Some Early Thoughts on Russia and Ukraine
The potential economic impact, an ascendant liberal order, and peace through commerce.
I often start outlining my weekly column on the Saturday before it’s due—just jotting down various notes and links as my coffee-soaked neurons fire off into all directions. Things in Ukraine, however, have confounded that process, as new events cannibalize their predecessors. So, instead of giving you some detailed hot take about the current moment, today I’m going to provide a somewhat random list of early observations that, I hope, will inform your thinking about these events (in which—let’s face it—U.S. economic policy plays, at best, a secondary role).
The question I’ve been asked most in the last few days (including by my mom) is how this war might affect the U.S. economy. This, I’m afraid to say, is tricky. On the one hand, the direct economic impact of the conflict and of U.S. and global sanctions—together cutting off most trade and capital flows between the United States and both Russia (sanctions) and Ukraine (war)—should be relatively minor. According to the office of the U.S. trade representative, for example, total trade U.S. trade with Russia was a meager $34.9 billion in 2019; bilateral investment flows (inward and outward) were another $18.8 billion that year; and sales by overseas affiliates in each country were $10.3 billion in 2017 (the last year available). These same figures for Ukraine were even smaller (less than $5 billion in total trade and investment in 2019). This might sound like a lot—and disruptions will surely affect some particularly-exposed companies—but, overall, this is little more than a rounding error for a $23 trillion U.S. economy.
Even in energy goods trade (which hasn’t been banned—yet), there isn’t a huge area for concern. For example, “2021 crude imports from Russia averaged 0.2 million barrels per day, the highest level in many years, but still a small share of total imports and total crude oil processed by U.S. refineries (~1%).” Even when you add in other petroleum products, it’s only about 700,000 barrels per day. With about 357,000 of those barrels going to U.S. refineries as unfinished oils, you’re still only looking at Russian oil supporting about 3 percent of total U.S. refinery consumption (for stuff like gasoline)—and that was before U.S. importers started “self-sanctioning” themselves away from Russian crude.