With the United States Congress voting to suspend normal trade relations with Russia and ban imports of Russian oil, President Joe Biden’s action to tighten the US squeeze on Russia’s economy now can intensify.
Congress voted overwhelmingly on Thursday to revoke Moscow’s “most favoured nation” trade status and ban oil imports, intensifying the US response to Russia’s invasion of Ukraine amid mounting reports of atrocities.
With European and other key allies, last month Biden moved to revoke Moscow’s normal trade status. He also has taken executive action to ban US imports of Russian oil, liquefied natural gas and coal. Also banned are imports of Russian seafood, alcohol and diamonds.
Biden can now sign the new legislation into law, opening the way for the US to impose higher tariffs on various imports, such as certain steel and aluminium products, among other measures.
By itself, the downgrade of Russia’s trade status won’t have an immediate far-reaching effect on the Russian economy but combined with the other sanctions the US and its allies have imposed, the goal is to intensify the pressure on Putin and force a pullback of his Russian forces.
Here’s a look at what it all means.
What is ‘most favoured nation’ status?
The idea behind MFN status is to equalise the trade treatment in tariffs and import quotas for all of a country’s trading partners.
Say, for example, that the US levies a 13 percent tariff on imported leather gloves. MFN status means that gloves imported from France, China, Brazil and Russia would all be taxed at that same rate.
MFN status has been a baseline for global trade, ensuring that countries within the World Trade Organization are treated on a similar footing, with some exceptions that allow, for example, preferential treatment for developing countries.
Over the years, the US has revoked the MFN status of more than two dozen countries — generally for political reasons, with the Cold War bringing the sanction against the then-Soviet Union and other communist countries, for example.
With the exception of Cuba and North Korea, the preferred status of those nations was eventually restored. This was done, for example, after the thaw of the Cold War in Eastern Europe and the opening of US-China relations after the visit of President Richard Nixon.
What about real effect versus symbolism?
For the US, removing the most favoured nation status is a mostly symbolic gesture.
The US ban announced last month on imports of Russian oil, gas and coal already eliminated about 60 percent of all US imports from Russia. The import bans against alcohol, seafood and diamonds add up to only about $1bn in revenue, according to White House figures.
Russia provided less than 1 percent of all US vodka imports in December, according to the Distilled Spirits Council of the United States, and less than 2 percent of US seafood imports by volume, according to federal statistics.
But symbolism can be important in war.
In debate on the legislation on Thursday, Democratic Representative Richard Neal said innocent Ukrainians were being slaughtered even as legislators were meeting. “We have no time to waste and must immediately further punish Vladimir Putin,” Neal said.
Russia’s six-week-old invasion failed to take Ukraine’s capital Kyiv quickly, and in the wake of that failure and heavy losses, Russia has shifted its focus to the Donbas region.
Ukraine’s foreign minister begged again on Thursday for weapons from NATO — and the Western alliance agreed, spurred into action by atrocities revealed in the wake of the Russian withdrawal from areas around Kyiv. Ukrainian officials said hundreds of bodies of civilians were found, many lying in the street, in towns around the capital.
What else does the US import from Russia?
The US buys mostly natural resources from Russia for which existing tariffs are mostly low or zero — oil and metals such as palladium, rhodium, uranium and silver bullion.
Imports also include chemical products, semi-finished steel products, plywood and, paradoxically, bullets and cartridge shells.
Because the imports from Russia are mostly natural resources, they generally will face little to no increase in tariffs as a result of the lost MFN status, Ed Gresser, director for trade and global markets at the left-leaning Progressive Policy Institute, noted in an online posting.
To replace the current tariff rates, US buyers of Russian goods would pay import taxes established under a 1930 US law that disrupted trade during the Great Depression. It would still be zero for the metals. But the rates would soar — to levels considered punitive — for unwrought aluminium, plywood and semi-finished steel, among other products.