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Hill Forum Sheds Light on Complicated Trade Economics Surrounding Russia, Ukraine

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On April 23, the Georgetown Center for Business and Public Policy (CBPP) hosted a Georgetown on the Hill event titled “Russia, Ukraine, and Trade” in the Rayburn House Office Building [watch the video]. The panel was introduced by Professor J. Bradford Jensen, CBPP senior policy scholar, and led by CBPP Senior Industry Fellow Bob Vastine. Speakers included: Anders Åslund, senior fellow at the Peterson Institute for International Economics; Paul Carpenter, principal and chairman of the Brattle Group; Heather Conley, senior fellow and director for the European Program at the Center for Strategic and International Studies; and Randi Levinas, executive vice president and chief operating officer for the U.S.-Russia Business Council. The group discussed the current tensions in Russia and the Ukraine and the potential impacts on trade and commerce between Russia, Ukraine, the United States, and Europe.

Conley began the panel by covering past attempts by the West to integrate Russia after the fall of the Soviet Union and emphasizing that there is a kind of second collapse of the Soviet Union. Conley explained how many Western governments are going through stages of grief — at times denying the situation, at other times attempting to bargain through treaties and sanctions but often projecting anger at the state of relations with Russia. She also noted that Putin’s current rhetoric has incorporated terms last used by Catherine II and indicate a clearly different worldview from the Westernization of Russia in the past few decades.

Åslund outlined recent events, discussing how the upcoming Ukrainian election may spur further Russian action. Åslund discussed how intertwined the Russian and Ukrainian economies are, especially around Russia’s military. In the current Ukrainian economy, 34 percent of exports are machinery that is mainly going to Russia, and these include key items for Russia’s military including helicopter engines and long-range missiles. As Russia continues to pursue actions in Ukraine, the size and importance of these industries will likely influence Putin’s decisions. Åslund stated that for the West, there are two major courses of action, either war or major sanctions and as Russia accounts for only 2.9 percent of the global economy, sanctions may not lead to massive global damage to the economy.

Levinas mentioned the Yiddish saying that “Man Plans and God Laughs” to emphasize that before the actions in the Ukraine this year, there had been hints of positive economic steps between the U.S. and Russian economy. Russia’s Minister of Economic Development had visited the United States to encourage additional trade earlier in the year, and there had been tentative discussion around bilateral investment treaties, but political tensions have overshadowed these steps forward. Although the export market between the two countries is smaller than might be expected given the counties’ size, there is still $11.2 billion in trade, and Russia remains one of the 10 biggest economies in the world.

Carpenter focused on importance of energy, specifically oil and natural gas, in the geopolitical situation in Russia. Half of the natural gas Russia supplies to Europe goes through the Ukraine and 30 percent of the gas in Europe comes from Russia. Unlike the oil market, natural gas is not a perfect commodity with a true spot price, so dealing with shocks in the gas market remains difficult for European countries receiving natural gas from Russia. America’s production of liquefied natural gas is still increasing and will not have the ability to offset a reduced Russian supply for the next few years.

After the opening statements, Vastine moderated a Q&A session touching on how Russia’s actions affect globalization, where China fits into the situation, and how difficult it is to find middle ground in the Ukrainian conflict. Åslund emphasized the difficulty for the West in creating additional treaties with Russia in the current climate. Conley talked about how the spilt of Ukraine reduces the middle ground that exists in the country and makes the economic environment more perilous. Levinas noted that Russia does continue to participate in the World Trade Organization and uses those structures to deal with trade disputes.