The “Genius Dealmaker” Meets Vladimir Putin. What are the Prospects for Russia-US Trade?

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With the United States President Donald Trump meeting, at his own request, with Russian President Vladimir Putin, media coverage has focused almost exclusively on the political angle. Donald Trump is, however, not a career politician, he is a businessman – a self-proclaimed “genius dealmaker” at that. Yet, no coverage has been given to the prospects of Russia-US trade.

Firstly, where do we currently stand in terms of the bilateral trade between the two countries? In fact, Russia sells more product to the United States than vice versa.

2018 January-May Trade Russia-US Figures (US$ Billion)
Russian exports to US 7.979
US exports to Russia 2.822
Total 10.801
(Figures courtesy United States Census Bureau)

This very moderate figure illustrates a declining trend, with trade flow down from 2017’s total of US$24.01 billion. In fact, since 2000, Russia-US bilateral trade has remained modest, reaching a high of US$43 billion in 2011 and declining rapidly since 2014 when sanctions were introduced. For the US, Russia has never been a market it considers important; Russian exports to the US have always been several times higher than US exports to Russia.

Considering the two countries are neighbors with just a small patch of water separating Far Eastern Russia with Alaska, their trade position is very weak. While Russia’s population is 144 million, meaning there are three Americans for every Russian, the US sells more products to countries such as Belgium, with a population a tenth of Russia’s, Ireland, (population 5 million), Taiwan (24 million), and Switzerland (8 million) than it does to Russia. Clearly, having the job of US trade representative to Russia must be a frustrating role. The figures imply something more than a desire to trade, in fact the reverse – President Trump interestingly describes Russia as “a competitor”.

This competing strategy is real and is heavily promoted by the United States. Often, it uses sanctions as a trade weapon while flagging political reasons for doing so. A recent example is Trump’s recent outburst against Germany at the NATO meeting a few days ago where he lambasted Angela Merkel for not meeting NATO financing obligations and pointing out that the country was instead “buying gas from Russia.” There were (untrue) suggestions that Germany was reliant on Russian gas, with the implication Moscow was an unreliable partner and could not be trusted. In truth, that outburst has nothing to do with NATO debts. The US wants to sell gas to Germany and Europe, despite the issue that it is further away and costs more. In those terms, it sees Russia as a competitor.

So why the meeting with the Russian President?

In doing so, President Trump isn’t showing any signs of rapprochement with Moscow. In fact, quite the opposite. As we have seen with his meetings with Kim Jong-Un, the G7, and NATO, the US President is more interested in generating media exposure than trade. He enters such meetings with bombast, and has been beating up well established major trade allies over tariffs and threatening sanctions. Yet, with US trade with Russia already through the floor, he cannot take that tack with Russia. But a Trump-Putin Summit will still grab headlines, and Donald Trump will still declare it a complete success that only he was able to achieve. The irony is, when it is Russia that is being accused of interfering with US elections, that it should be Vladimir Putin who is now being used by the American President to boost his own voter base. American voters will see their President meeting with the world’s strongmen and declaring progress has been made. On such a basis, he will construct a platform to run for re-election in 2020.

Vladimir Putin knows this. This also means that Russia’s current set course of developing trade with Asia will continue. The Russian President has shown courtesy to his American counterpart, knowing he is just part of Donald Trumps media circus. In terms of trade, no change can be expected.

The picture with Asia though is one of development. While Russia already has significant trade volumes with the Commonwealth of Independent States (US$73 billion) and Eurasian Economic Union (US$400 billion), the trend in Asia is very much on the uptake, albeit commencing in most instances from a very low base. An example is Vietnam, where bilateral trade with Russia has gone from practically zero to US$3 billion in just two years, a situation brought about by the country signing a Free Trade Agreement with the Eurasian Economic Union. That deal has also resulted in about US$10 billion worth of Russian investment into Vietnam.

Meanwhile, Singapore, India, Indonesia, and several other Asian countries are looking to sign similar agreements. All can be expected to see their bilateral trade with Russia increase as a result.

Russian Bilateral Trade With Asia 2017 (US$ billions)
China 84
Japan 20
India 8
Singapore 5
Indonesia 3.5
Hong Kong 3
Vietnam 3
Malaysia 2.5

In short, the Trump-Putin summit was all about Donald Trump, and the securing and underlining of his voter base in the United States. It was not about US trade with Russia, or really anything much else, which is why the global media has not been able to find anything of substance within the talks. Meanwhile, the implications of this are clear for Russia: there will be no expansion of relations with Washington, sanctions are likely to remain, and developing trade with Asia is a priority.

 

About Us

Russia Briefing is produced by Dezan Shira & Associates. The practice provides risk assessment, due diligence, legal, tax and operational advise to Governments and businesses throughout Russia and Eurasia and maintains both a Russian desk and a Belt Road desk as part of our 28 office organisational structure. Please email russia@dezshira.com or visit us at www.dezshira.com for assistance.

 

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