Good morning. Today, my colleague Patricia Cohen discusses the sanctions against Russia. We're also covering Trump and Zelensky, Israeli hostages and the dollar. —David Leonhardt
Russia's pain point
President Trump wants to end the war in Ukraine quickly. This week, he falsely accused Ukraine of starting the war and made important concessions to Russia. His advisers also met with counterparts from Moscow to revive the two countries' relationship. One consistent demand from Russia is that the United States and other countries lift sanctions — a device that Trump already said he wants to use "as little as possible." Washington led an international campaign for tough economic penalties after Russia invaded Ukraine in February 2022. Dozens of countries have punished Russian banks, businesses and oligarchs. They froze $300 billion of Russia's assets, barred it from much of the global financial system and restricted what it could buy and sell. How effective were those sanctions? Russia's economy is stagnating, and inflation has spiraled. Many products and parts are unavailable. More than a thousand foreign companies have limited their operations in Russia. Yet the war has persisted. Now, Russia is pitching itself as a place where American companies can make money. In today's newsletter, I'll explain the debate about sanctions — and what Trump might do with them. What worked
Economic sanctions have become a common foreign policy tool in recent years. And no country uses them more frequently than the United States. That's not surprising. Once you rule out combat, there aren't many options left. Sometimes they work well. Sanctions got Libya to turn over the suspects in the 1988 bombing of a jet over Lockerbie, Scotland, and to abandon nuclear and chemical weapons in the early 2000s. But disappointment is more common. Decades of U.S. sanctions against Cuba did nothing to shorten Fidel Castro's reign. Nor did Trump end Iran's nuclear program (or its leaders' grip on power) when he withdrew from a nuclear deal with Iran and reimposed sanctions in 2018. What counts as success? Some policymakers predicted soon after Russia's invasion of Ukraine that sanctions might force Vladimir Putin to end the war or cause the Russian economy to collapse. Neither prophecy came true. Putin found several ways — including an alliance with China — to blunt their impact. Still, sanctions have hurt Russia and hampered its war effort. They have reduced revenue from exports and made all foreign transactions more complicated and expensive, said Laura Solanko, who tracks the Russian economy for the Bank of Finland Institute for Economies in Transition. Now, Russia spends roughly 40 percent of its budget on the war. Food prices and inflation have soared. Interest rates have reached 21 percent. Labor shortages are rampant. Growth is slowing. The long-term economic outlook has darkened. As Timothy Ash, a fellow at Chatham House, a London think tank, described sanctions: "They've done more than anyone had imagined, but they haven't had as much impact as perhaps people had hoped." What might Trump do
Everyone is weary of war. Ukraine has been losing on the battlefield, and its thinning ranks are exhausted. Enthusiasm to arm Ukraine has dampened in Europe and the United States. And even though Russia has gained ground, its casualties are high and it struggles to recruit soldiers. Trump could offer to lift sanctions to entice Putin to agree to a deal. But he has less leverage if he acts alone. Russia's frozen assets are held by several countries. Two-thirds are in Europe, and several leaders say the money should pay for Ukraine's reconstruction. The European Union, previously Russia's largest trading partner, could also keep its ban on most trade and fuel sales. Even so, the United States wields unique power in the global financial system. Much of the world's trade — no matter where it's conducted — is settled using U.S. dollars. And American banks are the only ones that can handle those transactions. That means the United States could significantly ease Russian companies' ability to do business abroad by allowing them to use dollars. Trump suggested this week that Russia could keep territory it captured, and he said Ukraine should not join NATO — two key Russian demands. Its biggest remaining one is about sanctions. Trump could use it to sweeten Russia's deal, though if recent days are any guide, he may drop them anyway. More Ukraine coverage
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