The United States is contemplating the suspension of normal trade relations with Russia as a response to Russia’s ongoing invasion of Ukraine. On March 17, the House of Representatives approved a bill that would suspend normal trade relations not only with Russia but also with Belarus, subjecting both countries to tariff rates typically reserved for non-favored trading partners. This legislation, which still requires Senate approval, is expected to be signed into law by President Joe Biden.
At first glance, revoking Russia’s “most favored nation” status may seem symbolic. However, it sets the stage for broader U.S. sanctions targeting Russia’s entire economy, rather than specific individuals, companies, or exports. Michael Murphree, an assistant professor of international business at the University of South Carolina, explains, “It’s the normative status of further making Russia and the Russian economy an international pariah. It’s saying that as a result of the situation in Ukraine, Russia will not be able to be treated in any sector of the global economy like a normal nation.”
While the immediate impact on supply chains may be limited, the move to downgrade Russia’s trade standing with the U.S., expected to be coordinated with allied countries, is not merely a procedural maneuver to isolate and embarrass Russia. The “most-favored nation” status designation, established by the World Trade Organization, encompasses fair-trading standards between countries. Revoking it grants the U.S. the authority to impose tariffs or other trade restrictions across an entire economy. Previously, sanctions against Russia primarily targeted individuals, including President Vladimir Putin, specific companies, and certain sectors like alcohol and seafood.
However, many sectors remain unsanctioned, and Russia is a significant exporter to the U.S. For example, approximately 12% of U.S. fertilizer imports came from Russia last year. Base metals, iron and steel, lead, and nickel are among the commodities that could experience price surges as companies seek alternative sources to replace Russian imports. As Murphree notes, it’s not only the Russian goods themselves that may become more expensive due to tariffs but also the competition for non-Russian sources that can drive up prices.
Nevertheless, the House bill introduced by Rep. Richard Neal of Massachusetts, as currently written, may not significantly impact many of Russia’s top exports to the U.S. For example, fertilizers, platinum, and palladium are unlikely to see major rate changes. However, the bill does grant the president the authority to impose higher tariffs than those reserved for non-favored trading partners. For context, non-favored trading partners are subject to a 6.6-cent-per-kilogram tariff on nickel products and a 6% tariff on copper, while favored trading partners do not face tariffs for these products. Non-favored partners also face higher tariffs, 18.5%, on aluminum products compared to the 2.6% rate for favored partners.
Automakers have already noticed significant increases in nickel prices, potentially affecting electric vehicle prices, as nickel is crucial in Li-Ion battery production and the stainless steel process. Amid rising costs and disruptions, companies must prioritize visibility to understand how their supply chains will be impacted. Julie Gerdeman, CEO of Everstream Analytics, emphasizes the importance of knowing suppliers’ suppliers and monitoring risk at various levels, from suppliers to materials and facility locations. This proactive approach is crucial for mitigating potential supply chain disruptions.
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