Russia’s economic problems caused by the sanctions imposed after its invasion of Ukraine provide lessons for U.S. trade and immigration policies. Blocking imports and new workers seem like good ideas to opponents of trade and immigration, but economists have found such policies harm consumers and damage the economy. The long-term impact of sanctions is a disaster for Russia from which American policymakers can learn.
Russian government officials have concluded (in private) that their economy is in trouble. “Russia may face a longer and deeper recession as the impact of U.S. and European sanctions spreads, handicapping sectors that the country has relied on for years to power its economy, according to an internal report prepared for the government,” reports Bloomberg, which viewed a draft of the report.
Losing Skilled People: “The report estimates as many as 200,000 IT [information technology] specialists may leave the country by 2025, the first official forecast of the widening brain drain,” according to Bloomberg. Russian economist Alexander Isakov has concluded, “With diminished access to Western technologies, a wave of foreign corporate divestment and demographic headwinds ahead, the country’s potential growth is set to shrink to 0.5%-1.0% in the next decade.”
Events in Russia raise obvious comparisons to problems facing the United States. Low numerical limits caused U.S. Citizenship and Immigration Services to reject about 400,000 (80% of) applicants for new H-1B petitions in April 2022. (Most H-1B professionals work in the technology fields.) Economists Giovanni Peri and Reem Zaiour found 2 million fewer working-age immigrants because of the pandemic and U.S. immigration policies during the Trump administration. The “immigration shortfall” has contributed to inflation, rising prices and an inability to fill job openings across the skill spectrum.
“The report on the Russian economy confirms what should be as obvious as the nose on one’s face, which is that highly educated immigrants promote the economic growth of any nation, including the United States,” said Randel Johnson, a visiting scholar at the Cornell Law School with years of experience on immigration policy in and out of government. “That the U.S. Congress has not yet acted on this fact by increasing the number of H-1B visas is nothing short of a travesty.”
Johnson notes U.S. problems go beyond tech talent. “The uncontested demographic projections of an aging workforce in the United States, as in Russia, threatens the viability of Social Security and shows we need to find a way to bring in more immigrants through an expanded legal flow of workers. That would allow America to meet the needs of its economy, particularly in the service industry, such as the healthcare sector, to address the needs of our growing numbers of seniors.”
Imports Are Vital: U.S. elected officials typically cite the benefits of exports when arguing for expanded trade or new trade agreements. During the Trump administration, levying costly tariffs on imports became a priority, and the Biden administration has largely maintained those tariffs. Economists point out imports are vital to providing consumers with lower prices and a greater variety of goods while supplying companies with inputs needed to make products, including for export.
A Bank of Finland report on Russian foreign trade found, “Overall, our analysis implies that the war and sanctions will take an increasing toll on the Russian economy in the months ahead. The latest forecasts foresee a total decline of Russian GDP [gross domestic product] of roughly 10% in 2022 and 2023.”
Russia’s export earnings have been strong because of oil, said John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce, in an interview, but “its imports have collapsed, including for industrial parts and components, and this has devastated Russia’s productive economy and its ability to manufacture autos, pharmaceuticals, and defense products.” Murphy says it shows the benefit of international trade isn’t what you earn from exports: “It’s the useful imports you get in exchange for them.”
Russian companies and consumers have found out the hard way just how vital and beneficial imports can be. “Western governments have made it compulsory for a range of domestic industries to seek licenses before selling to Russia, and they are rarely granted,” reports The Economist. “The restrictions go well beyond ‘dual-use’ products—those with both military and commercial applications, like drones and lasers—to cover advanced kit such as chips, computers, software and energy equipment. They also target low-tech goods, such as chemicals and commodities . . . That is bad news for the country’s manufacturing sector, which needs imported inputs.”
The Economist paints a bleak future for a Russia with fewer imports and high-skilled workers: “So long as America and its allies maintain their sanctions, Russia’s industrial backbone, intellectual brawn and international links will fade, and its future will be one of sagging productivity, little innovation and structural inflation. Economists were wrong to predict an instant crash. What Russia is getting, instead, is a one-way ticket to nowhere.”