BOFIT Viikkokatsaus / BOFIT Weekly 2018/29

At the Helsinki summit last Monday (July 16), discussions focused on foreign and security policy, but also economic relations were touched upon. Putin said he had agreed with Trump e.g. on the creation of a high-level business working group on developing bilateral economic relations.

Neither country is a particularly important partner for the other in economic terms and bilateral economic relations have developed poorly in past years given Russia's weak economy and ongoing political tensions between the two countries. The value of US-Russia bilateral goods trade last year was about $25 billion. The US accounted for 4 % of Russian goods trade, while Russia's share was less than 1 % in the case of the US. Russia mostly exports fuels and metals to the US and imports machinery & equipment and chemicals.

Even if direct investment figures should be viewed with caution, they show the stock of American foreign direct investment in Russia last year was only about $3 billion, less than 1 % of Russia's total FDI stock. The stock of Russian investment in the US was about $7 billion, which is also a miniscule share of the total US FDI stock. Russia this year has also significantly reduced its holdings of US treasuries that according to some views could be related to sanctions risks.

For the moment, US sectoral sanctions have restricted access to financing and exports of oil exploration technology to certain Russian firms. Additionally, several Russian firms and persons have been placed on the Specially Designated Nationals (SDN) sanctions list, which calls e.g. for freezing of assets. Further measures are under discussion from time to time, including a proposal this week to sanction the NordStream 2 undersea gas pipeline. Russia has restricted food imports also from the US, among other countries, with Putin last week extending the sanction up to the end of 2019.

New tariffs also complicate trade this year. Russia's economy ministry reports that US import duties levied on steel and aluminium products this spring incur on Russia costs of $540 million. Russia recently imposed retaliatory tariff hikes on certain US imports such as technology used in construction and oil drilling. Russia has also joined a number of countries in a complaint to the WTO about US tariff policies.