Why is the USA able to damage the Russian economy by imposing sanctions but Russia can't do the same?

Question

For example see U.S. tightens sanctions on Russia over Crimea, New US sanctions on Russia inflame old tensions, as well as many more reports.

An aside, but that may interest you for historic/empirical examples: https://en.wikipedia.org/wiki/Embargo_Act_of_1807 — PatrickT, Jul 02 '17 at 15:55
Russia is NOT Cuba. Besides the old economic issue brought forward from USSR era, I am still curious about the "damaging effect" as many hallucinate here. It seems most people that agree on the "damage done to Russia" has a poor understanding of geography. — mootmoot, Jul 03 '17 at 13:45
@anonymous it is a play on words. Your question can be (mis-)interpretted as "Why can't russia damage the russian economy, like the US can?". And the answer to that is that it Can and Has. Russia has a history of banning various imports and exports to its own (lesser or greater) detriment as part of making a political stance (Much like the rest of the world, really), I'm no political scientist nor historian nor economist though, so I'm not sure of any particularly notable examples of this. — Frames Catherine White, Jul 03 '17 at 15:49
You're better off asking this question at the economics site https://economics.stackexchange.com/ — Toby, Jul 04 '17 at 11:54
Assuming profit losses are the same on both sides, a larger economy suffers less than a smaller one. — Dmitry Grigoryev, Jul 06 '17 at 07:42
@DmitryGrigoryev This seems an odd definition of suffering. If I take $1 from each of a million people, does that create less suffering than if I take $1,000 from one person? Surely the fact that it's a million people suffering in the first case and only one person suffering in the first case weighs into the assessment of how much suffering there is. — David Schwartz, Aug 08 '17 at 19:43
@LyndonWhite reminds me of the joke that Americans can criticise the president of the USA, and that Russians have the same freedom … to criticise the president of the USA. — Golden Cuy, Feb 28 '22 at 22:01

score 68 · Answer 1 · answered Jul 02 '17 at 06:18

68

When country A imposes sanctions on country B, both suffer (though the suffering may not be equal).

The main reason these sanctions are more damaging for Russia than for the US is that it isn't just the US that's imposing sanctions on Russia. There are also the EU, Japan, Canada, Australia, Norway, to name just a few other countries.

Consider the extreme scenario where every country not named Russia imposes sanctions on Russia. Then yes, every country not named Russia suffers a little due to reduced trade with Russia. But Russia suffers way more than any other country.

This is why sanctions are most effective when they are coordinated international efforts.

answered Jul 02 '17 at 06:18

6

This assumes international trade is always mutually beneficial to both parties. If that were the case, then tariffs would be harmful to the importing country. – Golden Cuy Jul 02 '17 at 07:10
30

(Followers of) Adam Smith say that they are! – owjburnham Jul 02 '17 at 09:08
In fact, that's the subject of Ben Stein’s character's lecture in Ferris Bueller’s Day Off https://www.youtube.com/watch?v=uhiCFdWeQfA – Dietrich Epp Jul 02 '17 at 09:11
2

I think this answer in the sister site is perfect to be referenced in response to @AndrewGrimm : https://economics.stackexchange.com/questions/1714/have-there-been-instances-where-economists-have-advocated-a-trade-embargo/1721#1721 – FooBar Jul 02 '17 at 13:25
5

Various parts of Europe are quite dependent on Russian natural gas for their energy needs. Those countries wouldn't just "suffer a little" if they decided to stop trading with Russia. – David Richerby Jul 03 '17 at 07:42
4

@DavidRicherby To be fair, we've suffered enough even without any embargoes in play - Russia isn't exactly a dependable trade partner. Most European countries are already switching over to different suppliers, though it's understandably a complicated and rather long-term project. But yes, Europe depends on trade with Russia (and their close associates) quite a bit more than the US, and has a lot more to lose. On the other hand, the sanctions will simply mean Russians are going to be poorer - something that has historically been shown to strengthen those in power ("It's the West's fault!"). – Luaan Jul 03 '17 at 07:47
@owjburnham Hmmmmm, ... (1) tariffs are harmful to the importing country. (2) Trump administration wants to install tariffs (aka. border-taxes) (3) ??? (4) Russia successfully harmed US economy – Hagen von Eitzen Jul 03 '17 at 09:55
1

This is a terrible answer. The number of countries is irrelevant. And that sanctions are most effective when coordinated is also irrelevant. The reason that the US can damage Russia whereas Russia cannot do as much to the US depends on how much trade is being conducted between them. The US produces twelve times as much output as Russia does. The total trade between the US and Russia is therefore much smaller for the US than it is for Russia in terms of what each side produces. – Toby Jul 03 '17 at 15:47
@Toby that's clearly not the right way to look at things. Let's say output is in units of X. US produces 12X to Russia's X. US trades 8X with the rest of the world and 4X to Russia. Russia trades 0.75X to the rest of the world and 0.25X to the USA. The impact on their trade would be virtually identical since they each conduct 25% of their net trade between each other. – iheanyi Jul 03 '17 at 20:09
@iheanyi, total trade between Russia and the US is X. US output is Y and Russian output is Z. If Y > Z, then X/Y < X/Z. This means that 1 - X/Y > 1 - X/Z. The mistake that you make is assuming that the trade between Russia and the US is different than the trade between US and Russia. – Toby Jul 04 '17 at 11:35
Note 1 - X/Y is for value added (meaning of X changes). – Toby Jul 04 '17 at 11:52
@Toby Nope, while that's an assumption in my response, it was to point out a scenario under which sanctions don't mean much. Still works with your equations. Say X = 0.1, Y = 12, Z = 1. (1 - X/Y) = 0.992. (1 - X/Z) = 0.9. So, 0.8% loss to the US, 10% to Russia. 10% may not be enough, of Russia's gain by doing something the US would sanction is equivalent or greater. That's why the US needs to involve more countries, so the effect of sanctions is much higher than Russia can absorb or compensate with whatever they're doing that lead to the sanctions. – iheanyi Jul 04 '17 at 15:25
@Toby So, even if that 10% would hit Russia hard, if the only sanctions are from the US, they can shift trade to other partners to make it up. Sure, that reduces their diversification and penetration in US markets, but economic loss gets minimized in the short term, maybe until the political wind changes in the US. So, for sanctions to be effective, enough potential large trading partners of Russia need to be involved so they can't simply make it up by increasing trade elsewhere. – iheanyi Jul 04 '17 at 15:30
@iheanyi I said that the US is much less harder hit by sanctions than Russia as a reason for why the US can harm Russia and not the other way around (it's too costly). And you go and use my example to illustrate that a hit to the US would be 0.8% and 10% for Russia. And shift the goalposts to boot. You say that it might not be enough in your hypothetical example. Which is besides the point.
Also if Russia can shift to other partners, then so can the US. But it is easier to shift a smaller portion of your trade than a larger portion. Same point stands.
– Toby Jul 04 '17 at 15:47
@Toby - you know I can still see your comment. "This is a terrible answer. The number of countries is irrelevant. And that sanctions are most effective when coordinated is also irrelevant." That is wrong. Yes, the US not being as affected is part of it, but as I demonstrated, Russia can easily work around sanctions if it's just the US alone, like your comment tried to claim. So no, your comment does not stand. – iheanyi Jul 05 '17 at 15:12
@AndrewGrimm See also Riccardo in addition to Adam Smith - for example in this essay from Krugman: http://web.mit.edu/krugman/www/ricardo.htm. I don't know about always but AFAIK 'in most cases is mutually beneficial' is an economic orthodoxy/mainstream view though some economists argue there are some limited exceptions such as 'infant industry'. – Maja Piechotka Jul 05 '17 at 18:45

score 64 · Answer 2 · answered Jul 02 '17 at 04:48

Top five trading partners for the United States by imports:

China
Mexico
Canada
Japan
Germany

If we replace Germany with the European Union as a whole, the EU would be second.

Top five trading partners for Russia by imports:

China
Germany
US
Belarus
Italy

The US is Russia's third largest foreign supplier, even with sanctions. And two US allies (Germany and Italy) are also in the top five. Combined, those three countries count for about 22% of Russia's imports.

By contrast Russia accounts for $14 billion of more than $2 trillion of US imports, about .7%. And no Russian ally is as high as Russia itself is (not counting China as a Russian ally). Russia needs Western exports more than the US needs Russian exports.

Many transactions are US dollar-denominated as well. This gives further opportunity for US sanctions to be engaged. So Russia can't use US banks to do money transfers. The US doesn't really do Ruble-denominated transactions with anyone but Russia.

The US imports less as a proportion of GDP than Russia. So US imports in Russia make up even more of their national consumption than Russian imports in the US by share of imports.

The reason not to count China as a Russian ally here is that even more of their economy is tied up with the US. The US is China's second largest trading partner by imports. And China's other leading trading partners include South Korea, Japan, and Germany. All three are examples of countries in which the US maintains military bases, making them vulnerable to a withdrawal of US support. So even though the US may need China more than China needs the US, it's not overwhelmingly so. China would find it difficult to join Russia in serious sanctions.

In general, the US is probably more in line with other developed countries on sanctions on Russia than Russia is. So even if Russia can stand the hit from less US trade, they still have the problem of less European trade. And Russia has no one else who has both significant trade with the US and a willingness to impose sanctions purely in solidarity with Russia.

TL; DR. Russia is more vulnerable to sanctions from the US and US allies than the US is from Russia and Russia allies.

Note that Russia's economy currently is about the same size as Mexico's (and roughly the same population and corruption levels too. Think of Russia as Mexico with nukes). — T.E.D., Jul 05 '17 at 17:30
Great answer, but could you please also include top 5 trading partners for Germany and Italy for two reasons. First, you mentioned their combined effect on Russian economy, so it would be fair to see Russian effect on their combined economy, not on US alone. Second, IIRC Russian trade with Germany is far more significant to German economy that Russian trade with US is to US. In fact, Germany economy is suffering badly right now due to their reliance on Russian gas. — Michael, Aug 18 '22 at 18:03

SQB · Accepted Answer · 2022-02-28T17:13:33.693

Please note that this answer is from 2017. While the general idea is still true, I've added a note on the current (February 2022) situation.

Asymmetry

The economical relation between the USA and Russia is asymmetrical. Russia depends a great deal on its trade with the USA, while the USA don't depend much on their trade with Russia.

Export from the USA to Russia is worth about $13.2 billion.
Export from Russia to the USA is worth about $10.2 billion.

Those numbers make the USA Russia's 7th largest export destination at 4.2% and its 3rd largest import origin at 5.5%.
In contrast Russia is only responsible for 0.74% of the USA's exports and 0.61% of their imports.

The USA can hurt Russia far more, economically speaking, than Russia can hurt the USA. If all trade between the USA and Russia stopped, the USA would only be hurt for 0.74% of their exports and 0.61% of their imports, while Russia would be hurt for 4.2% of its exports and 5.5% of its imports.

Partners

The sanctions on Russia aren't imposed by the USA alone. The EU, another large trade partner imposes similar sanctions. Individual EU countries may be hurt by them as well, if Russia is a particularly large trade partner, but again the relation isn't symmetrical, at Russia's detriment.

The sanctions against Russia have increased in February 2022, due to its invasion of Ukraine. One particular aspect may hit some countries in the EU somewhat harder, which is gas. Not petrol, but natural gas, on which a number of countries in Europe are dependent for energy.

Still, the general idea of asymmetry remains.

Isn't it reasonable to assume that every trade benefits both sides of the trade roughly equally? And therefore wouldn't it follow that roughly the units of harm on both sides are equal? The US might be able to tolerate more harm than Russia can, and the damage might be different in percentage terms, but shouldn't it still be roughly equal in absolute numbers? — David Schwartz, Jul 05 '17 at 21:27
@DavidSchwartz: Yes, but absolute numbers are meaningless. If I threaten to reduce your salary by $1000, and you threaten to reduce mine by $1000 as payback, if your salary is $10K/year, and mine is $1M/year, you're going to suffer terribly, and I'm not even going to notice. We both lost the same absolute amount, but that's not particularly reassuring if you're eating Kibble and living in a cardboard box. — ShadowRanger, Jul 06 '17 at 01:48

score 11 · Answer 4 · answered Jul 03 '17 at 22:08

The US can do some damage to the Russian economy because it acts together with other major economic powers like the EU, while Russia cannot mobilize other economic giants to reply in kind. However, unlike in case of Iran, Russia is not going to suffer much because the US cannot impose the same sort of sanctions on the Russian banking sector. Also, a lot of the economic problems in Russia were due to the Russian economic production being too narrowly focused on its energy sector.

Russia has great potentials in other sectors like agriculture, this was not developed because it requires massive investments and even then the profit margins are quite marginal due to competition from EU. This is one of the reasons why Putin decided to respond to the EU sanctions by imposing an import ban on EU agricultural products. Initially this import ban did some additional damage to the Russian economy, but Russia is now starting to benefit from this import ban:

Many western analysts and investors were cynical. But in at least one area of the economy — agriculture and associated sectors — the optimism has been vindicated. Russia last year became the world’s biggest exporter of grains, at more than 34m tonnes. Total Russian grain production hit a record 119m tonnes. The turnround is striking since as recently as 15 years ago — and for a couple of decades before during the Soviet era — Russia was a net importer.

Jasper · Answer 5 · 2017-07-04T22:22:18.100

The United States has made a point of not relying on resources controlled by Russia.

Russia does export large amounts of some important internationally traded resources:

Oil (it is one of the top oil exporters)
Natural gas (which it currently delivers to Europe)
Computer programming talent
Rocket launches
Icebreakers
Diamonds (it is one of the top diamond exporters)
Steel (it has a major steel industry)

For strategic reasons, the United States does not rely on Russia for any of these products. (NASA does rely on Russian rocket launches to service the space station, but the space station is a pork barrel project, not an essential part of the U.S. space program.) The United States has alternative international suppliers for oil, diamonds, and steel. The United States is self-sufficient in natural gas, computer programming, and military ship-building. The United States also has major oil, steel, and aerospace industries.

Russia relies on foreigners for financial services. American, British, Japanese, and Swiss banks, investment banks, and insurance companies have a long history of accumulating large amounts of capital. They can lend, invest, or gamble that capital on a far larger scale than Russia's much younger firms can. Furthermore, Russia's currency is a far less reliable store of value than the "Western" currencies -- partly because of Russia's 70 year long bankruptcy under Communism, partly because of Russia's multi-year long bankruptcy emerging from Communism, partly because its dedication to rule-of-law is much younger than the West's, partly because its financial firms are much smaller and younger than the West's.

The situation is less severe than it was in the 1980s. During the late 1980s, the U.S. poultry industry produced surpluses of frozen ground chicken meat. The U.S. government bought this meat, and sold it very cheaply to the Soviet Union. The Soviet agricultural sector was so mismanaged (and allowed so much food to rot) that the Soviet Union became dependent on the cheap imports of U.S. ground chicken meat. Whenever the Soviet Union began to crack down on "dissidents", the U.S. would quietly suggest that it could slow down, interrupt, or stop the sales of ground chicken meat. The dissidents were allowed to network, publicize themselves, and form popular, nationalist and/or environmentalist movements. By the end of the 1980s, they were strong enough to dismantle the Soviet Union without needing more "carrots" of ground chicken meat.

Quiet diplomacy is more effective.
By the way, notice that the most effective use of potentially-embarrassing incentives (like ground chicken meat) to guide a sovereign power (like the Soviet Union) was quiet. Ordinary Americans at the time, who wanted to know, did know that the U.S. was exporting frozen ground chicken meat to the Soviet Union at low prices. And news reports about Soviet politics sometimes mentioned that the continuing availability of this meat did influence some choices by the Soviet government. But once Gorbachev took power, there were no hullaballoos about "punishing" the Soviet Union with "sanctions" like "embargoing frozen chicken".

Loud, ineffective measures like "sanctions" tend to be feeble responses by governments that want to tell each other that they are "doing something" about an unwanted action by a sovereign state, without actually going to war. Notice that the unwanted action is already a fait accompli -- these nations' diplomats failed to persuade the sovereign state ahead of time to not act that way.

Why is the USA able to damage the Russian economy by imposing sanctions but Russia can't do the same?

8 Answers8

Asymmetry

Partners

Linked