Monday, December 16, 2019

Russia and the United States - Our Common Interests and How They Could Impact Trade

At the recent plenary session of the 11th VTB Russia Calling! Investment Forum, Vladimir Putin weighed in on the relationship between Washington and Russia and how Russia plans to repair the relationship between the two nations and how the sanctions environment has impacted Russia's economy.

Let's look at some background trade data.  Here is a graphic showing Russia's top ten trade partnerships:

Here is a table showing Russia's top ten exported and imported goods:

Now, let's focus on Russia's trade with the United States.  According to the United States Census Bureau database, here is a graph showing the trade deficit in goods between Russia and the United States:

Thus far in 2019 (to the end of September), the trade deficit between the two nations is -$11512.1 million.  

With this background, let's look at President Putin's comments on Russia's economy and its relationship with the United States in light of the ongoing sanctions regime.  Here is the question from Daniel Petruzzi of Dupont Capital:

"Mr President, how do you improve relations with the United States, where is the common ground? And what are the prospects for reduction or reduced sanctions? Thank you."

Here is Vladimir Putin's response:

"Well, as for the sanctions and the prospects for lifting them – you need to ask the US Administration. We did not impose sanctions on ourselves, you know. The US Congress did it for us, so you had better ask them.

But I would like to make a point in this connection. Firstly, the sanctions actually forced us to focus on import substitution, especially in industries we deemed critical for the country's security. This is a wide range of industries: agriculture, medicine, pharmaceuticals, and the defence industry. And in general, we have achieved very serious and positive results.

I will be honest with you, and I can already say this frankly and publicly: the first steps of the sanctions policy made me feel somewhat uneasy. I would like to thank all my colleagues, and the people I do not know, but who work, each at their workplace, in various industries, at plants, design bureaux, and research institutions. They have taken a huge step towards increasing our economic and technological sovereignty. In this sense, all these restrictions have benefited our economy.

But there is a downside of course, and that downside sours things for everyone. It cost billions of dollars. For example, for Europe, in my estimate, and according to the estimates of the Europeans themselves, their losses stand at about 50 billion. By the way, we have lost far less in our relations with Europe. The same holds true for the States. The restrictions that the Administration has introduced in recent years, I don’t remember how many, more than a dozen restrictions have been introduced, affecting more than 400 companies and almost 300 individuals – you know, it had a boomerang effect. For example, they forced their companies to discontinue their participation in offshore projects. What for?" (my bolds)

These are the most interesting sentences in the comments by Putin:

"These companies had invested certain funds in a particular project and were then forced to leave these projects and lose their money. Who was punished? They punished themselves, shot themselves in the foot, and that was it."

In case you were wondering, here is what has happened to U.S. exports to Russia over the past decade, particularly noting the decline in exports since anti-Russia sanctions were first implemented in 2014:

On a monthly basis, American goods exports to Russia peaked in May 2014 at $1.249 billion and fell to a low of $320.3 million in January 2017, a drop of $928.7 million or 74.3 percent.  While the  size of American exports to Russia is relatively small, the drop in American exports to Russia still hurts Corporate America and its workers. 

Now, let's look at what Mr. Putin's Russia's plans for its relationship with the United States:

"What plans do we have for our relations? I believe that we have many interests in common with the United States. The United States is a great country, and we have always respected it. We were allies in two world wars. It is our common history, and it is a positive history. Of course, we also want to maintain cooperation with it in technology and the economy in general. However, under President Obama – I think I have mentioned this before – our trade plummeted to $20 billion. Over the first two years of President Trump’s term, it increased to $25 billion. Is this a lot or a little? Our trade with Turkey is $25 billion, and we have the same volume of trade with the United States. This is little, of course.

We have common interests in the economy, not to mention energy. We have common interests in the field of international security, because Russia and the United States are the world’s largest nuclear powers. This is the case, for now. This factor must be taken into account. We are cooperating, one way or another, in the fight against terrorism, and we maintain operational interaction in Syria. The same is true about our fight against organised crime and in the field of environmental protection.

Our colleague just mentioned that the United States has withdrawn from the Paris Agreement. I believe that this is a mistake. But I can understand the logic behind this decision, because the previous US Administration assumed obligations regarding [carbon emission] limits that were difficult for the United States. The Paris Climate Accord is a framework arrangement that is not binding, and the US Administration could have adjusted its obligations within this framework. But the current US Administration has decided differently.

Nevertheless, we should try to involve the current US Administration in these matters. It is another area for our cooperation. I believe we can do this. President Trump has said more than once that he is not planning to destroy the global environment but that balanced solutions must be found, in the interests of the American economy. I believe this is something we can discuss as well.

In other words, there are many common platforms where we can work together. We are ready for this as long as our American partners are.

But we see what is still going on there. Thank goodness we are no longer being accused of interfering in US elections; they are accusing Ukraine now. Let them settle this matter between them. However, the factor of internal political struggle is still having a negative effect on Russian-US relations. I hope this will end at some point. We are ready for this." (my bolds)

It is interesting to see that, despite Washington's attempts to vilify Russia on every front, at least one of the two players in the "game" is willing to take a mature attitude toward the relationship between the two nations.  As President Putin stated, the two nations have common interests both historically and currently; it is these common interests that should be pulling the two nations together rather than thrusting them apart.

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