Sanctions against Russia Could Be Better, These Harvard Economists Say

Group argues for improved U.S.-Europe coordination and more curbs on components

· Too many exports to Russia are restricted by either the European Union or the U.S.—but not by both.

· restrictions have been applied to the export of more than 5,000 products typically bound for Russia, or 44% of the country’s total imports.

· The country’s biggest exports, natural gas and oil, have lost major customers. Government finances are strained.

· In 2022, Russia’s economy contracted by 2.1%, a much smaller decline in output than many economists had forecast when the sanctions were first imposed. Back in April 2022, Russia’s central bank expected to see a contraction of between 8% and 10%.

· The Harvard group said another way to tighten the sanctions noose is to focus less on manufacturing equipment—known as capital goods—and more on components that go into making a finished product.

In response to Russia’s invasion of Ukraine, Western nations have targeted Moscow with the biggest coordinated package of economic restrictions ever levied against a major economy, including sanctions, export controls, asset freezes and energy price caps.

Many of those measures, though, have proven less costly so far to Russia than some economists had expected and many officials in Washington and Brussels had hoped. Some Russian officials, meanwhile, had braced for more economic damage from the sanctions barrage by now.

Now, a group of Harvard economists, led by sanctions authority Ricardo Hausmann, are proposing ways to impose better sanctions.

Their key conclusion is too many exports to Russia are restricted by either the European Union or the U.S.—but not by both.

“Current sanctions are ineffective because of lack of coordination,” said Mr. Hausmann, now an economics professor at Harvard University. Formerly a Venezuelan government minister in the 1990s, he has long argued for sanctions against that country’s current government.

Better coordination between the two economic powerhouses—and a tighter focus on restricting the sale of basic components that go into many finished goods to Russia—would greatly improve their effectiveness, according to an analysis of the impact of sanctions by Mr. Hausmann and two Harvard colleagues. The group presented their findings Friday at a conference hosted by Sweden’s central bank.

The economists found that restrictions have been applied to the export of more than 5,000 products typically bound for Russia, or 44% of the country’s total imports. But of the sanctioned products, only 43% have been restricted by both the U.S. and the EU. Two-fifths have been sanctioned by the EU only, and 17% by the U.S. only.

Products sanctioned by the EU but not by the U.S. include dishwashers, locks for motor vehicles, and ignition sets for aircraft. The U.S. has restrictions on electro-diagnostic apparatuses, whiskey and spark-ignition engines. The EU doesn’t.

In all, the economists estimate that the cost of sanctions in terms of higher prices and lower output could be raised by as much as 60% if their recommendations were adopted.

The U.S. and EU have defended their sanctions regime, and many proponents of the restrictions say they are working in degrading Russia’s economy. Announcing additional sanctions on the first anniversary of the invasion in February, the U.S. said its export restrictions had been successful in isolating Russia from the international economy and hindered its ability to sustain its war against Ukraine.

And there are also plenty of signs that Russia’s economy—propped up most of last year by high energy prices—is suffering more now than earlier in the war.

The country’s biggest exports, natural gas and oil, have lost major customers. Government finances are strained. The labor force has shrunk as young people are sent to the front or flee the country over fears of being drafted. Uncertainty has curbed business investment.

But Moscow has also shown surprising economic resilience that has frustrated Western allies and heartened Russian officials. In 2022, Russia’s economy contracted by 2.1%, a much smaller decline in output than many economists had forecast when the sanctions were first imposed. Back in April 2022, Russia’s central bank expected to see a contraction of between 8% and 10%.

The International Monetary Fund last week said it expects Russia’s economy to grow by 0.7% this year and 1.3% next. That is roughly the same pace it expects for the eurozone economy.

The Harvard group said another way to tighten the sanctions noose is to focus less on manufacturing equipment—known as capital goods—and more on components that go into making a finished product.

“The export restrictions imposed by the EU and the U.S. are heavily biased towards capital goods,” the economists wrote in the paper they presented Friday. “This may limit the short-run impact of the sanctions, as Russia can live off pre-existing stocks.”

The economists also argued that the impact of sanctions could be increased by focusing more tightly on products where the EU, the U.S. and cooperating countries have a dominant position, and products where there are few locally produced alternatives.