US and allies move to stiffen penalties on Russia, including end to preferred trade status
- US bans the import of Russian seafood, vodka and diamonds and, along with the G7, denies Moscow access to World Bank and International Monetary Fund financing
- ‘The world is united and we stand with the people of Ukraine. We will not let autocrats and would-be emperors dictate the direction of the world,’ says Biden
The United States, fellow members of the Group of 7 economic nations and the European Union announced on Friday that they planned to deny preferential trading status to Moscow in the wake of President Vladimir Putin’s invasion of Ukraine, the latest coordinated effort to bring the Russian economy to its knees.
Revoking most favoured nation (MFN) status paves the way for major economic powers to raise import tariffs on Russian goods. The US also announced a ban on Russian seafood, vodka and diamonds and, in coordination with the G7, a collective bid to deny Moscow access to World Bank and International Monetary Fund financing.
“Putin must pay the price. He cannot pursue a war that threatens the very foundation, which he’s doing, the very foundations of international peace and stability, and then ask for financial help from the international community,” US President Joe Biden said from the White House.
“The world is united and we stand with the people of Ukraine,” Biden added. “We will not let autocrats and would-be emperors dictate the direction of the world. Democracies are rising to meet this moment.”
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Mass graves dug in besieged Ukrainian city of Mariupol as locals bury their dead
The Biden administration also announced an export ban on US currency, luxury goods and “any other items” identified by the Commerce Department, as well as any new US investment in Russia. Those trying to evade sanctions will face potential legal action.
Biden and other G7 and EU leaders are working with legislators and other officials to pass the necessary laws and regulations for MFN denial, which is expected soon. Passage in the US Congress is predicted within days.
This move comes as Western leaders find themselves under enormous political pressure to do more and do it faster, as public outrage mounts over the carnage in Ukraine.
Despite its name, virtually all nations enjoy “favoured” trading status with the US other than Cuba and North Korea. Repeated annual efforts by Congress in the 1990s to deny China’s MFN benefits after the 1989 Tiananmen crackdown failed before Beijing gained permanent favoured status in 2001.
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The largest tariff discounts under MFN also tend to apply to manufactured goods, not the commodities that Russia primarily trades in. And low overall US tariffs mean that the difference between favoured and non-favoured tariff rates in the US is relatively small.
But taking this step collectively sends another strong signal to Moscow, analysts said. It will also hurt Russia much more in countries where MFN affords greater benefits.
“From a commercial point of view, this is more symbolic than impactful,” said Wendy Cutler, vice-president of the Asia Society Policy Institute and a former US trade negotiator. “But for other G7 countries, especially Canada, it is more impactful.”
Some European and US lawmakers have also proposed banning Russia from the World Trade Organization, although this would likely be difficult given Moscow’s, and Beijing’s, ability to block such a move.
Analysts said President Xi Jinping and other top Chinese leaders are almost certainly taking note of the global outrage and economic tools democracies have effectively wielded. Although Beijing bridles at the comparison between Ukraine and Taiwan, it views the neighbouring self-governing democracy as a renegade province to be controlled by force if necessary.
“China must be watching all of this very closely,” said Cutler. “But the impact of revoking MFN tariff treatment from China would be enormous. US-China trade is over 10 times larger than our trade with Russia.”
Likewise, analysts said, any thought of denying China access to the WTO would be almost unthinkable given its global trading clout. Russia’s economy, in contrast, is roughly the size of New York state’s.
Beijing opposes the use of economic sanctions, which it sees as a violation of sovereignty.
“Reeling from Covid-induced shocks, the world economy is already struggling,” Premier Li Keqiang said on Friday at the close of the National People’s Congress. “Relevant sanctions will hurt the world economic recovery and are in no one’s interest.”
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China has struggled to find a diplomatic middle ground since Russia’s invasion, blaming Washington for instigating the crisis even as it stopped short of supporting Moscow outright in the UN.
“It’s going to be interesting to see how Xi reacts,” said Nicole Bivens Collinson, head of the international trade practice at the Sandler, Travis & Rosenberg law firm and a former Commerce Department official. “I don’t know what lessons China’s learned, probably not to physically overrun Taiwan with boats, but instead with cyber and economic pressure.”
As allies pile on sanctions and export restrictions, Putin will find it increasingly difficult to hide global outrage and his role in the invasion from his citizens, US intelligence officials said.
“I don’t believe he can wall off, indefinitely, Russians from the truth, especially as realities began to puncture that bubble,” CIA Director William Burns told members of Congress this week. “The realities of killed and wounded coming home and the realities of the economic consequences for ordinary Russians.”
Bivens Collinson noted that allied trade restrictions could have unintended consequences if Moscow takes reciprocal actions.
Putin has already struck back, announcing Russian export restrictions this week on telecoms, medical, vehicle, agricultural and electrical equipment and restrictions on foreign ships.
“These measures are a logical response to those imposed on Russia,” the nation’s commerce ministry said this week. Russia also warned that it may nationalise the assets of overseas companies that flee the increasingly isolated nation.
In another sign that Putin’s bid to exploit divisions among democracies has backfired, the US and Britain on Friday welcomed growing support from Indo-Pacific countries – including Japan, Australia, Korea, New Zealand and Singapore – for Ukraine and for “imposing costs on Russia”.
In a joint statement, the allies said they met and discussed Taiwan, Hong Kong, Australia’s nuclear submarine programme and efforts to counter economic coercion as Western allies “prepare to meet the challenge of systemic competition with China”.
Russia bans exports, hitting back against sanctions
In a related move on Friday, Britain sanctioned 386 more members of the Duma, Russia’s parliament, for supporting Russia’s diplomatic recognition of two Ukrainian regions that it seized in 2014.
That move was widely seen as a pretext for its 2022 invasion. Britain has now sanctioned 400 of the 450-member Duma and several oligarchs, barring their entry and freezing any assets in Britain.
“We’re targeting those complicit in Putin’s illegal invasion,” Foreign Secretary Liz Truss said. “We will not let up the pressure and will continue to tighten the screw on the Russian economy through sanctions.”
The G7 and Washington said they were working to identify and seize yachts, high-end properties and access to Western luxury goods enjoyed by Russian oligarchs in Putin’s inner circle and to cut off Russian exports.
“I’m glad I don’t drink Russian vodka,” said Bivens Collinson.
Additional reporting by Chad Bray in London
