What will be the impact of the Russia-Ukraine Conflict On the US Economy?

Fights and destruction always leave a negative impact on the economy. Undoubtedly, the countries involved in the wars bear the maximum losses, but the neighboring countries and their residents also have to go through losses, inflation, and routine disturbances. The consequences that wars cause do include not only economic crashes but also include infrastructural and livelihood losses. These losses give rise to threatening financial situations and terrible inflation among the markets.

Russia’s recent invasion of Ukraine has put everything in a turbulent situation. May it be the economy and livelihood of these countries, or we talk about other countries’ financial markets, all of them are badly stricken by threat and terror. Putin’s invasion of Ukraine has taken the global economy upside down. Not only in Russia and Ukraine, but it has caused remarkable ups and downs in the US economy as well.

President Joe Biden had already warned about Russia’s invasion plans on Ukraine. But, then still the war happened. Smart and sensible countrymen don’t want war situations to go any further. Moreover, to punish Putin because of his destructive actions, the US decides to put financial sanctions on Russia.

The US exercising economic pressures on Putin- Because of Putin’s brutal invasion of Ukraine, the United States and many other countries have decided to punish Putin and the Russian economy with financial sanctions and economic pressure. President Joe Biden announced that many other allies had joined hands to impose economic sanctions on Russia along with the US. They would revoke Russia’s trade status of being ‘the most-favored nation’.

More than just the imports, these economic sanctions are targeted to hit the Russian economy and deny it its status of being ‘the most-favored-nation’. The seven allies of the US in this decision include Canada, France, Germany, Italy, Japan, and the United Kingdom. Russia is a significant producer and supplier of natural resources, grains, crude oil, and gas. But to make the war situations come to an end and punish Putin for his destructive decisions, the US and other joining countries had to put restrictions on their trade with Russia. Biden also claimed that in case Putin continues to invade Ukraine, then the ongoing sanctions will be increased, and the main motive of the US and the other G-7 nations will be to isolate Russia.

What is PNTR?

PNTR is a term used while defining trade relations within nations. It stands for permanent normal trade relations. We use this term for defining free trade relations with foreign nations. According to the World Trade Organization, countries can give each other the most-favored status, i.e. they can exchange their goods with lesser tariff values and lesser barriers. This also allows them to have maximum export exchanges with each other.

The US and other G-7 countries decide to take away Russia’s status of being ‘the most-favored nation’ so that Washington can raise tariff values for Russia. Even an act to ban the Russian energy imports was passed on Wednesday under the name, “Suspending energy imports from Russia Act”. This had no reference to PNTR or tariffs beyond a block on the Russian energy imports.

Impact of Russia-Ukraine war on the US economy-

There are huge impacts of the Russia-Ukraine war on the economic as well as the day-to-day front. Putin was warned not to invade Ukraine, but then also the war happened. Russia has to go through strict financial sanctions, export bans, rising prices, and economic inflation as a repercussion. The negative consequences of these wars will continue to haunt the countries and their economies for months after the war. The impacts of the Russia-Ukraine war on the US economy are-

• Rising prices of oil and grains- Russia accounts for a 10% export of oil and 55% export of gas used in the entire world. The present war situations and the ban on imports from Russia have caused a sharp rise in the oil and gas prices in the market. US economy faces sharp inflation in the oil and gas prices. Although other countries in the world can allow for oil import in the US, the impact of this war would still be significant.
• Supply chain disruptions- Russia and Ukraine were significant producers and exporters of oil, grains, gas, natural resources, and automobile parts. The entire world as well as the US economy were trying their level best in recovering from the losses due to the pandemic. And, now the Russia-Ukraine war is causing supply chain disturbances and becoming the reason for limited or shorter supplies to the countries for their requirements.
• Travel blockages- The ongoing war has caused Russia many financial sanctions and export bans. Both these reasons have caused travel route blockages. Moreover, the US has banned Russian carriers from entering into its airspace. This has led to travel disturbances for the US and Russia, which can result in goods’ supply disruptions.
• Raw material shortages- Many raw material goods were exported from Russia and Ukraine to the US. These countries are large producers of natural resources, grains, agricultural commodities, and sunflower oil. Supply disturbances travel blockages, and export bans directly indicate the possible upcoming raw material shortages in the US. Both the residents and the government are hoping the war will end soon or overcome this period of possible shortages with ease.
• Transportation issues- Most of the Russian and Ukrainian trade was based on rail, sea, and air freights. The two-year pandemic already caused transportation disturbances for trade routes. And, now this war and the financial sanctions blocked some of the transportation routes. Most of the rail route traffic and Black sea shipping routes are banned for exports from Russia and Ukraine. The sanctions and economic bans from the US are also impacting the transportation of goods.
• Threatening the investors- The Russia-Ukraine was has proved to be terrifying for large-scale entrepreneurs and investors as well. The stock market and global economy were already facing losses and inflation because of the pandemic. In addition to that, this war has caused rising prices of the day-to-day and broken trade relations between Russia and the US.
• Banking threats- According to recent surveys, Russia has a pending debt of over US $100 in foreign banks. This has made worldwide banking go on a threatening turmoil for further trades and recovery. Not only the banks, but the US also claims to think at least twice before continuing its trade relations again with Russia.
• Threats to the automotive sector- Russia is one of the most significant exporters of crude oil. The destructive war situations have caused the US ban on imports from Russia. This leads to terribly increasing prices of oil and fuel. Rising prices and fuel shortages lead to disturbances in the automotive industry. Moreover, there are many automobile and car parts manufacturing companies settled up in Russia. The broken trade relations between US and Russia would cause shortages of car components and create increased troubles for the automotive industry.
• Rising airfare costs- After US president Biden banned all exports from Russia, including oil and energy, the automotive and food industry was already facing challenges. Fear of fuel shortage, travel route disruptions, blocked airspace, and ongoing destructive situations have led to increased airfare costs. Both US and Russia have banned entering into each other’s airspace, which has made it more difficult for common people to move into their desired places.

Russia-US trade relations

US and Russia used to share great trade relations. The net US and Russian trade of goods and services were found to be worth $34.9 billion in 2019. The total exports accounted for $10.9 billion and the imports accounted for the remaining $24.0 billion.

Russia is currently the 26th largest goods trading partner with the US. The total two-way goods trading is done for $28 billion, where goods exports were $5.8 billion and goods imported were $ 22.3 billion. The services trade between US and Russia totaled $6.9 billion in 2019. Out of the net worth, the export services accounted for $5.1 billion and the import services were $1.8 billion.

Based on the above-mentioned data, Russia was the 20th largest exporter of goods to the US in 2019.

The main imports from Russia to the US

According to the reports, Russia was a significant supplier for the US in terms of goods as well as services. The goods exports from Russia to the US totaled $22.3 billion in 2019, which was at an increase of 6.8% i.e. $1.4 billion from 2018, and at an increase of 22.3% from 2009. The biggest imports from Russia to the US included mineral fuels worth $13 billion, precious metals and stones worth $2.2 billion, iron and steel worth $1.4 billion, fertilizers worth $963 million, and other inorganic chemicals worth $763 million.

Besides the chemicals and minerals, the US also used to import agricultural goods from Russia. There was a net import of $69 million in agricultural commodities from Russia to the US. This import included snack foods worth $8 million, tree nuts worth $6 million, vegetable oils worth $3 million, essential oils worth $3 million, and dairy products worth $2 million.

Along with the industry, automobile, and agricultural goods, the US also used to import services from Russia. There was a net import of $1.8 billion of services from Russia to the US in 2019, which was 2.2% i.e. $38 million more than the previous value in 2018 and 50.6% less than the net value in 2009. The main importing services from Russia to the US include transportation, financial services, and travel services.

Worsen everyday costs in the US

It is a connected world and thus the impact of a conflict between any two of its countries would surely affect the rest. President Biden has already warned that the decision of going against and punishing Putin would bring a price tag for the US as well. The ongoing war indicates rising prices and uncontrollable inflation, which is estimated to break its records of the past 40 years.

Russia’s invasion would cause supply disruptions of oil and energy and affect the supply of food and grains from Ukraine to the rest of the world. As Ukraine is known as the “breadbasket of Europe”, any supply shortages would affect the US and its everyday costs as well.

Russia is a significant producer of almost 12% of the world’s oil and 17% of the world’s natural gas. It might cut off these supplies to Europe and other countries as a result of the financial sanctions made against it. US is trying hard to assure its allies that the US would provide them with liquid natural gas in case of any shortfall.

Stock market fluctuations

The impact of the Russia-Ukraine conflict can be seen on the ups and downs of stock markets as well. Other than stock markets, US banking has also got affected. The central bank in the US is under real worries of terribly rising inflation in the US and is thus planning to increase the interest rates to cope with the situation.

According to senior analysts and economists, the US economy is predicted to witness inflation of nearly 10%. And, this would be the highest inflation witnessed by the US since October 1981. More than just raising the prices of food items and oil, the US could have to bear recession in the upcoming times. The inflation, so caused, will increase the interest rates for payments.

In such situations, investors lookout for safer investment options like bonds, shares, and other dollar-denominated assets. But the stock market fluctuations and increased inflation would result in decreasing the interest rates of these investment options.

Other important imports from Russia to the US

• Russian oil imports- The Russia-Ukraine war has already shown its impact on the prices of oil in the global market. The prices of oil have already reached their highest values since 2014. When Crimea got annexed from Ukraine by Russia, the average gasoline price reached US $3.50 per gallon.
• Russian grain imports- Russia provides nearly 17% of the global supply of wheat. Besides wheat, it is a significant barley, meslin, rye, and corn supplier. Because of the financial sanctions and export bans imposed on Russia, economists say that it could lead to a fall of 30–40 million tons of grains to the global market this year. Along with this fall, supply shortages and high rising prices of grains could also be seen in the supermarkets of the US.
• Russian fertilizer imports- Russia exports nearly 96% of the total potassium fertilizer used in the US, with 1 million short tons per year. The US also imported phosphate fertilizer worth $299.4 million from Russia. In 2021, the US imported Russian fertilizers worth $1.28 billion. These figures show that Russia is an important fertilizer provider of the US. And, in the situations of trade blockages, the fertilizer prices would also face inflation.
• Vodka imports to the US from Russia- According to Bloomberg, the US imports beverages, spirits, and vinegar worth $24.1 million from Russia. Russia accounts for nearly 1.2% of the net vodka imports in the US. According to the Distilled Spirits Council of the US, the net vodka imports in the US are worth $18.5 million that comes from Russia. So in the US, decreased supply, transportation disturbances, and rising prices are predicted for vodka as well.
  According to the Wall Street Journal, Russian vodka was imported duty-free to the US before, but now, there will be a tariff of $1.78 per liter of vodka imported to the US because of the sanctions.
• Imports of seafood and diamonds from Russia
  The reports from Bloomberg say that the US imported Russian seafood worth $1.2 billion last year. Biden made a clear announcement that the US would stop importing seafood and other luxury items from Russia. These luxury items would include watches, apparel, alcohol, jewelry, and luxury vehicles.
• Imports of mineral fuels from Russia
  The office of United States representatives claims that the US imported mineral fuels worth $13 billion from Russia in 2019. This year, these mineral fuels and natural resources would strike the highest prices in the global markets because Russia was one of their biggest exporters. Either the US would have to manage with the already present resources or it would have to bear terrible inflation because of the trade bans imposed on Russia.

Ukraine-USA trade relations

The US imports a large number of natural resources and food industry goods from Ukraine. The net trade between US and Ukraine was worth $465.91 million in December. Ukraine is famous for being the “breadbasket of Europe”. Ukraine was the 71st largest provider of goods to the US.

US imported goods or products worth $1.23 billion from Ukraine. In this net import, the main imported products included pig iron worth $462 million, iron pipes worth $146 million, and fruit juice worth $46.7 million.

The actual figures say that in December 2021, the US imported goods worth $175 million from Ukraine. Whereas, its exports totaled $291 million. The imported products from Ukraine to the US included electrical machinery, textile articles, vegetable oils, snack foods, and dairy products also.

Imports from Ukraine to the USA

The US imported goods and services worth $1.3 billion from Ukraine in 2019, which was down by 4.2% i.e. $56 million from 2018 but was up by 161.9% from 2009. These imports mainly included iron and steel, electrical machinery goods, preserved food items, and textile industry goods.

In 2019, the US imported agricultural commodities worth $143 million from Ukraine. These agricultural goods included fruit and vegetable juices worth $48 million, vegetable oils worth $31 million, snack food items thee $12 million, dairy products the $2 million, and processed fruit & vegetables the $918 thousand.

Agricultural imports from Ukraine

Ukraine is known as the “breadbasket of Europe”. The recent war situations have blocked the processing and supply of food industry goods from Ukraine. Moreover, the decreasing supply has caused terrible jumps in the price of food items. Ukraine produces 16% of the world’s corn, 12% of the world’s wheat, and significant percentages of barley and rye.

Besides the above-mentioned products, Ukraine is also a significant supplier of other agricultural and food products. There would be supply shortages and then eventually, prices rise in the supermarkets of the US too. The US encountered a 7.4% increase in grocery prices in January, last year. And, now the situations are predicted to go even worse than before.

Biden avoids the World War III

Undoubtedly, the ongoing war between Russia and Ukraine has caused massive destruction, injuries, and civilian deaths in both countries. The US and its allies are trying really hard to stop the conflicting situations and avoid any more violence, not only in these two countries but also in the entire world. Biden has called this “unjustified” and has tried to put economic pressures on Putin to end the war. President Biden and his allies are trying to avoid the possible situations of war between Russia and the west, which would actually call for World War III. He has clearly announced that the US has “no intention of fighting with Russia.”

Conclusion- No matter how strong any economy is when war happens, it causes destruction, inflation, recession, life losses, and stock market disturbances everywhere. The Russia-Ukraine war is not only badly influencing the economies of these two countries, but it also negatively impacts the global economy. The US has a very strong economic background and has fought many economic threats like inflation and recession. But, the ongoing Russia-Ukraine war has its own impacts. Price rises on the pump, supermarkets, automotive sector, agricultural fields, and luxury markets have hit in the US as well. But, as Biden already announced, fighting for the good, punishing Putin, and imposing sanctions against Russia would bring a price tag. Despite the inflation and possible negative predictions, the US would fight for its stability and try its level best to maintain economic stability.