Sanctions to Severely Impact US Exports to Russia

Severe sanctions placed on Russia by Western countries in retaliation for its invasion of Ukraine will have a crippling impact on the Russian economy. The blowback from these sanctions will hit US businesses as well. Per the US International Trade Commission, Russia was the 39^th largest recipient of US goods exports in 2021, valued at over $5 billion. US exporters to Russia will be impacted by these sanctions in three big ways:

• Export restrictions by the US government: Exports of high-tech products used by Russia’s defense, aerospace, and maritime sectors have been severely restricted by the US Commerce Department. This will particularly impact exports of aircraft, engines, equipment, and parts, which accounted for the largest share of US exports to Russia in 2021. Only limited export licenses will be granted for products determined not to benefit the Russian defense sector (i.e, flight safety, government space cooperation, humanitarian needs).

• Shipping to Russia: The logistics of physically transporting goods to Russia is also becoming exponentially more difficult. UPS and FedEx stopped shipments into Russia on February 27. The world’s three largest container shipping lines – Maersk, CMA CGM, and MSC – announced on March 1 that they would halt non-essential bookings (excepting food, medical equipment, etc.) to Russia until further notice. Passenger motor vehicles, engines, and tractors make up a substantial share of US exports to Russia, and will be directly impacted by these developments.
   
• Collapsing value of the ruble: Sanctions on Russia’s financial system and measures to prevent Russia from accessing its foreign reserves held in foreign banks to help prop up their currency has caused the value of the ruble to drop to record lows. As a result, the purchasing power of Russian consumers has been significantly weakened, and US exports of goods not directly targeted for sanctions – such as jewelry, beauty and makeup products, and other luxury goods – will decline.

Freedonia analysts will continue to watch how sanctions and their after effects further along supply chains impact US and global economies.

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