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

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: en.wikipedia.org/wiki/Embargo_Act_of_1807 – PatrickT Jul 2 '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 3 '17 at 13:45
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    @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. – Lyndon White Jul 3 '17 at 15:49
  • You're better off asking this question at the economics site economics.stackexchange.com – Toby Jul 4 '17 at 11:54
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    Assuming profit losses are the same on both sides, a larger economy suffers less than a smaller one. – Dmitry Grigoryev Jul 6 '17 at 7:42
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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.

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    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 5 '17 at 21:27
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    @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 6 '17 at 1:48
  • Let us continue this discussion in chat. – PoloHoleSet Aug 8 '17 at 19:43
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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.

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    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. – Andrew Grimm Jul 2 '17 at 7:10
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    (Followers of) Adam Smith say that they are! – owjburnham Jul 2 '17 at 9:08
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    I think this answer in the sister site is perfect to be referenced in response to @AndrewGrimm : economics.stackexchange.com/questions/1714/… – FooBar Jul 2 '17 at 13:25
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    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 3 '17 at 7:42
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    @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 3 '17 at 7:47
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Top five trading partners for the United States by imports:

  1. China
  2. Mexico
  3. Canada
  4. Japan
  5. 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:

  1. China
  2. Germany
  3. US
  4. Belarus
  5. 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.

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    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 5 '17 at 17:30
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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.

7

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.


Further reading:

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    Computer programming talents controlled by russia ? Can you elaborate on how you measured that, and how it is comparable to steel and natural gas ? – user5751924 Jul 4 '17 at 7:10
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    @user5751924 -- Russian exports (either via out-sourcing, or emigration, or malware, or cracking) of computer programming talent are on the scale of rocket launches, diamonds, and ice-breaking services -- not on the scale of oil, steel, and natural gas. Companies such as Parametric Technologies outsourced their engineering programming to Russia in the 1990s. Western news coverage of incidents involving Russia (such as the Georgian and Crimean crises) have been influenced by Russian programmers' ability to saturate or DOS on-line forums. – Jasper Jul 4 '17 at 16:24
  • @Jasper "DOS on-line forums"? Perhaps DDS? – FuriousFolder Jul 5 '17 at 18:16
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    @Jasper perhaps he meant Denial Of Service attacks, of which Distributed Denial Of Service (DDOS) attacks are a type. – Dent7777 Aug 14 '17 at 14:02
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I has to do with the fact that the US Dollar is the de facto reserve currency of world trade, Wall Street in New York is the largest financial hub in the world (and many of the other major financial centers are in US-friendly nations like the UK as well) and the relative sizes of the economies on each side.

First, a lot of companies and individuals use US or US-friendly banks to manage the assets that they use in their international operations. When sanctions are put in place, these assets are frozen or seized.

Second, international deals often use US dollars because of the dollars reserve status. Companies outside the US don't use dollars in their domestic operations, so the don't have large piles of dollars freely available and go to institutions in the US to buy or borrow them. Sanctions can be put into place that order banks and other financial institutions to not deal with sanctioned companies or people, blocking them from acquiring large amounts of dollars.

Finally, embargoes are put into place which curtail exports to the targeted country to harm their quality of life and economic efficiency and/or block imports from the country, preventing them from making money from international trade.

The US, the whole of the EU and Japan, all of which put sanctions into place against Russia, possess about 50% of world GDP. The loss of trade with Russia hurts (they wouldn't be trading with them in the first place if they weren't the most cost-effective option) but alternatives are easier to come by and makes up a much smaller portion of their economic activity.

The Russian economy, meanwhile, is about 1/30th the size of the combined US and EU economies and rely much more on the countries sanctioning them to import from and export to.

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Because the US needs to reduce its imports anyway. We import more than we export and it's been harming our economy running a massive trade deficit. Except against countries from which we import oil or certain rare earths we can impose trade sanctions with impunity at the national scale.

It seems that nobody really wants to fix the trade deficit but that's a tale for another day.

protected by Martin Tournoij Jul 4 '17 at 6:43

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