New US Barriers Against Russia’s Economy
Black Friday has a new meaning for the Kremlin.
By: Antonia Colibasanu
Harvest festivals are not unusual around the world, but the American holiday of Thanksgiving is in a league of its own.
Over time it has shed its religious roots and become a largely secular holiday celebrating family and togetherness.
Many elements of Thanksgiving are little known outside of North America, but around the world businesses and consumers know what comes next: Black Friday, marking the start of the Christmas shopping season.
According to myth, after a year of operating at a loss (“in the red”), stores would sell discounted merchandise for large profits (“go into the black”) on the Friday after Thanksgiving.
Retailers everywhere have been importing the holiday since the early 1990s.
With the end of the Cold War, the American business model triumphed, and countries everywhere had to adapt.
American Triumph
The U.S. and Western Europe promoted their particular capitalist model after World War II, and it worked because it ensured safe, reliable and relatively cheap trade and investment within a network secured by U.S. warships and British insurers.
Originally the General Agreement on Tariffs and Trade, this network became the World Trade Organization in the 1990s.
Designed in accordance with Western rules, it served as a platform for the growth of global trade and, subsequently, for Western influence over the world economy.
For a country to enjoy the benefits of WTO membership, all other members must recognize its status as a functioning market economy.
In theory, a market economy is one in which supply and demand direct the production of goods and services. State intervention is minimal.
As one would expect, this assessment is somewhat political.
After the Cold War, WTO membership was essential for a country to trade globally.
For the West and especially the U.S., welcoming new members meant greater influence.
It brought in countries like Russia and China, thinking they would get on board with the U.S.-led liberal order.
In the strongly unipolar age of the 1990s and early 2000s, alternatives were scarce.
This is how Black Friday made it to places like China and Russia.
Beijing formally asked to join the WTO in 1995 and was admitted in 2000.
Western markets, especially U.S. consumers, benefited from access to cheap Chinese goods.
China had to reform, reduce tariffs and promise further liberalization.
It did not go as far as the West wanted, but it did copy the Black Friday concept.
China’s is called Singles’ Day, celebrated on Nov. 11.
It was not originally a shopping holiday, but since the late 2000s, it has morphed into the largest shopping day in China.
Russians preserved the name but changed other features.
First, Russia’s Black Friday does not have to be on a Friday, nor is it limited to one day.
Second, the discounts are not so great; stores usually mark up prices a few weeks before the season and then cut them – sometimes to levels still above the normal price – for the Black Friday (or Black November) season.
Despite the war in Ukraine, sanctions and the flight from Russia of most Western brands, the holiday is alive and well in the country.
A Black Day for Russia
However, not everything is business as usual.
On Nov. 10, the U.S. revoked its recognition of Russia’s market economy status, and on Nov. 11, it started imposing import duties on Russian goods.
(That the latter came on the same day as Singles’ Day is probably a coincidence, not a straightforward warning to Beijing.)
The U.S. recognized Russia as a market economy two decades ago, following years of Russian lobbying.
But Washington maintained its position that state subsidies in the form of cheap energy gave Russian goods an unfair advantage, and it continued to block Russia’s entry into the WTO.
By the time Russia finally acceded to the WTO in 2012, 18 years after formally requesting admission, Russia’s economy and energy strategy were already directed toward Europe, WTO member or not.
Still, WTO membership was important for Russian producers in search of new markets.
It was equally important for Russian consumers, who could buy foreign goods at lower prices after import tariffs were cut.
However, Russia was in the process of opening its market to imports when it annexed Crimea in 2014.
Moscow imposed counter-sanctions on EU agricultural products in response to Western sanctions and effectively abandoned WTO trade rules.
Washington’s decision to no longer recognize Russia’s market economy status follows a U.S. Commerce Department investigation into sales of Russian urea ammonium nitrate fertilizer in the U.S. “at less than fair value.”
The investigation concluded that “extensive” government involvement was giving Russian companies an unfair advantage.
Moscow can challenge the U.S. decision in the WTO.
Conversely, the U.S. could go further and seek Russia’s expulsion from the body. In the meantime, the change in status will not have much effect on Russian trade.
(The U.S. accounts for just 4 percent of Russia’s foreign trade.)
But the reversion to non-market status is the latest U.S. sanction against Russia since the latter invaded Ukraine at the end of February, and marks an escalation in the global economic war.
Significance and Signals
WTO expulsion is possible, but the more significant sanction would be convincing the European Union to also lift its recognition of Russia’s market status.
About 40 percent of Russia’s non-energy foreign trade goes to the EU, several times the value of U.S.-Russian trade.
The move is also significant as a signal to Beijing.
Just days after the U.S. revoked Russia’s status, the nonpartisan U.S.-China Economic and Security Review Commission recommended in its annual report to Congress that the U.S. investigate whether China is engaged in predatory trade practices.
A ruling against China could justify Washington’s revocation of its market economy status, which would hurt its economy much more than the move hurt Russia’s.
The U.S. would suspend so-called normal trade relations, which Congress approved in 2000 when China joined the WTO.
Finally and most importantly, the U.S. move must be considered in the context of Russian overtures for negotiations with the United States.
Given Russia’s unwinnable battlefield position, its incentive to strike a deal is high.
It would enable Russia to hang on to Crimea and the four oblasts in eastern and southern Ukraine that it has claimed, and it would enable Russian President Vladimir Putin to say his regime had successfully defended Russians in eastern Ukraine over the long term.
The U.S. may well want to offer Russia a dignified exit from the war, and what better time than Thanksgiving?
But Washington first has to convince Ukraine to sit down and give things away to Russia.
The WTO sanction, then, is a signal from the U.S. to Russia that it is still willing to escalate.
The U.S. knows sanctions alone will not end the war.
However, the two sides are locked in an economic war, and the U.S. needs to ensure that sanctions leakage and Russia’s search for new allies do not weaken the U.S. position.
The U.S. is also in the process of restructuring the global system it created, contributing in effect to its balkanization.
In an earlier age of globalization, the U.S. introduced the world to Black Friday.
Its next contribution may be a new global economic order.
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