The Long-Run Effects of Russian Sanctions

Abstract

In this paper, I consider the effects of tariffs on Russian imports imposed by a coalition of countries. I find that a 10 percentage point increase in tariffs is enough to yield large drops in Russian exports to coalition countries which are not offset by an increase in Russian exports to other countries. This increase in tariffs also leads to a recession in Russia, with a drop in nominal wages and factor prices. Tariffs lead to a drop in Russian welfare, which is mostly driven by a worsening of Russian terms-of-trade as the price of Russian exports falls. There are no discernible welfare losses for coalition countries. I also show that imposing a higher cost of exports to Russia leads to larger drops in Russian welfare, at the cost of more significant welfare losses for coalition countries. Therefore, coalition countries face a trade-off between maximizing welfare losses for Russian and minimizing welfare losses at home.