Economic Development and Government

Could Russia impact West Michigan?

So far, sanctions are against individuals and one financial institution.

April 11, 2014
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Russia Roger Durham
Roger Durham, coordinator of international studies at Aquinas College, calls the circumstances in Russia a “real sticky political economy situation.” Courtesy Aquinas College

In short, yes: West Michigan could feel the impact of U.S. sanctions against Russia, particularly if sanctions targeting specific industries are imposed.

Immediately following the Crimean vote to join Russia, the United States targeted sanctions against a handful of Russian officials. More recently as the conflict has continued, the U.S. has added several more individuals and financial institution Bank Rossiya to the list.

President Barack Obama said that if Russia continues to threaten the Ukraine, further sanctions could be imposed targeting key economic sectors such as military, energy and finance industries.

Any sanctions targeting specific industries will have an impact on the United States and European economies and could hurt U.S. companies operating in Russia; however, impacts on West Michigan and the state at large would likely be slight.

“That is what makes this a real sticky political economy situation,” said Roger Durham, professor of political science and coordinator of international studies at Aquinas College. “Whenever economies are dependent on material revenue or goods from another economy, that creates what we call dependence — it does change things.”

Russia has many natural resources that are important to the world economy, and Durham said there could be some trade impact because of the Crimean ports, which have been taken over by the Republican Committee on Transport and Communications following the Crimean vote. Russia’s access through Crimea could impact trade in the region.

During the Auto Suppliers Symposium earlier this year, Mike Wall, director of automotive analysis at IHS Automotive, included Russia in his global outlook. Wall indicated that the Russian market declined in 2013 and said the near-term outlook would remain challenged. He said the political strife is not likely to have a significant impact on his earlier prediction or the global automobile market.

“We don’t see a major impact from the Russia-Crimea crisis on the U.S. market,” he said. “There are some suppliers, even in West Michigan, that do have some exposure in Russia. There might be joint ventures or some of their international facilities, so you may see some impact from that perspective — to the extent that they have some international presence — that specifically they are in Russia or in the Eastern European region. But at the same time, it’s certainly going to have much more significant impact on Russia itself or the Ukraine.

“The Ukraine is not a huge market from either the production or sales perspective. Russia is, so that can have an impact — certainly in opportunities, too, for new quoting opportunities — but in terms of the West Michigan suppliers, specifically, it’s probably going to be fairly light, assuming it doesn’t deteriorate further.”

Durham noted that international law and the use of sanctions have changed with the growth of a global economy, and sanctions today are often applied more narrowly than in the past.

“There has been a real effort in international law and response to gear it toward specific items rather than a broader community,” he said. “There is a range of strategies that both individuals and governments have when there is a crisis — from do nothing to do everything.”

Sanctions are one of the tools utilized, but Durham said sanctions haven’t always worked as intended.

“What we found is, if you create sanctions that affect an entire group of people, that may or may not affect the decision makers,” he explained. “For example, the embargo on Cuba — absolutely failed policy. Did it change leadership in Cuba? No. In fact, it strengthened Castro for some time.

“The effect is that it’s hurt a lot of Cubans — there has been inflation; they don’t have the goods they should get. American businesses are actually ready to invest in Cuba, but they aren’t doing it because of the embargo.

“The recent list of sanctions tries to go after specific individuals to change their behavior.”

He pointed out that the U.S. government’s response in Russia is similar to how it responded to threats in Libya recently.

Looking at the broader global picture, he added that while economic factors are important, a greater concern, and one he’d like to see companies consider, is the effect on the political and human condition.

“I think businesses really ought to be linked to more human and political rights,” he said. “It gives it more legitimacy. That is not always good for the bottom line, but I think, in the long term, you will end up being much more legitimate and much more sustainable if you do that.”

Durham spoke about how dependence on resources often causes countries and businesses to compromise their ideals. “Why does the U.S. support Saudi Arabia? We are dependent on their oil. It is one of the most undemocratic governments going. It has more beheadings per capita than any other government.

“I think it really is important for business to think about the human condition and the long-term political dynamic of their investments.”

As far as the situation with Russia and Crimea, Durham does not believe the resolution will be swift, but said it’s in Russia’s best interest not to escalate to violence.

“I expect there to be more protests, more diplomacy and attempts at solving this,” he said. “I don’t expect it to devolve into a Syria-like situation. I hope that won’t happen.

“Russia does not want an Afghanistan,” he added. “They invaded Afghanistan on Christmas Eve of ’79 and were there for almost 10 years, and it really hurt their economy.

“We all do better if we cooperate. In fact, what we know about markets is that we make more money when things are stable. Stability is a good thing.”

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