Leibowitz: U.S.-Russia Talks on Ukraine Conflict

Of course, a war has been going on between Russia and Ukraine for a while. In 2013, Viktor Yanukovich, then Ukraine’s president, rejected an agreement that would have strengthened trade and economic ties between Ukraine and the European Union, opting instead for strengthened ties with Russia. The Ukrainian people rebelled against that stance and ousted Yanukovich, who left the country early in 2014. 

Then, partly as a reaction to the replacement of Yanukovich, Russia invaded and annexed the Crimea, a part of Ukraine since Soviet days. Shortly thereafter, a conflict erupted between Ukrainian ethnic Russian separatists in eastern Ukraine and the Ukrainian government. Russia provided arms to the separatists in that conflict. Russian troops are still on the Ukrainian border, about 100,000 strong, and appear to be aiding the separatists to this day, although fighting has been sporadic for several years. In recent weeks, Russia has been rattling sabers anew.

There are strong suspicions in the West that this conflict and others (Georgia, Chechnya, etc.) were incited by Russia’s president, Vladimir Putin, in an effort to expand Russia’s sphere of influence. As you will recall, the Soviet Union, until its 1991 dissolution in the face of economic collapse and nationalist fervor, controlled Ukraine and 14 other Soviet republics, which are now independent, at least nominally. Indeed, three of them (Lithuania, Latvia and Estonia) are now members of NATO. NATO members, including the United States, are bound by treaty to come to the defense of any other member that is attacked. 

Ukraine is not a member of NATO. But the United States and others are intensely interested in making sure that aggression does not pay. Without going to war for Ukraine, the U.S. and other Western countries have threatened severe economic sanctions against Russia and Putin’s inner circle if Russia invades. The talks starting in Geneva tomorrow are part of the latest efforts to resolve the current standoff without overt conflict.

These efforts are closely connected to international trade. In an effort to resolve the current tensions without war, economic and trade sanctions are at the top of the list of policies that are likely to be rolled out if Russia crosses the Ukrainian border. 

Russia and Ukraine are both important trading partners of the U.S. and especially Europe. The importance of trade ties is highlighted by some interesting statistics. Russia is clearly a very important trading partner of the EU. The EU remains Russia’s largest trading partner, accounting for more than one-third of Russia’s global exports. It accounts for 26% of the EU’s oil imports and 40% of its natural gas imports—and that is before the opening of the Nord Stream 2 gas pipeline, which will eventually supply another 25% of EU natural gas. Europe is therefore already very dependent on Russia for its energy supplies. A rupture with Russia over Ukraine would mean serious hardship for the EU, at least until it can make alternative arrangements for energy supply. 

The United States is also an important trading partner with Russia. In 2021 through November, the U.S. imported over $16 billion in oil and gas from Russia. That is nearly double total U.S. imports of oil and gas from Russia in all of 2020. Another increasing import from Russia (despite Section 232 tariffs and numerous antidumping and countervailing duty orders) is steel. In 2021 through November, U.S. steel imports from the Russia were $2.4 billion, nearly triple full-year 2020 levels. Pipe and other steel-intensive products have more than doubled in the same period, although those imports are much smaller in value.

Ukraine is also an important trading partner of the U.S., but not in energy. Steel imports from Ukraine to the U.S. will total about $1 billion in full-year 2021.

Clearly, trade sanctions will be on the table for the U.S. and the EU, if the Ukraine conflict spins out of control. But this example makes the broader point that trade sanctions, whether tariffs, quotas or embargoes, hurt both sides. If trade with Russia is cut off, global commerce would be seriously disrupted. The EU’s energy picture would be seriously disrupted if oil and gas from Russia were cut off. Europe is not anxious to cut off oil and natural gas supplies from Russia. The U.S. is not interested in a cutoff, although to a lesser degree. 

Since 2014, when the Ukraine conflict became a “hot” war, sanctions against Russia by the EU and the U.S. have taken the form of “personal” sanctions against individuals in Russia’s leadership class. Crossing the line into major economic sanctions has now been talked about, but the pain will extend to all sides and will be resisted by some interests. But if pressure on Russia is needed, economic sanctions seem to be one of the only credible steps left for the U.S. and Europe.

The situation is similar in some respects to the year before World War II broke out in Europe. In March 1938, Germany annexed Austria and then went after the only remaining concentration of ethnic Germans not already in Germany—the Sudetenland area of Czechoslovakia. Hitler claimed that the Czech government was mistreating the Sudeten German population, and threatened war if his demands were not met. In September 1938, Germany, Italy, the UK and France made the now-infamous Munich agreement, which permitted Germany to incorporate the Sudetenland into the Reich, stripping Czechoslovakia of its border defenses. In March 1939, Germany took over the rest of that country without firing a shot. Its next target was Poland, the invasion of which started the war.

In Ukraine, Russia also professes concern for ethnic Russians living in eastern Ukraine, an area known as the “Donbas.” This region is a major industrial area of the country. Separatists still control much of the Donbas, having wrested it from Ukrainian government control in 2014. The negotiations starting tomorrow in Geneva will attempt to forge an agreement that will avert war and permit trade and economic development to continue.

Putin appears to be putting pressure on the West to accommodate Russia’s desire to exercise greater control over its neighbors. Unlike Munich, this conference will include Ukraine as a party. (Compare that to the list of countries included in the Munich conference—you won’t see Czechoslovakia). 

The Ukraine crisis could be an important turning point in the post-Cold War international order. The principal feature of that order is the sanctity of international boundaries. A means to resolve these disputes without overt conflict must be found, or the world could end up resembling the 1930s, when the largest armies ruled the roost. 

Trade conflicts could be involved in such a solution. It is too early to tell if there is a feasible way of resolving the current impasse. If there is, trade and economic considerations will no doubt be an important part of the resolution. And, if no resolution is found, the countries of the world may need to figure out how to get along without trade with Russia.

Lewis Leibowitz

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