US President Donald Trump, apparently fed up with his Russian counterpart, Vladimir Putin, promised on July 14 to renew arms supplies to Ukraine and threatened to impose sanctions on countries trading with Russia if no ceasefire is reached within 50 days.
The economic sanctions pledge appears to be a U-turn in administration policy toward Putin, with whom he had hoped to negotiate a settlement to the war of aggression. If implemented, it would result in 100% import tariffs on goods imported to the US from countries doing business with Russia.
“We’re going to be doing secondary tariffs if we don’t have a [Russia-Ukraine peace] deal within 50 days,” Trump said during a July 14 meeting with NATO Secretary General Mark Rutte. “Secondary tariffs are very, very powerful.”
While the pledge to send arms to Ukraine is definitely a stick in Trump’s dealings with Putin, his threat of tariffs has a whiff of a carrot about it.
True, it’s a change in rhetoric. Since taking office in January, the administration hasn’t imposed any meaningful sanctions on Russia or on companies from third countries helping Moscow circumvent trade restrictions.
In the whack-a-mole game of sanctions dodging, this has allowed Russian businesses to adapt to and circumvent existing measures. Without permanent widening and adjustment of the existing sanctions regime, the restrictions yield diminishing results over time, as Russian exporters and importers alike set up intermediary companies and payment routes.
Russian businesses are less and less worried about sanctions and more worried about domestic factors, according to a recent poll among the country’s CEOs. The economy, while suffering, is adapting to stable sanctions. Yet businesses and policymakers remain worried about changes to the restrictions.
“On the one hand, there’s always talk of these bone-crushing sanctions and new packages…but at the same time, the pressure has actually been reduced, and cooperation on sanctions enforcement has also been reduced. It’s clearly not a priority at the moment, and this makes it a bit hard to believe that this would suddenly shift,” said Janis Kluge from the German Institute for International and Security Affairs.
With the US reluctance to introduce new sanctions, the EU has taken the lead by targeting Russian and its “shadow” tankers, Russian companies, and some facilitators in China, Turkey, and other countries.
However, European sanctions policy has one significant disadvantage compared to US measures: the EU traditionally avoids imposing automatic secondary sanctions on third countries that trade with Russia.
The US system, on the other hand, is often much more direct and effective — it targets intermediaries with secondary sanctions.
But while Trump is now warning he may hit Russia’s trading partners, the threat is not as great or as direct as it sounds.
Predictably, the Kremlin radiates defiance and states that it will not stop “achieving the aims of the special military operation” because of the threats. Foreign Minister Sergey Lavrov openly sneered at the threats on July 15. The oil markets, which might be 5 million barrels per day short if Russian oil is hit by sanctions, showed little anxiety.
The reason is that there is little understanding both in the Kremlin and on trading desks of how the sanctions would work, or even whether they would materialize at all.
Trump gave Putin 50 days to stop the fighting. Firstly, the deadline might be ephemeral. In the past, Trump has presented Putin with deadlines but did nothing when they expired, and on the other hand, bombed Iran in June after issuing warnings.
Back in March, he signed an executive order allowing the imposition of 25% import tariffs on any country that imports oil from Venezuela, but these tariffs have yet to materialize. Some skepticism about the recent threat, therefore, seems justified.
Secondly, Russian exports to the US are worth only about $2.5bn of (mostly) commodities. That weapon is therefore not very frightening.
But if the US did hit countries trading with Russia with 100% tariffs on everything they export to the US, that would have extremely serious consequences for China and India, Russia’s main oil buyers, along with Brazil, Turkey, and (ironically given its outwardly hardline stance) the EU.
Yet there are questions here, too. Earlier battles in the trade war indicate that the US can’t drop its trade with China. The US also needs India’s support in its geopolitical standoff with China. Turkey, another potential candidate for sanctions, is a NATO member and US ally in the Near East.
On top of that, the global oil market can’t replace Russian supplies.
The administration’s new policy of arms to Ukraine and the threat of overwhelming sanctions has had one other effect — it has forced reluctant US lawmakers to postpone their own sanctions initiative.
Senate Majority Leader John Thune said Monday he would hold off on advancing a package of sanctions targeting Russia’s trading partners.
Thune suggested Trump’s threat meant the Senate would no longer need to pass the bill drafted by Senators Lindsey Graham and Richard Blumenthal. The bipartisan bill has 85 Senate co-sponsors and authorizes Trump to impose secondary tariffs of at least 500% on imported goods from countries that still trade with Russia.
There is little difference between 500% and 100% tariffs from a practical point of view, as both are prohibitive. However, the bill does more than that. It defines a timeline for imposing the tariffs. Even more importantly, it codifies a number of sanctions against Russia already in place but within a framework of emergency powers granted by Congress to the president. This would tie the administration’s hands since, at the moment, he can lift sanctions by simply not extending the state of emergency.
It may be that Trump’s statements show a change in policy as well as rhetoric. But for now, they raise too many questions to instill fear in the hearts of Moscow, Beijing, or Delhi.