US Senate agrees to suspend Russia’s trade status; should Australia follow suit?

Highlights

• The US Senate has voted to suspend normal trade relations with Russia, suspending its MFN status.
• Australia has placed a series of travel and financial sanctions against prominent Russian figures.
• Nations are examining supply-side challenges that can emerge due to the introduction of heavy tariffs on Russian imports.

Intensifying America’s retaliation against Russia, the US Congress recently voted to suspend normal trade relations with the country. The US Congress voted in favour of the suspension based on reports of atrocities seen in Bucha (Ukraine) by the Russian troops.

The passed legislation also includes a ban on imports of Russian oil and gas, a move that can potentially disintegrate the demand-supply dynamics of these commodities. The two bills against Russia received an overwhelming response, with the House approving the trade measure by a vote of 420 to 3 and the ban on energy imports by 413 to 9.

The US has taken quick and stringent action against the Russian authorities while introducing sanctions against Russia’s largest banks and Putin’s children. Many nations have taken a cue from the Western country’s retaliatory stance against Russia. However, it remains to be seen if Australia will pass similar legislation.

ALSO READ: What is the current state of inflation in OECD area?

What measures has Australia taken against Russia?

The Australian government recently updated its retaliatory measures against Russia, taking a tougher stance against the nation. The first set of measures included sanctions on the Russian President and members of the Russian Security Council. Apart from supporting Russia’s exclusion from SWIFT, Australia also introduced financial sanctions in the first round.

These measures were succeeded by additional financial and travel bans on two key figures in charge of Belarusian defence and state policy. The sanctioning and travel bans by Australia became much more targeted after taking cues from the rest of the world. These measures by the Australian authorities continued to intensify throughout February and March 2022.

The Minister for Foreign Affairs and Trade, Senator Marise Payne, stated that Australia’s sanctioning would continue against those “who bear responsibility or hold levers of power.” However, the initial set of retaliatory measures excluded any trade-related bans.

Also read: Why are Australia’s housing growth rates losing momentum?

Can Australia afford trade sanctions?

Australia has already introduced an export ban on aluminium ores, alumina, and aluminium hydroxide. Essentially, these goods are identified as key components in the manufacturing and development of weapons. Given their relevance, the Australian authorities have denounced their exports to Russia.

Implementing sanctions similar to the US’ latest legislation seems to be on the cards for Australia. On March 10, the Australian Government introduced a list of import sanctioned goods, including oil, refined petroleum products, natural gas, and coal. However, the ban is expected to come into effect from April 25, forty-five days after the legislative instrument’s registration.

With major countries following in the footsteps of the US, it is crucial to examine how the chain effect could potentially hamper the overall economy. Australian policymakers understand the importance of the knock-on effects of such trade sanctioning against Russia.

Some of the major challenges that can sprout from trade restricting legislations include supply chain congestion, delivery delays, increased transport costs, delays in financing, issuance and confirmation of letters of credit or insurance. These factors play a crucial role in determining whether trade-related bans are worthwhile for Australia or not.

What to expect ahead?

The US’ legislation to revoke Russia’s trade status as a “most favoured nation” (MFN) is likely to become law once President Biden approves it. The suspension of Russia from this special status could open doors for higher import tariffs on Russian goods, such as steel and aluminium products. Other nations might also follow suit and effectively put pressure on Russian forces to step down.

How can effective altruism help the world?

On the surface, travel bans, sanctioning and trade-related restrictions might seem ineffective as tools to control the war. However, taking a non-violent approach in showing retaliation involves symbolism and unity. To make such restrictions against Russia effective, the world has to stand in solidarity to prove a point. Australia has already announced that it will issue a formal notification to strip Russia of its “most favoured nation” status.

This would include additional tariffs on Russian imports, along with existing general duty rates. However, since the legislation is yet to be passed, not much can be said about the effectiveness of these restrictions.

ALSO READ: Will Australia’s budget spending stoke inflation?