The Ban will Make the Russian Economy Even More Primitive

The draft law on anti-US sanctions will be considered by the State Duma before the end of the spring session. The document will permit the government to introduce a ban or limitations on imports to Russia of agricultural products, food, raw products, medicine (except for preparations which have no Russian analogs), alcohol, tobacco and other US-made goods. Also, the initiative calls for introduction of limitations on cooperation in the nuclear industry, rocket and engine building industry, as well as the aircraft industry.

Proceeding from the data on the US imports to Russia which in the past two years amounted to $7bn-$10.5bn, some news analysts rushed to conclude that these sanctions were harmless to the US economy, but caused substantial damage to the Russian economy. One can agree to a lesser extent with the former part of that statement than with the latter one. In 2016, Russian exporters accounted for 21% of the US imports of titanium. It is noteworthy that only Japan exported more titanium to the US than Russia (25%). At present, US consumers of titanium products, including the Boeing actually depend on Russian supplies of those goods and in the short-term prospects this part of Russian counter-sanctions can hardly be called painless to US manufacturers. However, in the long-term prospect the situation will be quite the opposite.

In the past decade, the Russian authorities often tried to influence political decisions of other countries by changing prices on its energy resources. This made consumers of Russian oil and gas think seriously about available alternatives.

The same may happen to the exports of titanium if it is limited. The US and other countries will find replacement to Russian suppliers. The titanium production know-how exists in the UK, Germany, China, the US, Japan and France. Titanium-made products are not sophisticated goods; relevant technologies and facilities are available to quite a large number of countries. Competitors will need just to increase or adjust outputs of titanium goods. When they do it, the VSMPO-Avisma, the largest supplier of titanium goods, whose customers are high-tech companies, such as the Boeing, the Airbus, the Embraer, the Rolls-Royce and Pratt & Whitney will lose a considerable portion of its market. If it happens, it will be irreversible. Instead of becoming a key supplier of a number of other products, the Russian manufacturer will lose what it has managed to achieve for quite a long period of international cooperation.

A refusal to supply titanium products may trigger quite a harsh reaction in the US political and business circles. An attitude to Russian suppliers may change not only in the US alone. Some international companies will be looking for replacement of Russian exporters. As a consequence, a few more Russian companies may risk to be left without export development, modern know-how and export-generated revenues. Russia may lose its chance to break its dependence on raw materials. This country’s wellbeing in years to come will depend as much as at present on prices of energy commodities.

A ban on attraction of high-skilled experts and cooperation in the aircraft industry, the rocket and engine-building industry and consulting does not offer any good prospects, too. Foreign experts share important expertise and technologies with their Russian counterparts. It is pointless to think that it is possible to rely on domestic resources alone to catch up with the R&D progress: modern technologies are very sophisticated and participation of catching-up countries in international technological clusters is the only way of moving forward following internationally renowned leaders. The ban on such cooperation will make the Russian economy and the labor market even more primitive.

Ivan Lyubimov, Senior Researcher, RANEPA

The comments are based on the article: “The Titanium Thoughts” carried by the Novaya Gazeta.