How Ongoing Russia Paranoia Could Lead To An Economy-Sapping Law

How Ongoing Russia Paranoia Could Lead To An Economy-Sapping Law
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The 2020 U.S. presidential campaign is underway and legislation to deter Russia’s attempts to sabotage our elections with tough economic sanctions has been under debate in the Senate. Co-sponsor Sen. Lindsey Graham, R-SC, calls it the “sanctions bill from Hell” but Vladimir Putin knows it will barely singe Russia and instead burn U.S. economic interests. American lawmakers should not play into his hand.

The Defending American Security from Kremlin Aggression Act of 2019 (DASKA), sponsored by Graham and Sen. Robert Menendez, D-NJ, would mandate the severing of American ties to Russian energy, aerospace, and agricultural sector operations and the use of other tools to frustrate Russia’s economic objectives and finances.  

Business groups warn it would inflict damage to U.S. firms across all economic sectors. Major U.S. companies and the tens of thousands of American subcontractors and small businesses in the global supply chain would endure losses as U.S. rivals move in to reap far-reaching commercial and security benefits. 

Having served as ambassador to Latvia, a former involuntary member of the Soviet Empire, I am certain Putin relishes the idea of a sweeping sanctions bill laden with such traps rather than targeted retaliation that isolates and stymies despicable Russian operatives. 

Even as modified since last year, the Trump Administration’s State Department has detailed how DASKA’s ban on U.S. companies from participating in oil and gas production projects in which Russia is involved anywhere in the world would negatively affect the U.S more than Russia. A National Foreign Trade Council analysis of DASKA and a measure offered by Senators Marco Rubio (R-FL) and Chris Van Hollen (D-MD), called the DETER Act, spells out how these bills would create an incentive for Russia to take small stakes in exploration and development projects in order to preclude U.S. participation. In essence, the bill would sideline U.S. companies to benefit of Russia, China, OPEC in the short term and raise doubts about the reliability of partnerships with the United States going forward. 

DASKA would also try to stifle Russia’s ability to access capital in global financial markets in part by taking aim at its sovereign wealth fund. Overall, it has been better for Russia to be a stakeholder in the international economic system instead of an outside antagonist as it was during the Cold War. At the same time, its participation creates the risk that sanctions aimed at Russia’s banks, bonds, and securities holdings would inevitably hit investors from other countries, including the United States. U.S. investors, including public pension funds, hold around 10 percent of Russia’s bonds.

Putin’s Russia has perfected the art of working around sanctions. As the Financial Times reported recently, he has even boasted about it. After the U.S. and its allies sought to punish Russia for its illegal annexation of Crimea in 2014, Russia adopted austerity measures, ramped up internal capabilities to produce goods, and channeled money into its new sovereign wealth fund.  Indeed, no one has ever made money betting against Russia’s resilience or Putin’s cunning manipulation.

The most salient takeaway from the Mueller report, buttressed by U.S. intelligence agencies since, is that Russia is still up to its election meddling. They have seen that sewing chaos works so they will keep at it.

This cannot go unchecked.  Congress provided hundreds of millions of dollars for state and local election security for the 2018 and 2020 elections. The Trump Administration has hit individuals and companies by freezing assets, imposing travel bans, and prohibited doing business with blacklisted Russian entities. Government and the private sector must continue to beef up surveillance and deploy technology to prevent hacking and the spread of misinformation.

Economic pressure can also work but sanctions must be crafted with precision and targeted approaches to be effective. They cannot be an unwieldy net we throw on clumsily, ensnaring U.S. companies and workers, investors and allies but allowing Russian and other U.S. rivals to break free and take a bigger share in valuable projects in critical industries.

Unintended consequences, by definition, are unforeseen or unknowable. With DASKA, none of the possible counterproductive reverberations for U.S. interests is a mystery so policymakers should seek an approach that makes Putin squirm instead smirk.

Charles Larson Jr. is the former U.S. ambassador to Latvia.

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