• Wagging the dog
    July 23,2014

    It is often argued that trade helps to foster peaceful and constructive relations among nations. Trade with Japan and Germany after World War II helped those countries develop into prosperous democracies. Trade with China has helped that nation raise millions of people out of poverty and become an important participant in world affairs.

    Trade with Russia has revealed another consequence of trade relations. The European Union, whose leaders met in Brussels on Tuesday, remains inhibited in its response to Russia’s role in the downing of Malaysian Airlines Flight 17 because of the significant trade ties that European nations have developed with Russia.

    The disaster that has befallen the Netherlands, population 16.8 million, has been called the Dutch equivalent of 9/11. One hundred ninety-two of the 298 occupants of the downed airliner were Dutch, and their loss has been felt widely. The Dutch are realizing they have been the victims of an act of war, a position they are not accustomed to. They and many others in Europe believe that Russia should pay a price for its role in the attack. The Lithuanian foreign minister said the attack was the work of “terrorists supplied by Moscow,” and he called for an arms embargo.

    But then there are those two warships that France is building for the Russian navy. An arms embargo would interfere with a lucrative business deal for the French and French business.

    And the business ties work both ways. Germany’s economy is dependent on natural gas from Russia, as are the economies of other nations, especially in Eastern Europe, including Ukraine.

    It is the tail wagging the dog. Russia’s annual gross domestic product was figured by the World Bank as the equivalent of $2.09 trillion in 2013. The GDP for the European Union as a whole was $17.3 trillion. That’s more than eight times the Russian GDP. The Netherlands alone had a GDP of $800 billion. Thus, tiny Netherlands with its 16.8 million people had close to half the GDP of mighty Russia with all its oil and gas.

    At least, Russia is behaving as if it were mighty, spurning public opinion in the West as it fosters insurrection in Ukraine (GDP of $177 billion) and lies brazenly about it. Scaling back economic ties with Russia would hurt some Western businesses and cause some disruption among the economies of the West. But craven subservience to the dollar has its own costs. Showing Russia that there is a price to be paid for its reckless behavior in Ukraine would have its benefits.

    The foreign ministers gathered in Brussels could not agree to target the energy or financial sectors in imposing new sanctions on Russia. Instead they targeted certain individuals whom they believe would be inconvenienced if their assets were frozen. This sort of timorous action has not restrained Russia until now. At Brussels, there was rhetoric pointing to broader economic sanctions — the kind that could also hurt Western oil companies and banks.

    In the 1930s, some American businesses were all too happy to continue doing business with Nazi Germany up to the outbreak of World War II. This is not to say that Putin’s Russia is the equivalent of Hitler’s Germany, but there is a principle to consider. Western companies and nations investing in nations with a questionable human rights history and the potential for future human rights abuses must know they are taking a risk.

    Russia, barred from markets in the West, could end up selling its oil and gas to China. Let it do so. If it did, the Russian tail would have less capacity for wagging the European dog. A more desirable outcome would be for Russia to see that an attitude of peaceful coexistence with its neighbors in the West would bring about greater gains than efforts to subvert its neighbors ever will.

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