Trade Can Be an Effective Political Tool

By Wensi Fang

While courses about Trade Policy emphasize of how trade can benefit countries and how trade policy is created based on economic rational, the recent news taught us a lesson that trade policy can be influenced by politics and politicians can also use trade as a powerful weapon.

Russian troops near Sevastopol, Crimea, Ukraine

On March 13, 2014, the Washington Post reported that Russian troops were gathering at Ukraine border for exercises as standoff continued[1]. The military exercises also served as a blunt reminder of Russia’s ability to easily move deeper into the neighboring country. The exercises were set to take place amid a standoff with the U.S. and Europe over the fate of Ukraine’s autonomous Crimea region, which was occupied by Russian troops at the time.

While the U.S. ambassador to the U.N., Samantha Power, insisted that U.N. should come together to defend Crimea from Russia, Obama said that U.S. and its allies would “apply a cost” to Russia if it tried to split Crimea from the rest of Ukraine. German Chancellor Angela Merkel emphasized, “If Russia continues on the course of the last week, it won’t be just a catastrophe for Ukraine, it would also cause massive economic and political harm to Russia.”

On March 15, 2014, the Economists said that not only second-world-war history weighs on German decision-making on whether Germany will back harsh consequences for Russia over its invasion of Crimea, but also economics does[2]. Germany imports about a third of its oil and gas from Russia, while Germany alone accounts for almost a third of the EU’s total exports to Russia. And Russia is Germany’s 11th-biggest export market.

Anton Borner of the Federation of German Wholesale, Foreign Trade and Services, another industry group, says that whereas a shutdown in trade would be “painful” for Germany, it would be “existentially threatening” for Russia. Mr. Borner called for an “urgent” de-escalation rather than sanctions, arguing that “Putin is part of the solution.”

On March 23, 2014, Reuters reported that German Finance Minister Wolfgang Schaeuble said that the EU was united in its readiness to impose economic sanctions on Russia if the standoff over Ukraine escalates, and that Moscow had much more to lose than the West[3].

putin-obama-cartoons-fill-the-internet-L-Uik3H0

On March 29, 2014, the New York Times reported that Putin proposed to President Obama that they boost attempts to resolve their standoff over Ukraine peacefully[4].

From Russia’s escalating standoff over Ukraine to its backing off peacefully, it is obvious that both the U.S. and European countries have put lots of the pressure on Russia. As we can see from the news, the pressure is coming from the threats on trades between European countries and Russia, especially from Germany. As Germany imports one third of its oil and gas from Russia and Russia imports $48 billion goods from Germany last year. Any difficulties in trade between European countries like Germany and Russia can hurt Russia’s economy; especially the pressure comes from the European countries at the same time. Therefore, Russia has to back off from its standoff over Ukraine to avoid these potential losses from trade with these countries. As trade policy can be a powerful political tool, when studying trade policy, we should also consider the noises from politics. It is ideal to establish trade policy by rationally considering economic circumstances, however, the reality is that trade policy is established with the influence from politics. Therefore, in order to learn trade policy well, we also need to learn some politics.

 

[1] http://www.washingtonpost.com/world/russian-troops-gathering-at-ukraine-border-for-exercises-as-standoff-continues/2014/03/13/39f42508-aaa1-11e3-adbc-888c8010c799_story.html

[2] http://www.economist.com.resources.library.brandeis.edu/news/business/21599034-german-exporters-are-pushing-back-against-economic-sanctions-russia-lovers-not-fighters?zid=293&ah=e50f636873b42369614615ba3c16df4a

[3] http://news.yahoo.com/trade-sanctions-hurt-russia-more-west-german-minister-185751090.html

[4] http://www.nytimes.com/2014/03/30/world/europe/ukraine.html?_r=0

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