Global economy

How reducing trade would affect purchasing power

23/03/2023 PNG

A simulated 40% reduction in bilateral trade with Russia in all goods and services would have a notable negative real income effect on households in some European G7 countries in the medium term. However, households in Russia would have to withstand a significantly larger negative impact – roughly double the effect of eliminating oil dependency on Russia.

At least 70% of Russia’s imports of, among other items, electronics, motor vehicles and parts, machinery and equipment, chemicals, and business services are from the G7, Europe and Australia. Together, restrictions on exports to Russia from these countries would have an almost 50% larger impact on Russian household income than if these countries restricted imports from Russia.

This also highlights an important point: the benefits of trade – and here the harm potentially inflicted with trade sanctions – is at least as much about Russia's imports as it is about its exports.

Read more: Challenges to International Trade and the Global Economy