Economy

ITR Economics: 'Russia Needs the U.S. More Than the U.S. Needs Russia'

March 4, 2022

Europe will suffer substantial economic consequences from Russia’s invasion of Ukraine, while the Russian economy will be hurt by the array of sanctions imposed by the West. But the United States should emerge relatively unscathed from the “economic mayhem” caused by Russia’s aggression in Eastern Europe, unless the war escalates dramatically, predict the experts at ITR Economics.

ITR “Russia is not important to the U.S. economically. However, we are Russia’s third most important export destination (primarily energy). That means Russia needs the U.S. more than the U.S. needs the Russian economy,” wrote ITR CEO and Chief Economist Brian Beaulieu in a March 2 blog. “China is the main destination for Russia’s exports (by far), followed by Germany and then the U.S. China can cover the pain being inflicted on Russia if it is a relatively short war. It will be much harder for Germany to do so.”

The economies of Europe have not benefited from the same kind of pandemic stimulus that the U.S. received via Congress and the Federal Reserve, he noted. U.S. GDP is experiencing actual growth while the major economies of continental Europe are running below pre-COVID levels.

One of the war’s more immediate consequences on the U.S. is the high price of oil, ITR said. West Texas Intermediate surged to over $110 per barrel March 2. That surge, if sustained, could raise gas prices and erode consumer discretionary income.

As always, the fate of the U.S. economy is in the hands of consumers. “As was the case in 2014 with the Crimean Peninsula invasion, events tend to be accredited with magnified economic importance (short and long term) because they capture the imagination and garner a great deal of press. In the end, consumer behavior will decide if current events are a big deal or not for the economies,” ITR wrote.

“One key question for the bulk of the U.S. economy is whether U.S. consumers are going to stop spending money because of the invasion. Perhaps they will hesitate. Perhaps they won’t really care once a new media news cycle begins. History suggests a short attention span in this regard. Either way, don’t focus on consumer confidence or consumer expectations, but rather on how the consumer behaves, most easily discerned through the prism of retail sales.”

Editor’s note: ITR Economics President Alan Beaulieu will be a keynote speaker at the next SMU Steel Summit, scheduled for Aug. 22-24 in Atlanta. Click here for more information.