Meeting

The Implications of Russia’s Invasion on U.S. Trade

Tuesday, March 22, 2022
A combine harvests wheat in a field near the village of Suvorovskaya in Stavropol Region, Russia REUTERS/Eduard Korniyenko
Speaker

Senior Fellow for Trade and International Political Economy, Council on Foreign Relations

Presider

Vice President for National Program and Outreach, Council on Foreign Relations

Host

Adjunct Senior Fellow, Council on Foreign Relations

Jennifer Hillman, CFR senior fellow for trade and international political economy, discusses how the Russian invasion of Ukraine is affecting trade in the United States with host Carla Anne Robbins, CFR adjunct senior fellow and former New York Times deputy editorial page editor.

 

TRANSCRIPT

FASKIANOS: Thank you, Erica. Welcome to the Council on Foreign Relations Local Journalists Webinar Series. I’m Irina Faskianos, vice president of the National Program at CFR.

As you know, CFR’s an independent nonpartisan organization and think tanks focusing on U.S. foreign policy. We take no institutional positions on matters of policy.

This webinar is part of CFR’s Local Journalists Initiative, created to help you draw connections between the local issues you cover and national and international dynamics. And so through this programming we put you in touch with CFR resources and expertise on international issues and provide a forum for sharing best practices. Thank you all for taking the time to be with us today. This webinar, again, is on the record, and the video and transcript will be posted on our website after the fact at CFR.org/localjournalists. And we will also send out a link to the discussion as well as to other resources mentioned.

We’re going to talk today about “The Implications of Russia’s Invasion on U.S. Trade” with speaker Jennifer Hillman and host Carla Anne Robbins. I will just give you a few highlights on their distinguished careers.

Jennifer Hillman is a senior fellow for trade and international political economy at CFR. She’s a professor of practice at Georgetown University Law Center, teaching courses in international business and international trade. From 2007 to 2012, she served as a member of the World Trade Organization’s appellate body. And prior to her time at the WTO, she served as a commissioner at the United States International Trade Commission and as general counsel at the Office of the U.S. Trade Representative.

Carla Anne Robbins is adjunct senior fellow at CFR. She is faculty director of the Master of International Affairs Program, and clinical professor of national security studies at Baruch College’s Marxe School of Public and International Affairs. And previously she was deputy editorial page editor at the New York Times, and chief diplomatic correspondent at the Wall Street Journal.

So thank you both for being here today. I’m going to turn it over to Carla to run the conversation, and then we will go to all of you for your questions and comments. So, Carla, over to you.

ROBBINS: Thanks so much, Irina. And thank you so much, Jennifer, for joining us.

And thank you to all of our colleagues who are here with us today. Thank you for everything you’re doing. It kind of just doesn’t stop, the news. It’s pretty extraordinary, and a particularly grim time—and has been a particular grim time for such a long time. So, you know, I’ve been thinking about this Richard Holbrooke quote about sanctions, when he said, “What else fills the gap between pounding your breast and indulging in empty rhetoric about going to war besides economic sanctions?” You know, and there’s a pretty impressive list of sanctions that we put on Russia. And of course, we’re giving an enormous amount of military aid to Ukraine as well.

But in the end of the day, we’re really sort of hoping that the economic pressures are going to change Putin’s mind. So I want to talk about the impact on the United States, and certainly I want to talk about how we as reporters cover all of this. But I thought maybe we would start out, Jennifer, to talk about the sanctions themselves. You know, are these extraordinary sanctions? And are the Russians feeling the pinch? And do you think they have a chance of changing Putin’s mind?

HILLMAN: OK, I’m going to start out by saying yes, yes, and not so sure. So are these unprecedented? I think the answer is unequivocally yes. And I do think it’s important to sort of think about why they are so unprecedented. I mean, for me, one is that they’re way more comprehensive than anything that we’ve ever done before for any other kind of sanction—whether you compare it to what we did with respect to Iran, or Venezuela, or others.

They are just far more comprehensive. And when I say that, I mean, partly it’s because they cover financial transactions and, again, are very comprehensive in terms of both the number of the banks that are—that are subject to the sanctions, the freezing of the assets, the denial of banks access to SWIFT, the clearing/processing system for banks. You know, again, extremely comprehensive sanctions on the financial side. So it is really depriving Russia of access to dollar-denominated deposits that it has around the world and to other things.

But they’re also very comprehensive in terms of when you move over to the goods side of the equation. You know, significant sort of import bans on sending anything into Russia. And I would say, particularly strong bans when you think about goods that have any technology sort of component to them. And so, again, very strong across there.

I mean, thirdly, when you think about it’s pretty hefty ban on travel. I mean, you’ve effectively grounded, you know, Russian civilian airplanes. I mean, Aeroflot, the Russian airline, is no longer flying any flights internationally because such a high percentage of all the actual physical planes run by any airlines in and out of Russia are leased, they don’t want to fly them anywhere and have them land and be seized. So there’s kind of a travel ban, if you will. You know, and then you add on top of that the sort of technology bans, to me it’s extremely comprehensive. So that’s part of it.

Secondly, to me, it is very unusual, compared to all of the other sanctions, in terms of how many other countries are in on this. It is all of the members of the European Union and some of their individual member states, going even beyond that—Canada, Australia. I mean, even usually always neutral Switzerland joining in on it. So it is much more of a coordinated, you know, kind of a ban. And I would say the last thing that really is usual, and I’m sure is making it really hard for all of the journalists out there, is the swiftness of it.

I mean, if you think about it, it was February 21st that Putin decreed, you know, that the—that Donetsk and Luhansk were independent regions. It was less than four hours later that the president of the United States is issuing an executive order, you know, stopping new investments in or exports from those regions. And, again, it’s less than six hours later the European Union is putting on bank sanctions. And so you just keep going, with every single day that something happens in Ukraine there’s an immediate sort of response. So, yes, they are really new and different sanctions from anything we’ve seen before.

ROBBINS: And, you know, the thing about sanctions is—as Holbrooke said, it’s the thing between going to war and wringing your hands, pounding your breast. Is it crimping Putin’s ability to fight the war? I mean, he’s certainly probably still eating steak. Or is he a vegan? You know, he’s not changing his—(laughs)—you know, he’s still—he’s still got his black belt—although, I think they took his black belt away. I mean, is it crimping his ability to fight? I mean, are they pressuring enough the people around him? I mean, sanctions at the end of the day probably have to change his mind or really fundamentally limit his ability to fight the war.

HILLMAN: Yeah. So I think this is a really hard question, because in general the problem with economic sanctions is they’re not immediate. You rarely see an effect immediately. They take time to sort of starve off an economy or something. But here I think in this instance I think we are seeing—we are seeing a relatively immediate effect as a result, in part, of the ban on goods. I mean, so it is the fact that, for example, many of the parts that are needed to build cars, to build tanks, to build trucks, they are already having an effect. They have to some degree shut down—you know, the largest tank producer in Russia is now shut because it doesn’t have the parts. Lada, which is, you know, the national car of Russia, again, those production lines—at least some of their production lines are being shut down. Their large truck producer, again, does not have access to parts.

So in that sense we are actually seeing a bit more of an immediate impact, and an immediate impact on his ability to, again, produce more tanks, supply the tanks that are already there in Ukraine with necessary parts. So in that sense we’ve actually seen an unusually fast response. You know, on the money side it’s a lot harder, because Russia did before this invasion started start pushing money out into various pockets, some of them fairly secret, maybe some of them hidden to some degree in—by the Chinese sovereign funds, et cetera. But they pushed a fair amount of their dollar-denominated holdings out into various secret places. So do they still have access to money at some level? Yes. Again, and that’s the sanction that’s going to take a lot longer to really cut off Russia from access to money at all.

But to me, the other thing where I do think there is some immediate impact is the fact that unlike a lot of other sanctions, most—many, many companies—(laughs)—private companies have decided to join in on pulling out of Russia, not doing business with Russia. They’re not necessarily required to do that. Again, this is not necessarily a mandatory obligation. But if you look at them—I mean, it’s Apple, and FedEx, and, you know, Harley-Davidson, and H&M, and John Deere, and, you know, MasterCard, and McDonald’s, and on and on, PayPal. These are private companies that are choosing to stop doing any business with Russia. And that is also, I think, having a pretty immediate impact on the Russian people. And the question is whether an impact on the Russian people translates into any rethinking in Putin’s mind. And I think at this point we have no way to know that and would assume that at this point the answer is it hasn’t happened yet.

ROBBINS: So, and of course, you know, in the past, certainly after the sanctions were put on after Crimea, there were all these people who did this research who suggested that as less access to, you know, banking system, less access to borrowing had the opposite effect, that a lot of the oligarchs became more dependent on Putin because he did have access to money, although it was much more limited. So you’re right, we have no way of knowing. And the difference do, in Ukraine, roll a hell of a lot faster than sanctions do.

Now, the other side of this is the impact on us. We’ve never seen this sort of yanking an economy—now, granted, it’s a reasonably small economy, but it is an economy that does supply some important things—yanking an economy like this out of the global economy, and coming on top of such major disruptions from COVID, on top of the highest inflation in forty years. I mean, grocery prices were rising, you know, I think in February before the war started, by 8.5 percent over the prior year. So, you know, Biden’s people can, of course, say that gas prices are all due to Putin. Probably not true. But you can say COVID, Putin, all the other disruptions.

So how much of the war, you know, is—how much worse are things going to get, I suppose is what I’m asking? And how much of—you know, where should we be looking for disruptions? I mean, I was looking this morning about, you know, what the Russians produce. And is it just what the Russians produce? Or are there just—are there all these other knock-on effects in supply chains. I mean, there’s palladium and nickel. There’s wheat that’s produced in Ukraine and Russia. You know, what’s the impact on the U.S. economy that we should be looking for?

HILLMAN: Well, your question is perfect because I think you’re touching on why is this going to have such a significant impact? Because it is—it is not the case that we import directly so much from Russia. I mean, we get, grand total, probably 8 percent of our oil and gas from Russia directly. And ditto on many of the other products. But it is going to have—these sanctions are going to have a major impact throughout the world because of what they do to everything else. And your point about wheat is a really good one.

I mean, Russia was a huge supplier. Russia and Ukraine collectively were huge suppliers of wheat to the international market. Maybe not so much directly coming into the United States, but to the rest of the world. And the problem is the whole world is now going to be facing a very great shortage of wheat, you know, and a significant rise in the prices of everything that is made, you know, sort of using wheat. And it is compounded. I mean, wheat is a crop that needs to be put in the ground in April and May. That’s when it needs to be planted in Russia and Ukraine, and in the United States. And wheat is a crop that is heavy in its need for fertilizer. OK, where does fertilizer come from? It’s a derivative of oil and gas. So who is one of the major producers of fertilizer? That’s also Russia.

You know, so you start adding on the fact that there’s probably not going to be a wheat crop going into many parts of Ukraine. And we don’t know whether Russia will continue to plant. What we do know is Russia has already banned the export of wheat. They’re going to hoard whatever wheat they have for themselves, and they’re not going to be exporting it. So you’re going to see a huge shortage throughout the world of wheat. And that shortage comes at a time in which the United States has had particularly poor crops of wheat over the last couple of years, in part due to all of the climate change effects of flooding and droughts in various parts of the United States at the worst possible time for a wheat crop.

So we have a low stock in the United States, high prices already. And you add all of this on top of it, and it is going to have, you know, again, a very dramatic effect. As you say, the metals that are really essential in the high-tech area, again, heavily produced in Russia. Russia is going to start hoarding those. Again, they’re not going to be likely to sell them on to any of what Russia is deeming unfriendly countries. And we would be in that category. So it is going to make it harder for our manufacturers of semiconductors, microprocessors, and other things to get those hands on those. Even though they need a small quantity, they need them absolutely in order to be able to produce a lot of these components.

So the ripple effect is going to be very, very severe. And, I would argue, it goes both ways. I mean, part of the reason why these Russian companies are starting to shut down is they need components from the West. We also will need some of these things coming out of Russia, and we’re not going to get them. So again, from my sense of it, you know, one of the things that has to start happening right now is the United States has to start thinking about how do we have a higher wheat crop in order to support the rest of the world and ourselves?

And that may mean things like stop producing biofuels and other things that are produced using grains and put all of our effort into growing more wheat. I mean, don’t grow corn in order to produce biofuels. Grow wheat. Let’s see what we can do to lower the price of fertilizer. Let’s see whether or not some of the funds in the commodity credit corporation or other forms of support could encourage our farmers to start going into the areas where we are going to be deprived of product coming out of Russia.

ROBBINS: So let’s sort of break this down a little bit more. So the sectors that we should be watching that are going to have an impact on what we see in the grocery store, of what we see when we go shopping or we pull our cars up to the pump, or potentially our—that’s one set of questions. And the other one is the sectors are then going to drive, potentially, inflation because of scarcity of goods. So before we talk about inflation for a minute, let’s talk about the sectors. So grains are a really important one, and also the things that grow grains, which is fertilizer. So are we talking potentially about shortages of things that produce bread, or shortages for—because wheat and grains are also for animals. So that’s meat production as well. So do you think we’re going to haver shortages in the United States, or is it just going to drive prices up?

HILLMAN: I think for us it will just drive prices up, because we are still a very large producer. I mean, even with less-than-stellar crops, we are a very large producer of all of these. So I don’t think we will literally see, you know, shortages of product here in the United States. But what we will see, unequivocally, is higher prices. And what we will definitely see is significant shortages elsewhere in the world. And again, shortages of major important things like food—bread, wheat—you know, has the potential to create huge amounts of domestic problems. You know, you think about how much of the Arab Spring, you know, started over concerns over food shortages. How dependent Egypt and others are for—again, for bread, that is largely produced from wheat that is largely coming out of Russia and Ukraine. So again, the concern in the United States, I think, on food is more on the inflation side. The concern in the rest of the world is going to be on shortages.

ROBBINS: So, you know, the car—and then there’s the car issue. I mean, I thought—we’ve seen this problem with semiconductors. And is this going to get compounded, that we’re going to—car prices are going to get even higher, or the availability of cars is going to be—and was that getting sorted out before this? Or was it—was the whole sort of supply chain thing and such disruption—

HILLMAN: Well, again, so supply chain disruption is caused by so many things and, you know, largely related to COVID. But I think the semiconductor situation was getting sort of better, in the sense that, you know, the orders in and the producers in—you know, particularly in Taiwan and Korea, where there’s a huge amount of semiconductor production, are sort of fully back online in terms of through their COVID situation, and are turning out, you know, at high, high numbers their semiconductors. So that was starting to get in a better place.

But then when you think about it, you know, I mean, some of it may be that—so, right now, you know, the single-largest product, if you pick one good, that Russia imports is cars. I mean, they are a large importer of cars from Korea, from Japan, from Germany. Those are not going to be sold into Russia anymore, because all three of those countries have banned, you know, exports to Russia. So there will be—those cars that were going to go to Russia are, arguably, going to be available in the world. And that’s not maybe huge numbers, but it is some numbers that will be diverted out of Russia into other markets. So we may be OK on the car front, but it will be, again, some increase in U.S. production but largely, potentially, increased imports from Japan, Korea, and Germany.

ROBBINS: So I’m puzzled by—I can’t believe—this sounds like such an incredibly naïve question. I’m puzzled by gas prices. (Laughs.) I think everyone’s puzzled by gas prices. I mean, like, one day you go and it’s, like, a dollar higher than you expected, and the next day it’s seventy-five cents higher. It seem as if it’s changing almost day by day at this point. I mean, and then, of course, I mean, I’ve never—you know, the strategic petroleum reserve, of course, is all not real. It’s all—that’s all psychology and there’s not enough oil in the strategic petroleum reserve to have an impact on gas prices. Has the world found a substitute for Russian oil and gas? Can we put more pressure on that? What’s driving oil prices up? And how much of this is fear? How much of this is reality? And if the Russians do something even worse, is this, you know, the next thing that’s going to be totally, totally tamped down? And are gas prices going to go to $5, $6 a gallon?

HILLMAN: Well, I’m going to just start by saying I am not a maven on energy or gas prices. So I’m going to share you sense of I don’t know. But a couple things I’ll just throw out there. One is, you know, it’s my understanding that there always is a lag between the price of oil and the price of gas, just because obviously an import of oil takes a lot of steps before it is actually turned into gasoline and sold, you know, at your local gas station. And, you know, prices vary across the United States for reason that never made any sense to me or others. You know, a couple other things, though.

I mean, obviously the United States is—has become, you know, one of the world’s largest producers and exporters of oil. The issue I think for the United States is that a lot of what we produce is out of shale, you know, in North Dakota and other places. So it’s fracked oil. And/or it’s now increasingly out of West Texas. And again, that tends to be a lighter, sweeter oil, if you will. And our refineries that are going to turn that oil into gasoline, are geared up to refine heavy, dirty, sulfur-based oil, which is the kind of oil you can buy from Russia, Venezuela, and Saudi Arabia. So our whole industry is geared up to refine a different kind of oil that what we’re producing.

And so part of it is going to be how quickly can our refiners—which, again, the answer is not very quickly—I mean, how quickly can we start maybe refining some of what we produce or figuring out other sources? And again, I think, as I understand it, the Biden administration is trying to figure out whether we could start re-bringing in Venezuelan gas or, again, whether we can put more pressure on the rest of the OPEC countries to supply more of the kind of oil that we are good at refining, in order to keep a higher supply. So, you know, at some basic level the laws of supply and demand still operate. And so prices are, at some level, a function of a lack of supply and very high demand, as everybody, you know, decides to start traveling again in the post-COVID world

I’m sure there is also an element of profiteering on the part of the oil companies. I mean, if you just look at what their profit levels are, there’s no question there’s a fair amount of that going on as well. And that’s another one of those ones that’s very hard, you know, for the administration or others to really get their arms around what you do about that.

ROBBINS: So if I’m, you know, a local reporter—and then I’m going to let people—turn it over to the group. But how do I make this accessible to my readers? This has been our challenge throughout COVID, is to try to see how this big, global, you know, disruption is affecting my local, you know, experience. I mean, is this by comparison—was COVID just sort of a minor blip and it’s pretty much the same story? Or is this a new story, a new way of looking at it that we should be looking at?

HILLMAN: Well, I won’t say that it’s as large as COVID, but I think it is far more than a minor blip. And again, to me, the reason why I say that is to go back to, again, the comprehensiveness of these sanctions. So what’s happening where you do this kind of sanctioning on an economy, even an economy that is not the biggest in the world, of Russia, but nonetheless a significant economy. And significant, why? Because it is such a significant producer of oil, of gas, of wheat, and of some of these metals that are absolutely essential. So you sanction them off, and you basically don’t allow any trade in or out of these major products. And, yes, it has a significant ripple effect on the whole world.

So in that sense, yes, it is not a minor blip. It is definitely something—and the longer the war goes on, the longer the sanctions stay in place, I think the more that effect is there, and then the more you will ultimately see, you know, everyone scrambling to come up with alternatives. I mean, whether we will, again, create refineries that can actually refine, you know, fracked oil out of North Dakota, that would be a big change. But that is going to be slow in coming. So part of what would be interesting, I think, for reporters to think about covering is how are companies and communities reacting to these shortages and these supply chain disruptions. And that is not maybe a different story than what we saw in COVID, but it is more tailored to the specific items that are going to be heavily impacted by Russia. So it’s not the whole globe and every product that is going to be affected. But because it affects energy, that at some level does have a very major global impact.

ROBBINS: So, energy, fertilizer, obviously, for anybody who’s—who lives in a farming community itself. Prices, what’s going to happen to inflation, which of course has a huge political impact as well.

HILLMAN: And then all of the grain products. I mean, again, so those are huge. You know, and then, again, Russia is also a major producer of many of the chemical products. So it’s—you know, it’s plastics are, you know, again, one of those things that’s a derivative of oil and natural gas. Plastics, rubbers, fertilizers, soaps, detergents. A lot of those things, again, are affected by Russia. And then, again, Russia is, like I said, a huge producer of wheat but also, you know, barley, sunflower oil. I mean, you know, poultry, meat, et cetera. So, again, in the food area major issues if there are compete sort of cutting off of Russia. It results in significant impacts.

ROBBINS: So I see we have, I believe, a question. So Robert Chaney, I hope I’m pronouncing your name correctly, would you like to ask your question?

OPERATOR: Robert, you’re unmuted. You may go ahead, if you like.

ROBBINS: Or would you like me to read it? Oh, no mic connection, OK. Robert Chaney from the Missoulian.

On farm commodities, wheat, et cetera, how does the sanctions disruption of Russian agricultural—or, is it Russian ag—compare to the war disruption of Ukraine’s ag sector? Guessing sanctions can be turned off, but planting can’t be retroactively produced.

HILLMAN: Yeah. So, again, I think it is—I think the sanctions are going to have a bigger effect on the world in terms of Russian than Ukraine. I mean, part of that is just the size of the market in Russia is larger in terms of their total wheat crop. And partly because the Russians are, at this point, you know, banning these exports. So that is going to have a big, immediate effect. What we don’t know is whether there will be any ability for the farmers in Ukraine to get a crop in the ground. Again, as I said, the planting season is April and May. And a lot of that crop is—you know, so the question is whether they can get a crop in the ground in the midst of this war. And I think that we don’t know yet. We simply do not know whether there will be that ability.

From everything you hear and read, you know, the hope is that any Ukrainian that can continue to do what they need to do will continue to do so. So there’s a possibility that a crop will go in. I think crops will go into the ground in both Russia and Ukraine. The issue will be whether anybody will have access to it. Those crops will be harvested in July for wheat kind of products. So the question is, once that harvest happens are we still going to have Russia keeping it all or sending it only to what it will call its friendly allies, or whether the market will have opened up to some degree then. I think on that sense it’s just too early to tell. But as between the two of them, you know, Russia is the larger producer.

ROBBINS: So I think we have—may have another question, or more. So waiting for more questions from you guys. To follow-up on that, have gotten smarter about this, since we’ve certainly had, you know, two years of disruptions. And we don’t really have an industrial policy or, you know, sort of a national—you know, we have national trade policy. We really don’t have an industrial policy that—in which we try to tell industry how to behave. We provide support for farms. Have we gotten smarter about how to deal with supply chain disruptions? And are there things that we have done because of COVID that can now provide support for different industries or for farms, and all that are springing into place now to try to cushion some of this? Or are we still scrambling?

HILLMAN: So the answer I think is yes. We’ve gotten smarter. At least, you know, again, for example, in the agriculture area. There is now a multilateral database that is trying to let everybody know kind of who’s planting, what, where, when, how, and what are the expected yields, so that you, you know—again, not that it’s a perfect system, and not that everybody reports into it. But it is still a far better set of data and information than we used to have, so that there can be a better ability to plan. There’s certainly, as a result of COVID, a much stronger awareness in institutions like the World Trade Organization about whatever transparency, and about doing some serious naming and shaming of countries that are engaging in export bans that are harming the world.

And so there is a lot more of a sense of, no, you cannot just ban this, because your ban affects, you know, everybody else. So in that sense there is a lot more transparency, a lot more data being put in, I would say, both at the WTO and at this AEGIS—I’m not going to get the acronym right—of this agriculture monitoring international system. And there is in general a lot more information out there about how pernicious these export bans can be, and how harmful it is if countries try to hoard. That there really is a sense of the trading system works when you can count on your trading partners to sell to you and to buy from you under the rules of the WTO. So I think in that sense there is more awareness of the need for transparency, for immediate time information, and for a better understanding that you should not be engaging in the kind of hoarding activity.

ROBBINS: So Dana Cronin has a question.

Q: Yeah, can you hear me?

HILLMAN: Yes, we can.

ROBBINS: Yes, absolutely.

Q: Great. Thanks so much for taking my question. I’m Dana Cronin. I am an agricultural reporter for Harvest Public Media. I’m based in Illinois.

I have kind of a two-part question here on—related to the potential global wheat shortage that we’ve touched on. I wonder, Jennifer, whether you’ve seen evidence that farmers here in the U.S. will plant more wheat this year to offset some of those losses for Russia? And then as sort of a second part to that question, you know, can the U.S. offset those wheat losses, given that most of the wheat planted in the U.S. is winter wheat, and is already in the ground in many cases?

HILLMAN: Yeah. Yeah. So both good questions. And I wish I were more of an agriculture maven than others. But I would refer you, for example, Joe Glauber at IFPRI, the—I don’t even remember—IFPRI, is a very good think tank on these issues. I would refer you to him. And for what it’s worth, I happened to hear recently a really good podcast on this. So would recommend to you the most recent Trade Talks podcast that talks about this wheat issue because, like I said, I am not so much of a maven on this.

But my understanding from this is this is not something that can be turned around really easily. And for the farmers, obviously their decision on whether they want to plant more wheat or not is going to depend on whether they can—they can get more money for growing something else. So it depends on sort of what their land is, what is the other crops that can be grown on their land? But if we’ve got really high prices for cotton, you know, you may decide, forget it. I’m not going to grow wheat. I’ll grow cotton, because that’s—you know, I can make more money doing that, or barley, or corn.

So again, I don’t think in the absence of some, you know, really concerted effort by the government, I think farmers are going to make decisions the same way they always do, which is what do they think is the most viable, valuable crop that they can put in the ground? If all they’ve got is X amount of land that is good at growing Z crops, they’re going to do it based on what they expect the prices to be. And the prices for everything are high. I mean, this is the problem. The prices across the board are high. And so I think it’s hard to know whether we will seriously enhance, you know, sort of our wheat crop.

And part of it is going to depend on whether or not, again, the U.S. government could do a number of things in terms of trying to help offset the cost of fertilizer, trying to move money—you know, government money out of the Commodity Credit Corporation to help farmers. Because part of that is, you know, whether they can get financing for what they need to do to plant right now. So I don’t know the answer, but I do know that there are certain things that we probably could and should be doing, and maybe USDA is doing but I don’t know about it, that would try to figure out how to encourage more growing of those things that we’re going to be short of as a result of Russia.

ROBBINS: So the things we should be looking for to see is whether there is an agricultural policy, if not an industrial policy, to provide support to persuade farmers to more in that direction. And one would be under helping, support on the finance side and there is money for the Commodity Credit Corporation. And the other one would be to help offset the rising price of fertilizer.

HILLMAN: Yeah. And again, and the other one is whether—you know, how fast any of these can be done? So whether there can be encouragement to start thinking about this in advance. We have a lot of land that we’ve been paying farmers for a lot of years, don’t grow anything. The problem is, when you say don’t grow anything and it’s been twenty years, that land is not, like, readily available to just start plowing tomorrow. So, you know, again, if we’re going to move in this direction it’s going to take some thinking, and some foresight, and some pushing, because these things are not going to—not going to turn on a dime. It isn’t going to be as quick as we might think.

And so part of that is also hard. How long is this war with Russia going to go—between Russia and Ukraine going to go on? How long are the sanctions going to remain on Russia? Since nobody knows, I think farmers, like everyone else, are reluctant to plunk down a lot of money in the absence of some kind of guarantees, or insurance, or backing if there is a risk that, you know, tomorrow everything could turn around and become very different. And I think farmers are understandably very cautious. They’ve been very burned by significant swings in commodity prices, and don’t want to get burned again. So I think there’s going to need to be some effort to provide some financial support to give some assurances that they’re not going to be caught again in these very wild price swings in basic crops.

ROBBINS: Dana, do you have a follow up or is that good?

Q: No, I think—I think that answers my question. And I’ll be sure to check out that podcast. Thank you.

ROBBINS: That’s great. John Allison, would you like to ask your question and tell us—I don’t have the list in front of me—tell us with whom you’re reporting?

Q: Hello. I’m with the Tribune Review outside of Pittsburgh.

And I’m speaking to you from a former industrial area along the Allegheny River. Used to be populated by factories and steel mills. And so my question is about reshoring, which has a nice pithy—sounds so easy. Bring it on back. And we heard that in COVID. Well, we’re going to have our means of production right here. Did that happen to any extent after COVID? And could this episode we’re in how accelerate it? Crystal balls, please?

ROBBINS: I love this question. It was one I wanted to know, I was going to ask.

HILLMAN: You know, I think it’s really—I think the answer is, in some instances, yes, there was some significant reshoring. Particularly in—you know, you think about how available now masks are, N-95 and KN-95 masks, made in the USA, are now readily available everywhere. So to the extent that we used to import all of our masks from China, we don’t have to do that anymore. So again, I think you can find pockets where as a direct result of COVID we have reshored some things.

I think there is an effort underway to start reshoring things that are going to take a lot longer. And I would put semiconductors at the top of that list, where there really is a sense of, you know, semiconductors drive everything, and we need to be making more semiconductors at home. Because we may be designing the semiconductor here in the United States, and all of the technology, particularly for the high-end semiconductors, is largely U.S. technology. The problem is, they’re being actually produced—I mean, fabbed and produced in Taiwan, in Korea, in China. And again, that’s one where I think there’s been a huge effort to try to figure out, as part of this CHIPS Act and other measures, to try to figure out whether we can reshore that.

The reason why the answer’s also really complicated is because a lot of it is also not just COVID but, if you will, the trade war that we’ve had with China. So again, we’ve put on—tariffs on $360 billion worth of imported products from China. And the theory was that then anybody that was producing product in China to bring it back into the United States would bring the jobs back to the United States. I think on that score, we’ve seen fairly limited amount of coming back into the United States. What we have seen is some of that production move out of China to Vietnam, to Malaysia, to Indonesia, to Mexico. So again, it has to some degree been pushed out of China as a result of these sanctions, but not very much evidence that it’s directly coming back to the United States.

The other thing that we clearly are seeing as a result of, you know, some combination of COVID, of, again this China trade war, and in general as part of, you know, companies looking at their supply chains, is a sense of much greater regional integration. So to the extent that you’re seeing reshoring, I think, in the United States, you’re seeing more Canadian-U.S.-Mexican production. And supply chains across all three of them becoming much more dominant, particularly in a lot of the sectors you just talked about—steel and, you know, auto parts, et cetera. We are more integrated with Mexico and Canada than we ever have before.

Now, that matters from a—the jobs, kind of community, perspective that you’ve talked about. Because when we import product from China, in terms of the jobs, the vast majority of the work, the jobs, were in China. When we import from Canada or Mexico, an awful lot of the work that was in that product was likely done in the United States. You know, so a huge amount of the jobs are actually local, because we’ll make a part here, we’ll send it across the border to Canada. Canada ships it to Mexico. Mexico does something else. And it comes back in.

So we are better off from a jobs and reshoring/revitalizing standpoint, to the extent that we are trading regionally with Mexico and Canada more and with China and other suppliers in Asia less. And that is happening and, I think, will continue to happen.

ROBBINS: So does that answer your question? Because I have a follow-up on this, which is—which is if you were called into the White House, and they said, are there particular industries that we absolutely must have based in the United States just for national security reasons—you know, we can’t take the risk again. And, you know, masks, that’s great. We certainly don’t want to go through what we went through with PPE. But a lot of mask manufactures are now going out of business because there’s less demand for masks.

HILLMAN: Right, right.

ROBBINS: There has to be government support, like you were saying with the agriculture producers. There has to be government policy to support and encourage, the same way there’s—you know, there’s still credits for the oil and gas industry. (Laughs.) But are there certain industries that absolutely have to be based within the United States?

HILLMAN: Well, again, to me, those always—so the answer is yes and no. I mean, do we have to make all of it in the United States? I think there’s very few products where you can say, no, it’s important that we make 100 percent of it in the United States. What you don’t want to have is one critical component of a very long supply chain be entirely outside of the United States, so if you’re missing that one little piece you can’t do anything. And I think that’s where, you know, there is this huge effort to really relook at supply chains, to make sure that you are not highly dependent on, you know, again, particularly in China, to the extent that we’re going to have difficulties or trade wars with China. And now I would add Russia into that list, make sure that you are not highly, highly dependent for one essential component of a very large product on 100 percent reliance on China and Russia.

And what we clearly saw in this China trade war is there were a number of companies that were 100 percent reliant on supply from China for a piece, a component. And once they could not get access to that, and there were no other sources, you know, it was dramatically negative for the United States to have put these tariffs on China—hence, this whole process to try to exclude certain items, item by item, from those sanctions. But if you step back from it, to me, it is—you know, what are the products that really play to America’s strengths over the long haul? Where do we need to have that in the United States? So to me, that is in these areas of what feeds artificial intelligence, what is going to feed the 6G telecommunications network? What is going to feed all of the high-tech, you know, where are we in terms of producing ultra-high voltage lines, renewable energy?

I mean, the technologies of the future are the ones where we need to have a significant U.S. presence, U.S. making it. And it plays to our competitive strengths. I mean, that’s where we have a competitive advantage over others, is in the sort of intellectual property, in the tech areas, in the—you know, in artificial intelligence, et cetera, where we still have a clear competitive advantage and where we need to keep it. So, yes, those are the ones where, you know, a lot of this industrial policy that we’re potentially embarking on need to focus.

ROBBINS: So, Antonio—is it Fins, or—from the Palm Beach Post—do you want to ask your question? Because it’s a good follow on from what we’ve been talking about.

Q: Yeah. Thank you for taking the question.

So we’re seeing a lot of bipartisan solidarity with the effort in Ukraine. And my question is, as we keep seeing—you know, keep seeing prices increase, and inflation and although we don’t expect to see shortages, but at what point does this start to erode public opinion and public support for Ukraine, and particularly complicate some of the measures that you have been talking about, like agricultural policy, you know, more forward-thinking on some of the—you know, on grains and production and products.

HILLMAN: It’s an excellent question. I don’t think I or anybody else really knows the answer. I know, for example, the Pew has been researching—I mean, I’m sorry—has been polling this question of, you know, are you willing to pay more for gas to support Ukraine, duh, duh, duh. And they’ve been trying to do this over time to just sort of judge, you know, sort of where the sentiment is. And I think it’s pretty clear right now, as Americans are seeing these horrific images from Ukraine, just horrible, horrible images of the bombing of the maternity wards and the schools and the children. Right now I think the sense is, yes, I’m willing to pay more for gas. Yes, I’m willing to do X, Y, and Z in order to stand in solidarity with Ukraine. And so for right now, I think that’s pretty solid.

Whether and how long it’s sustainable I think will depend on both sort of how the war is going, if you will, about whether—how much perception there is of hope for the Ukrainians, hope much there is this sense of we have to stand with Ukrainians because look how far they are going to protect their own freedom and democracy. You know, we need to be on their side. So part of it is going to depend on how the war goes. But part of it, I think, is going to depend on whether we have more success in taking enough steps to ameliorate the inflation, the potential for shortages, the potential for price increases, whether there is a perception that we’ve done everything we can to protect ourselves as much as possible from the negative effects on the United States.

And if there is a perception that we’ve done that, and it has some degree of success, then I think there would be more support over the long haul. And if we don’t, I think you’re right. Implicit in your question is at some point Americans are going to say, enough. You know, I’ve paid enough to support Ukraine. You know, I can’t keep doing this. I can’t put myself into bankruptcy in order to have this effect on Ukraine. I’m done with this. In the same way people are sort of I’m done with—I’m done with—(laughs)—COVID, there is going to be this I’m done with supporting Ukraine. So I don’t know that there’s a good answer, but obviously the more that we can do right now to take away some of these negative effects, the longer the U.S. can stay united with others on this.

ROBBINS: Lindsay Moore has a question, from MLive in Michigan. Lindsay, do you want to ask your question?

Q: Yes. Thank you. This has been really helpful just kind of macro level of the domino effects.

I guess my question is, being a statewide economy reporter here in Michigan, for that micro level. You know, if I’m going to tell our readers, yes, this might impact your food costs, it’s going to impact technology, auto. You know, what do people do with that information? Does that change spending or saving habits? I mean, do we just buckle up and prepare for another economic wild ride? I don’t know, what are your thoughts on that?

HILLMAN: I’m not sure I really know, because, as you say, it becomes very micro. You know, because, like you said, I don’t know how you know whether, you know, the fact that Russia is a major wheat producer will necessarily produce higher prices, or whether everybody should go out and start, you know, hoarding flour or sugar or, you know, any other things. So I don’t know that there is—that’s a really hard question. I’m curious whether Carla has an answer on that one, because it’s just really hard to know.

And in general, I think the inflation is going to affect almost everything. So there isn’t any easy way to get around it. You know, what’s been interesting to me is the big impact has been, so far, on energy, and then everything derived of energy. And yet, what you don’t see, at least not—that I don’t see, is this huge effort to say take public transport more, ride your bicycle. You know, whatever it is—you know, turn up or down the temperature in your own home, I mean, weatherproof. All the things that we can do to be energy saving, that is not something you’re really sort of hearing being pushed at some level.

And that’s what I don’t know, is whether we will get to the point where that will be one of the things that will really be suggested, is that all Americans do whatever they can to conserve energy, because that is one of the biggest drivers of all of the change as a result of the sanctions on Russia.

ROBBINS: You know, I—you raised a really good question. I’m not an economics reporter, I just play one on television. (Laughs.) No, I mean, I worked at the Wall Street Journal for a really long time and sat next to them. But I have lived in places where there was hyperinflation. And I did go through—I was very young, of course—go through the Carter inflation. And I think as a reporter, because so many people who are reading now have never seen inflation, I think that we have a responsibility and we have good stories to write to just talk—you know, to talk to people who understand inflation and understand sort of news you can use about how you, you know, protect yourself in inflation. You know, what are rational decisions to adapt to inflation? Does it really make sense to, you know, spend your money on durable goods? Does it make—you know, where should your investments be? I mean, how do you protect yourself in an inflationary environment is, I think, you know, really a useful thing.

I think other really useful things to report on would be to take a look at, you know, as Jennifer was saying, which sectors are going to potentially be the most affected, and take a look and see how—whether or not our, you know, political leaders are doing everything they need to do to try to mitigate the impact, as Jennifer was saying, and not just saying—obviously, saying to people you should—you know, you should—you should, you know, spend less money on gas by taking public transportation, but the things she was saying about cushioning the agricultural sector. I mean, maybe they are doing those things already, but that’s our job as reporters because I certainly haven’t read stories about them doing it. You know, and, you know, now we have questions to go and ask them about whether they’re doing it.

And so those are—I think those are—you know, if we can highlight the sectors that are the most vulnerable and hold, you know, political leaders’ feet to the fire to make sure that they’re doing the best that they can do to mitigate the impact, I think those—I think those are great services that we can do for our readers. Does that make sense?

Q: It does, thank you. And I know I asked you a hard question, but it’s because I didn’t know the answer, so—right? (Laughs.) That’s—so I appreciate it. Thank you.

ROBBINS: And I think sort of—because I think people can have an irrational response to these things because, I mean, I think there are few things that have a worse—to back to Antonio’s question, I think there are few things that can have a more invidious effect on politics than inflation. I mean, inflation’s terrifying to people because—you know, someone said, well, I got a 3 percent raise and inflation’s at 10 percent. I mean, people, you know, are sort of running and they’re falling behind all the time. I’ve seen this happen having worked in countries and lived in countries with hyperinflation. It’s really terrifying. It’s incredibly politically debilitating.

And, yes, right now people can say, well, this is Putin’s, you know, gas prices. But I think it’s—in an already polarized, you know, country, I think it’s—you know, if this goes on, it can have a really, really further, you know, very negative effect. So to understand where it’s coming from and to understand, as Jennifer said, that the government is doing what it needs to do to try to at least cushion the impact—and if they’re not doing it, to ask why—I think that’s sort of our job. But it’s—to do it sectorally is really the best thing that we can possibly do because it’s very hard to hold politicians’ feet to the fire unless you say to them: What are you doing about fertilizer shortages? You know, that’s the—you know, that’s the real question. You know, what are you doing about semiconductor shortages? What are you doing to cushion, you know, the price of—you know, the price for gas right now, and does it make sense? I mean, if I read one more story about the Strategic Petroleum Reserve as if that were really a solution, I’m going to scream.

I mean, I think that’s the other thing. I think we have to reality test what they’re—what they’re doing because, you know—and I think that’s—those are all of our responsibilities. And that’s why we’re so lucky to have people like Jennifer who can tell us what questions to ask because—so, anyway, thank you, Lindsay. Great question. And thank you, Jennifer.

Steve Patterson has a question.

Q: Yeah.

I’m in an area where there’s a small amount of export of American LNG that goes to—goes to, like, Caribbean island consumers, goes to small overseas markets. And politicians here have occasionally talked about how it would be a great thing for American economy and for national security to have—to have a market in Europe for American LNG, and I have no idea whether this is going to have any impact on—potentially make that more than just some politician’s talking point.

HILLMAN: Well, again, I’m going to once again profess that I am not a real maven on energy products, et cetera, but a couple things I’ll just note.

I mean, for example, one of the things that came out of this China phase-one deal. As you may recall, you know, we had this—a bit of a trade war with China, and then right at the tail end of the Trump administration they negotiated what was referred to as a phase-one deal with China. And under that phase-one deal, among other things, China pledged that it would buy $200 billion worth more of U.S. stuff more than it bought in 2017. That was the promise. And the stuff was divided into various categories, including energy. And so the expectation was that China would be significantly more LNG—I mean significantly more LNG—than they had been buying in 2017.

And so when—you know, before the ink was even dry on this phase-one deal, there started to be this assessment of can the United States even supply it. I mean, assuming even that China is willing to buy that much more, can we do that? And so there was a fair amount of assessments of the volume and quality and number of our LNG terminals that are at ports that are readily available to export LNG, and there was an effort to increase that so that there would be more ability for the United States to export LNG. So the answer is, I think, at the end of that process that we have more LNG—the physical ability, you know, to—again, to park up that boat and load on the LNG and move it than we had, you know, two or three years ago.

Then the issue becomes on the receiving end in Europe. And my understanding, again, is the Europeans are fast working at this issue of being able to be more receptive of LNG that is coming not from Russia but from, you know, other places. So I do think there is some ability—some; not massively, but some significant ability—for the United States to export more LNG to Europe and some ability on the European side to be on the receiving end of it. And that is one of the ways in which, you know, the European Union can get weaned off of Russian oil and gas, is to have supplies from elsewhere including from the United States.

And I—my understanding is that is part of the conversation that is going on between the United States and the European Union as part of this coordination of the sanctions. So one of the things that could come out of all of this coordinating the sanctions is much greater purchases by Europe of U.S. liquid natural gas.

ROBBINS: So Rickey Bevington, who did come in late because she was moderating another event—we are professional moderators. We just voyage from event to event. And she had asked a question which I had already asked, so—but somewhat, but she’s asked it better: What other kitchen table symptoms that make these issues real to Americans? We’ve already talked about, obviously, the impact on food prices, wheat, gas prices. Is there anything else that, you know, people should be paying attention to as local reporters? Which also goes back—you know, back to, you know, Lindsay’s question as well, things to keep an eye on. That also has a public-policy question, things that we should be asking our leaders about what they’re doing to protect us, as well, or at least to come up with sound public policy now and in the longer term.

HILLMAN: Well, the one other one that we have just not touched on at all so I’ll just throw it out there is what are we doing about refugees. Again, we, obviously, have a significant Ukrainian American population in the United States, again, in various pockets. We are, obviously, seeing at this point now Poland become overrun. And the issue is going to be for us and for others whether there is going to be any kind of change in policy and any greater willingness on the part of the U.S. economy to absorb any of these Ukrainian refugees, and what do we make of that? Because I do think we are going to have to at least give more thought to what are we doing to increase our willingness to take onboard. And again, where would those people go? What would they be doing? Again, many of them are coming out of a highly productive, highly capable Ukrainian economy. But that would be another issue that I would throw out that we need to start doing some thinking and planning for.

ROBBINS: That’s an incredibly, incredibly important point. And obviously, politically it will—a lot of the anti-immigrant people would be much more willing to take Europeans, and there are so many people who are displaced around the world, but the immediacy and the sympathy for that may make it easier politically to change—to change the policy for that, at least for that group. But, yes, I mean, when you look at the numbers, the disruption is so huge.

Jennifer, this has been great. Thank you so much for doing this, and there have been so many great questions from everyone. So, Irina, I’m going to turn it back to you and to thank everyone.

I put into the chat one link about—that you—Reuters has an interactive about—just that they’re updating constantly of the sanctions. We’re going to share other things, other reports that Jennifer and other sources to share with everyone. And if you have any questions, obviously, send them on to us. But I’m going to turn it back to Irina.

FASKIANOS: Right. Thank you, Carla, and thank you, Jennifer. We will send out a follow-up email with those resources. And just a reminder that you can follow Jennifer Hillman on Twitter at @j_a_hillman and Carla at @robbinscarla.

And as always, go to CFR.org and ForeignAffairs.com for the latest developments and analysis on international trends and how they’re affecting the United States. And of course, please reach out to us with suggestions for future webinars. You can email us at [email protected].

So thank you again for being with us today, for all the reporting you’re doing in your communities; and to our experts, Jennifer Hillman and Carla Anne Robbins.

HILLMAN: Thank you.

FASKIANOS: Thanks so much.

(END)

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