Tag: Ukraine

Bring Back the Jackson-Vanik Approach to Russia

Many policy makers want to give Russia an exit ramp from the war. The existence of the exit- ramp option, gives the aggressor an incentive to continue hostilities because if events on the battlefield go poorly the aggressor can take the ramp. The United States and NATO need to convince Putin that consequences from this aggression cannot be easily reversed. Targeted economic sanctions have not caused western businesses to leave Russia. The key to resolution of the war in Ukraine is a difficult-to-reverse restriction on economic activity with Russia patterned after the Jackson-Vanik Amendment.


Background on the Jackson Vanik Amendment:

The Jackson-Vanik Amendment to a Trade Act passed in 1974 restricted trade with non-market economies that restricted Jewish emigration and violated other human rights groups.

The Jackson-Vanik restrictions on trade were repealed in 2012 in the same law that imposed trade sanctions on some Russian officials for the murder of Sergei Magnitsky.    The repeal of Jackson-Vanik led the United States to grant most favored nation trade status to Russia and Russia was granted entry to the WTO in August of 2012.

Russia remains a member of the WTO in good standing despite Russian involvement in the downloading of civilian airliner over Ukraine, the invasion of Crimea in 2014, and the current war in Ukraine.

The Current Situation:

Russian aggression and genocide In Ukraine haven’t been prevented by targeted sanctions that would be easily reversed.  Go here for a discussion of child abductions by Russia in Ukraine.  Go here for a discussion of Russian war crimes since 1991.  Go here for a discussion of recent civilian casualties in Ukraine.

Economic sanctions have not prevented many western nations from continuing business in Russia as discussed here.

The appeasement advocates claim to be motivated by fear of a wider conflict.  There already is a wider conflict.  Russia committed human rights violation in Georgia, a regime that jailed its former president.  Russia supports the dictator in Belarus.  Go here for an article on Belarus.

Bring Back Jackson Vanik:

Targeted economic sanctions have not affected Russian behavior.

The linkage of the Magnitsky sanctions to the repeal of Jackson-Vanik did not deter Russian aggression.  On balance the combination of the repeal of Jackson-Vanik with the enactment of Magnitsky sanctions was a good deal for Russia.

The WTO claims that it contributes to peace and stability.  Let’s be clear.  Russia’s entry into the WTO did not contribute to peace and stability.

Despite sanctions, western firms have not left Russia.  The western firms and the Russian government both believe sanctions can be largely ignored and will be reversed.

Only Congress and the Administration working together can send a signal to the Russians that they will not get away with aggression and crimes.  The way to do this is to abolish most favored nation trade status, remove Russia from the WTO, and prohibit trade and investment with Russia until Congress passes legislation removing these penalties. 

A key to ending the Ukraine war and deterring future Russian aggression involves broad penalties imposed on the entire Russian economy not narrow sanctions on the elite who will be compensated for their sacrifices.

A successful deterrent strategy requires penalties that cannot be reversed unless there is proof supporting the view that the aggression will end and will not be repeated.

We need a return to the Reagan philosophy of Trust but Verify.  A law similar to the Jackson-Vanik Amendment is a first step in instituting this approach.

David Bernstein is the author of A 2024 Health Care Reform Proposal.  

Appeasing Russia Will Fail

Many pundits and analysts, including Jeffrey Sachs in a recent CNN article, are arguing against sanctions and weapons for Ukraine. Sachs favors a peace deal that ends NATO growth and creates a neutral Ukraine. This unenforceable approach would lead to further aggression against Ukraine and neighboring states.


Introduction:

In a recent CNN opinion peace, Jeffrey Sachs argues against sanctions and military support for Ukraine and for a quick peace deal.

The two-pronged US strategy, to help Ukraine overcome the Russian invasion by imposing tough sanctions and by supplying Ukraine’s military with sophisticated armaments, is likely to fall short. What is needed is a peace deal, which may be within reach. Yet to reach a deal, the United States will have to compromise on NATO, something Washington has so far rejected.

The specious arguments used by Sachs to advance this policy will lead to a future of war and genocide.  This approach will not alleviate the economic issues from the invasion.

Analysis:

Russia is committing war crimes in Ukraine and Putin is supportive of these actions. Putin does not believe Ukraine is a real state. How can Ukraine make a deal with Russia given Putin’s stated aim and current actions?

Russia could sign a peace deal, regroup, and reinvade.  The starting part for the new invasion would the parts of Ukraine that Ukraine cedes to Russia, a lot closer to Kyiv.  The best way to deter Russia from a future invasion is admitting Ukraine into NATO, the very action Sachs opposes.

Sachs correctly points out there are holes in sanctions. Sanctions on imports are not the only tool needed to combat Russian aggression.  The west can end all scientific cooperation including space, all travel and tourism to Russia, remove Russia from the WTO, ban Russians from international sporting and cultural events, and stop exporting technology to Russia.

Sachs pointed out that countries representing most of the world’s population did not vote for resolutions against Russia.   The countries that are not unequivocally opposed to Russian aggression have a relatively small percent of the world’s GDP and the GDP share may be a better measure of likely effectiveness of sanctions.  Countries that have not supported resolutions condemning Russia do not parrot the Russian line on the invasion and may come around with more evidence of atrocities.

Sanctions and disruptions from the war are impacting the world economy.  The war is preventing planting of grain, and Russian ships are preventing the delivery of Ukrainian grain to the world.  Russia could control around 30 percent of the world grain supply if it takes control of part of Ukraine.  Any peace deal should be constructed so Russia does not have more power over the world’s food supply.

Western nations need to plant more grain. The United States should end the ethanol mandate and covert corn farms to wheat farms.  See the U.S. subsidy that powers Putin.

Sachs points out that higher oil and grain prices could increase export revenue to Russia in the short term despite sanctions.  The Ukrainians may have to disrupt Russian exports at some point.  The west could ration and substantially reduce consumption of gas perhaps through a COVID type shut down.

Sachs seems to accept Putin’s concerns about NATO expansion.  NATO nations have not invaded either the Soviet Union or Russia.  There are numerous examples of the Soviet Union and Russia invading its neighbors.  

Sach’s deal with Russia is outlined in the second to last paragraph of his essay.

“The key step is for the US, NATO allies and Ukraine to make clear that NATO will not enlarge into Ukraine as long as Russia stops the war and leaves Ukraine. The countries aligned with Putin, and those choosing neither side, would then say to Putin that since he has stopped NATO’s enlargement, it’s now time for Russia to leave the battlefield and return home. Of course, negotiations might fail if Russia’s demands remain unacceptable. But we should at least try, and indeed try very hard, to see whether peace can be achieved through Ukraine’s neutrality backed by international guarantees.”

It seems a bit late for this deal.  Russia has already killed a lot of civilians and seized a lot of land.  What type if international guarantees would support Ukraine’s existence?  The Budapest memo?  That worked out so well.

The end of the war does not end the problem.  The peace must be enforced somehow.  Ukraine must be rebuilt.  Western funds should not contribute to rebuilding areas seized by Russia.  Any peace that does not end in a defeat by Russia will result in even more aggression.

David Bernstein is an economist living in Denver Colorado.  He is the author of A 2024 Health Care Reform Proposal.  This plan available on Kindle will move the United States close to universal health coverage, would enable continuous coverage during periods of unemployment and would improve health and financial outcomes for people with low-cost insurance coverage. 

The case for broad economic penalties on Russia

Targeted sanctions have not deterred the Russian invasion of Ukraine. Broader economic penalties outlined here – including a 100 percent tariff on all exports from Russia, the prohibition of all foreign direct investment, the eviction of Russia from the WTO, and severe restrictions on travel to Russia — are needed.

Introduction: 

In 1980, I had the privilege of asking Nobel Prize laureate Milton Friedman a question.

I asked why it was appropriate to prohibit virtually all trade with Communist countries while allowing substantial trade with non-communist authoritarian regimes.  

His response — that political change was possible in some authoritarian countries but impossible in countries that controlled the means or production — must be reconsidered.  

The Russian aggression in Ukraine teaches us that combatting communism is not the only reason for broad prohibitions against trade. 

Sanctions targeted towards the Russian elite is a grossly insufficient response to the current aggression.  

Money is fungible.   All funds obtained by Russia from exports, foreign direct investment, and tourism fuel for this invasion.

Analysis:

The Russian economy despite the size of the country is relatively small 

  • GDP $1.48 trillion
  • Exports around $332 billion, around 22 percent of GDP. 
  • Around $10.8 billion of these exports are purchased by the United States.

A decision by all countries sympathetic to Ukraine to put a 100 percent tariff on all exports from Russia would have a major impact on the Russian economy.  The tariffs can be phased in by some countries that are dependent on Russian oil and gas but countries that are not dependent on Russia for energy can implement the tariffs immediately.  

Russia entered the World Trade Organization on August of 2012 and was not expelled because of the 2014 invasion of Crimea. 

Ironically, WTO advocates claim that the WTO helps promote peace.   Seriously, this was listed as the number one benefit of the WTO. This time around Russia should be expelled from the WTO. 

The Russian economy is still receiving positive net foreign direct investment from the rest of the world. Interestingly, the United States is tied with China as the third largest source of foreign direct investment into China. 

Several restrictions on foreign direct investment could be implemented.  President Biden can probably immediately prohibit all foreign direct investment to Russia from the United States without legislation from Congress.  The President has broad authority with respect to foreign affairs and national security.  

Sanctions could be imposed on countries that continue investing in Russia.

Around 24.6 million foreigners visited Russia in 2018.  Foreign visitors contributed 3.8 percent to Russian Gross Value (GVA) added.  The Trump Administration imposed several restrictions on travel to Cuba.  The Biden Administration and America’s allies should now do the same for Russia.

Concluding Remarks:  Putin has prepared for the case of targeted sanctions by building up international reserves.  He has not prepared for large tariffs on all exports from Russia, the elimination of most foreign direct investment, the eviction of Russia from the WTO and the loss of funds from tourism.