WASHINGTON -- President Joe Biden announced Friday that the U.S. will downgrade its trade status with Russia as punishment for its invasion of Ukraine and also ban imports of Russian seafood, alcohol and diamonds.
The broad trade shift, which revokes the "most favored nation" status for Russia, is being taken in coordination with the European Union and Group of Seven countries.
"The free world is coming together to confront [Russian President Vladimir] Putin," Biden said from the Roosevelt Room of the White House. He also said countries were adding new names to a list of Russian oligarchs who are facing sanctions, and the U.S. is cutting the flow of high-end American products such as expensive watches, cars and clothing.
"We're banning the export of luxury goods to Russia," he said.
Biden said there would be further retaliation if Ukraine is targeted with chemical weapons, a possibility that administration officials have warned about in recent days.
"Russia would pay a severe price if they used chemical weapons," he said.
Stripping most favored nation status from Russia allows the U.S. and allies to impose higher tariffs on some Russian imports, increasing the isolation of the Russian economy.
Biden's changes on Russia's trade status come as bipartisan pressure has been building in Washington to revoke what is formally known as "permanent normal trade relations" with Russia. Ukrainian President Volodymyr Zelenskyy pressed the U.S. and allies to take the action against Russia in remarks to Congress over the weekend. It follows days after the Biden administration moved to ban imports of Russian oil and gas products.
Chad Bown, a senior fellow at the Peterson Institute for International Economics, said Friday's trade measure would raise U.S. tariffs on Russian products from 3% to about 32% on average.
"However, the trade impact on Russia of such a tariff hike would be small, as the United States is not a particularly sizable export destination for Russian products," he said. Russia was the 20th-largest supplier of goods for the United States in 2019, sending mainly energy products and minerals.
The battered Russian economy will shrink by at least 15% this year, according to the Institute of International Finance, an association of global banks. The White House said Friday that 30 years of Russian integration with the global economy have been erased in just weeks.
"It's undeniable that allied sanctions have had a severe effect on the Russian economy, and it's important to remember they would remain in place for some time to come even if the war in Ukraine ended today," said Daniel Tannebaum, global head of sanctions for Oliver Wyman. "And there are still more levers yet to pull."
The president needs congressional approval to alter Russia's trade status. The European changes also must be approved by national legislatures.
House Speaker Nancy Pelosi, D-Calif., said lawmakers would pass legislation to formalize the trade downgrade.
"Putin's premeditated, unprovoked war is an attack on the Ukrainian people and an attack on democracy -- and the House remains steadfast in our commitment to partnering with President Biden and our allies to level swift, severe punishment and stand with the Ukrainian people," Pelosi said.
GLOBAL TRADE BASELINE
This week's moves are the latest in a series of sanctions aimed at crippling the Russian economy and a sign that the U.S. and its allies will continue to use their financial heft to retaliate against Putin. The other measures include the freezing of central bank assets, limits on exports and sanctions against Russian oligarchs and their families. These financial tools have led to the Russian ruble losing 76% of its value against the U.S. dollar over the past month, which has caused destructive inflation that could erode Putin's ability to wage a prolonged war in Ukraine.
Most favored nation status has been a baseline for global trade, ensuring that countries within the World Trade Organization are treated similarly. Some countries in the WTO have special privileges because of their status as developing economies. Russia would join the ranks of Cuba and North Korea by not having most favored nation status from the U.S.
The revocation carries mostly symbolic weight. The earlier sanctions on imports of Russian oil, gas and coal already cut off about 60% of U.S. imports from the country, and the new import bans announced Friday add up to only about $1 billion in revenue, according to White House figures.
Russia provided less than 1% of U.S. vodka imports in December, according to the Distilled Spirits Council of the United States, and less than 2% of U.S. seafood imports by volume, according to federal statistics.
Because Russian imports into the U.S. are primarily natural resources, they would generally face little to no increase in their tariffs because of the lost status, Ed Gresser of the Progressive Policy Institute in Washington, said in an online post.
Instead of the current tariff rate, buyers of Russian goods would pay rates established under the Smoot-Hawley Tariff Act of 1930, which disrupted trade during the Great Depression. This would still be zero for uranium, rhodium, palladium, silver bullion and king crabs. But the import tax would shoot up for unwrought aluminum, plywood, semi-finished steel and diamonds, among other products.
On Monday, Democrats on the House Ways and Means Committee posted, then removed, an announcement on a bipartisan bill to ban Russian oil imports and place further trade sanctions on the country, according to an aide, because of pushback from the White House against acting before Biden had coordinated with allies and reached a decision on both matters. The House voted Wednesday on a narrower bill to ban Russian energy imports after Biden instituted the ban by executive order.
Canada was the first major U.S. ally to remove most favored nation status for Russia last week.
European policymakers could hurt Putin more.
EU GAS SUPPLIES
Two-way trade between the EU and Russia amounts to about $281 billion a year, roughly 10 times U.S.-Russia trade.
The key question is what the EU does about tariffs on Russian energy products. Earlier this week, the European Commission, the union's executive arm, announced a plan to cut European imports of Russian natural gas this year by two-thirds.
Russia provides roughly 40% of EU gas supplies, with Germany, Poland, Finland and Hungary especially dependent upon Russian sources. Austria and the Czech Republic get all of their gas from Russia, according to the Institute of International Finance.
"Russia cannot grossly violate international law and, at the same time, expect to benefit from the privileges of being part of the international economic order," European Commission President Ursula Von der Leyen said Friday in Versailles, France, previewing a fourth European sanctions package to be introduced today.
Allied sanctions imposed to date already have taken a toll on the Russian economy. The ruble has lost nearly half its value, the country's stock market has been shut for more than a week, and foreign corporations are fleeing.
The war is taking a toll on the U.S. economy, too. Gasoline prices hit a record $4.23 per gallon this week, which will aggravate inflation that already is at a 40-year high. And on Friday the University of Michigan consumer confidence reading dropped to 59.7 from 62.8, as Americans grew increasingly gloomy about the economy.
As the Russian economy crumbles, Putin has begun talking about retaliating. On Thursday, he endorsed a legislative proposal to nationalize the assets of foreign corporations that have quit the Russian market since the war began. At least 350 multinational corporations have abandoned or frozen their operations in Russia, according to a tally by Jeffrey Sonnenfeld, a professor at Yale University's School of Management.
Even some who support the financial salvos against Russia worry they could accelerate an unraveling of global trade rules that generally prohibit punitive tariffs. President Donald Trump in 2019 threatened to impose an escalating series of tariff increases on goods from Mexico to force its government to crack down on immigration, but he subsequently dropped the idea.
Chad Bown, an economist with the Peterson Institute for International Economics, said Friday's action could set an unfortunate precedent for handling routine commercial disputes.
"This thing today with Russia is unequivocally OK," Bown said. "It's just, does this make it too easy to resort to something like this in the future?"
Information for this article was contributed by Josh Boak, Chris Megerian and Zeke Miller of The Associated Press; by David J. Lynch of The Washington Post; and by Ana Swanson of The New York Times.