Sanctions as the New Normal and Political Determinism in US-Russian Relations

The situation in Russian-American relations defies the Marxist theory of economic determinism. The economic aspect of the relationship has become thoroughly subjugated to politics. “We need to forget that, in conducting a business dialogue, we are giving a good example to politicians,” Alexander Shokhin, President of the Russian Union of Industrialists and Entrepreneurs (RSPP) said.

The Valdai Discussion Club and the Russian Union of Industrialists and Entrepreneurs (RSPP) held a joint conference in Moscow on  March 13, 2019, as part of the Russian Business Week. A common theme of the participants’ speeches was the idea that US-Russia cooperation is alive, despite a deep crisis in political relations, and the business circles of the two countries are interested in its development.

It is often said that the economic relations between the two countries are insignificant, but this is not so. Dmitry Suslov, Deputy Director at the Centre for Comprehensive European and International Studies at the National Research University Higher School of Economics, started from this thesis in the presentation of a report: “Economic cooperation between Russia and the United States amid conditions of uncertainty.” The report was prepared by experts from the Russian Union of Industrialists and Entrepreneurs, the Russian-American Business Cooperation Council, the HSE and the Valdai Discussion Club with the assistance of the American Chamber of Commerce in Russia (AmCham) and the American-Russian Business Council (USRBC). “The analysis showed that, despite the confrontational political relations, economic relations are alive and important for both sides, especially for Russia,” the expert said. “To destroy them would be a big mistake.”

Indeed, although Russia and the United States have not forged real economic interdependence, and even in 2011, at the peak of bilateral economic relations, trade with Russia accounted for only 1% of US trade turnover, America remains a significant economic partner for our country. After a sharp decline in the intensity of economic relations in 2014-15 and some recovery in 2016-17, the United States ranks 6th among Russia's foreign economic partners. The USA accounts for 4% of Russian foreign trade, making it comparable with Italy and a more significant Russian trade partner than Turkey or South Korea. These are just the official data. In reality, however, as Suslov stressed, the United States is among Russia's top five economic partners due to the transnational nature of American corporations.

At the same time, the key word defining the nature of Russian-American economic relations is “dependence”; alas, this dependence cannot be called symmetrical. Russia’s direct technological dependence on the United States persists, as Russia relies on American technological platforms and full-fledged alternatives to them do not yet exist. Direct financial dependence is also maintained, as part of Russia's national wealth is denominated in dollars and is stored in US deposits. Moreover, despite talk about de-dollarization, the largest proportion of Russian settlements in dollars is with China and India. Russia's metallurgy sector depends on the US for demand. It is obvious that amid such conditions, one cannot speak of the possibility of a painless disruption.

Moreover, the business circles of the two countries are interested in developing relations. However, for the business sector, good bilateral relations alone aren’t sufficient. “Their real goal is prosperity,” said Daniel Russell, President and CEO of the US-Russia Business Council (USRBC). “The potential of Russia is huge and no businessman will look at this with closed eyes,” said Alexis Rodzianko, President and CEO of the American Chamber of Commerce in Russia. Russia should be two or three times richer, he believes, but this hasn’t happened for various reasons, including historical ones. However, history is taking place before our eyes. “Today, the United States and Russia are fighting to determine who will harm the Russian economy more. Recently, Russia has pulled ahead,” Rodzianko said.

We are talking, in particular, about the sanctions war, where Russia is still losing. The Valdai Club report “Coercing the Unruly: The Perfect Storm of Sanctions War” characterises sanctions as a new normal in international relations; it was presented at the conference by Ivan Timofeev, Programme Director of the Club. The main thesis of the report is that the effect of sanctions can be devastating (although in Russia’s case, the drop in oil prices in 2014 caused more damage), but they rarely achieve their goal of changing the opponent’s political behaviour. Moreover, in this regard, sanctions are more effective when they are used against allies, not opponents (this trend was revealed by the American scientist Daniel Drezner, who participated, incidentally, in a Valdai Club meeting in 2016).

Timofeev paid special attention to secondary sanctions that impede the work of private businesses in the countries against which they are introduced. The example of Iran is telling. Despite the political will of the EU, which disagrees with the US sanctions policy against Tehran, big European businesses are leaving Iran, afraid of losing their share of the US market.

Sanctions will be increased and become more and more targeted, the participants repeatedly noted during the conference. What should Russia do amid these conditions? Given the sensitivity of business to political decisions, an important role has been played in the creation of an infrastructure that helps companies exist despite the sanctions. It is necessary to maintain areas of cooperation where Russia's dependence on the United States is real (the import of civilian aircraft, spare parts for them, turbines, drugs, software), and not to introduce counter-sanctions prohibiting the supply of Russian goods to the United States which it depends on (aluminium, titanium, missile engines). From a market standpoint, we should avoid impeding investment and economic cooperation projects in areas such as, for example, the export of petroleum products or the import of automobiles.

The relatively good news is that no one in the United States wants or can afford total sanctions. “To force Russia to move away from the dollar is not in the interests of the United States,” Rodzianko said. The fact that US sanctions are becoming more and more pin-pointed and selective is also evidenced by the example of RUSAL. The sanctions against this company were postponed after it became clear that they could harm American business interests. According to Timofeev, in the dialogue between Congress and the White House, the US Treasury takes a position that is not "good" or "bad", but "professional": concerned primarily with business interests. In fact, this mirrors the logic of the current American administration.

In general terms, the situation in Russian-American relations defies the Marxist theory of economic determinism. Their economic aspects are being completely determined by politics, said Andrey Bystritskiy, Chairman of the Foundation for the Development and Support of the Valdai Discussion Club. “In the economy we see no increase in hostilities,” Zakhar Smushkin, Chairman of the Board of Directors of Ilim Group, repeated. “We see no negativity excitement anywhere.” According to Alexander Shokhin, President of the Russian Union of Industrialists and Entrepreneurs, business contacts are being maintained, including the ones established within the B20framework (“Business G20”). Last year, he recalled, the creation of the B2B working group was announced at the summit between President Putin and President Trump in Helsinki, but this idea was “trampled underfoot” - precisely because it was voiced by the two leaders. However, as Shokhin said, even if this group was created, the very same people who are already conducting the dialogue would participate in it. The moral is: you need to forget that in conducting a business dialogue, we provide a good example to politicians.

The last hope for a political dialogue is connected with threats to international security, which today, according to Shokhin, are extremely high. "I would like to appeal to reason: sudden movements on both sides can lead to a crisis that is incommensurable with all the crises that the Earth has experienced," said David Yakobashvili, President of the Russian-American Business Cooperation Council. “With the nuclear weapons stockpiles that both sides possess, you need to treat everything very carefully - and think about the children.”