Economists say the scope of economic warfare used against Russia in response to its invasion of Ukraine is unprecedented. Its effect on U.S. consumers has also been particularly acute.
President Joe Biden announced on March 8 that the U.S. would ban the import of Russian energy products, and the average price of gas in the U.S. subsequently shot up to an all-time high of $4.331 per gallon on March 11.
While today’s measures are beyond the historic norms, the U.S. has often used economic warfare in its history. The full effect on U.S. consumers – as well as on global markets and Russian civilians swept up in this international battle – is yet unknown, but experts predict the consequences of economic warfare can be wide-reaching.
What Is Economic Warfare?
Economic warfare is the use of or threat to use strategies like trade embargoes, tariffs, boycotts, the freezing of capital assets and other means against another country to weaken its economy. These measures are typically coercive, aiming to impose costs on a nation in an attempt to force leaders to change their behavior.
Historically, the U.S. has used sanctions and similar measures in numerous ways to demonstrate disapproval, punish, weaken and deter certain behaviors internationally. Sanctions and other forms of economic warfare utilized by the U.S. in the past, however, have typically targeted nations with relatively small economies.
“Like real warfare has casualties, expected and unexpected, so too does economic warfare,” says Aaron Klein, a senior fellow of economic studies at the Brookings Institution. “This is unprecedented. Russia is a much larger economy than any other more recent wars we’ve had. If you look at a parallel like Cuba, a country that America has imposed punitive economic sanctions on for decades, it certainly affected cigar consumers but the Cuban economy is extremely small relative to global economies.”
Latest Sanctions On Russia
There are many different strategies and avenues for the imposition of sanctions, including those that target a nation’s financial institutions and strategic trade.
The U.S. and numerous European nations took a series of coordinated steps in recent weeks to sanction Russia following its invasion of Ukraine. U.S. sanctions against Russia include:
- Bans on Russian oil and other energy imports.
- Blocking of Russia’s largest public and private banks.
- Ban on luxury goods from being exported from the U.S. to Russia.
- Sanctions against dozens of defense companies.
- Sanctions against 328 members of the Duma legislative body and the chief executive of Sberbank.
- Suspension of information exchanges with Russia’s tax authorities and the U.S. Internal Revenue Service.
The effectiveness of these sanctions still hangs in the balance.
Though the threat of such sanctions failed to deter Vladimir Putin from invading Ukraine at the outset, Bryan Early, associate professor at the University at SUNY Albany’s Rockefeller College of Public Affairs and Policy, said: “Sanctions can be a means to achieve numerous goals. Sanctions have a lot of secondary goals as well. Those could be to impose constraints upon their target, to weaken their economies, to weaken their military power, to make it harder for them to continue doing what they’re doing or diminish the threat they will impose in the future. We can also think of sanctions as tools that punish or stigmatize. Economic warfare, while aimed at achieving the humanitarian goals of the implementing country, can also have devastating effects on the civilians of the target country including increases in infant mortality, poverty and illicit economic activity alongside adverse political and social outcomes.”
How U.S. Consumers Are Affected by Sanctions
The magnitude of international sanctions against Russia means more possible pain at home for U.S. consumers.
“This is because policymakers imposing sanctions must balance the need to craft a package of sanctions significant enough to be an effective deterrent without also creating debilitating costs at home,” Early says. “The costs that economic sanctions impose are normally invisible or very difficult to detect for American consumers. What’s really striking about the sanctions against Russia, however, is that you do have a pretty significant, tangible area of economic effect that’s broadly recognizable to U.S. consumers, that’s linked to U.S. sanctions policies, which is fossil fuels.”
U.S. consumers are already being hit with higher gas and energy prices resulting from sanctions on Russian energy products, but other areas may be hurt as well, though likely on a smaller scale.
“There will be broad issues as it relates to commodity prices. The price of wheat will trickle through and will go into many other areas and there will be niche effects,” Klein says. For example, he says, “A disproportionate amount of the world’s skis are made in Ukraine, so you could end up in a situation where there’s a shortage of skis for next winter.”
Global markets are also affected by sanctions and war, broadly, possibly chipping away at returns for U.S. investors.
“To the extent the world feels like a less stable and less certain place with a greater chance for violence, war and disruptions,” Klein says, “markets take these possible future actions into account.”
Source: U.S. News & World Report