International exchanges are associated with mutual benefits for the countries involved. Trade in goods and services allows countries to specialize in what they do best, obtain other products at lower prices, and expand the range of goods available to their consumers. Capital flows provide access to more sources of financing for companies, as well as opportunities for investors to diversify their risk.
I am not saying that there are no losers associated with trade and capital flows. Workers in sectors that suffer from external competition are an example of this. But, in the aggregate, the balance is positive. Otherwise, countries would simply isolate themselves.
So the issue of sanctions on Russia is not so simple. On the side of Western countries, cutting ties involves not only imposing costs on Russia, but also on themselves. Western Europe, for example, relies heavily on imports of Russian oil and natural gas. Heavy sanctions can interrupt this flow, reducing the supply of fuel and energy. That should take the price of these items, which have already gone up a lot, to the heights.
For economies looking to recover from the ill effects of the pandemic and struggling with high inflation, this is not good news.
And the heavier the sanctions eventually imposed, the greater the costs for all sides — including those imposing them. This likely makes Western countries reticent about imposing harsh punishments on Russians.
The benefits of sanctions are still uncertain, as their application in the past has failed to deter Russian military advance. In addition, they will most likely not be enough to generate regime change in Russia itself – considering other cases such as Cuba, Iran and North Korea, affected by heavy sanctions, without relevant changes in their governments for years.
In other words, the economic calculation for countries that consider sanctions is not simple: high costs to themselves, with uncertain benefits. Vladimir Putin bet that Western countries would not have the stomach to face this salty bill. Apparently, he was wrong.
Mauro Rodrigues (Economics professor at USP and author of the book “Under the magnifying glass of the economist”) and the Por Quê?
I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
