, European allies move to strip Russia of trade status

Biden called the actions “another crushing blow to Russia’s economy,” which has been pummeled by comprehensive financial sanctions announced in the aftermath of Moscow’s Feb. 24th invasion of its neighbor. The U.S. and Europe have cut off major Russian banks from global financial channels, blocked the country’s access to advanced technologies, and blacklisted wealthy business executives who back Putin’s rule and profit from it.

“The free world is coming together to confront Putin,” the president said in remarks from the White House.

The president needs congressional approval to alter Russia’s trade status, ending what’s called “permanent and normal trade relations” and treating the country as a pariah along with nations like Cuba and North Korea. The European changes also must be approved by national legislatures.

Friday’s actions will ratchet up 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 for the Institute of International Finance.

In a largely symbolic move, the administration also plans to ban imports of Russian seafood and alcohol, which amounted to $550 million last year. And Biden intends to prohibit the U.S. exports of luxury goods favored by the wealthy Russian oligarchs who support Putin.

The U.S. already has halted imports of Russian oil and energy products, which made up about 60 percent of the $26 billion in goods American buyers imported from Russia in 2021. Biden’s announcement will have a limited effect on future U.S. purchases from Russian companies, according to Ed Gresser, who led the economic research unit for the U.S. Trade Representative until last year.

That’s because the policy change, if approved by Congress, would reinstate the import levies set in an infamous piece of legislation known as the Smoot-Hawley Tariff Act of 1930. The measure, which many economists say deepened the Great Depression, imposed high tariffs on foreign-made manufactured goods. But it left raw materials largely unscathed, in order to benefit American factory owners.

“Russia is quite unusual as a large complex economy that is a natural resources producer,” said Gresser.

For some critical Russian products — such as 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 U.S. on a duty-free basis, would be hit with a 30 percent import fee.

European policymakers could potentially do more damage to Putin’s economic empire.

Two-way trade between the E.U. and Russia amounts to about $281 billion a year, roughly 10 times U.S.-Russia trade. (Canada last week announced it would strip Russia and Belarus of their most-favored nation status, subjecting goods from those two countries to a new 35-percent tariff.)

The key question is what the E.U. does 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 roughly 40 percent of E.U. gas supplies, with Germany, Poland, Finland and Hungary being especially dependent upon Russian sources. Austria and the Czech Republic get all of their gas from Russia, according to IIF.

“Russia cannot grossly violate international law and, at the same time, expect to benefit from the privileges of being part of the international economic order,” EC President Ursula Von der Leyen said Friday in Versailles, France, previewing a fourth European sanctions package to be introduced on Saturday.

Allied sanctions imposed to date already have taken a toll on the Russian economy. The ruble has plunged, the country’s stock market has been shut for more than a week, and foreign corporations are fleeing.

The war is taking a toll on the US economy too. Gasoline prices hit a record $4.23 per gallon this week, which will contribute to worsening inflation that already is at a 40-year high. And on Friday the university of Michigan consumer confidence reading dropped to 59.7 from 62.8, as Americans grew increasingly gloomy about the economic outlook.

The president said the allies also will seek to deny Russia the ability to borrow from the International Monetary Fund and the World Bank.

“Putin is the aggressor and he must pay the price,” the president said.