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Why the Russian Incursion is Bad for the Massachusetts Economy

Posted on March 4, 2014

Does the Ukraine imbroglio make an economic difference to Massachusetts? The countries involved, though the two largest European nations by area with a combined population approaching (or, actually, receding from) two hundred million, are not major trading partners for us. Russia was the 28thlargest market for Massachusetts merchandise exports in 2013, at $148 million; Ukraine was 69th, at $12 million. But direct trade is not the whole story.

                                                                                              The Guardian

Far more important for Massachusetts are trade relations among Russia, Ukraine, and Western Europe.  The current crisis, after all, began when Russia moved to block a trade agreement between Ukraine and the European Union.  The key here is energy, as Western Europe is heavily dependent upon imports from the east, especially natural gas. To the extent that energy markets are global, disruption of this trade by embargo, sanctions, or outright hostilities will put further upward pressure on prices, which is bad for our local economy.

The more serious threat, however, is that it would damage European economies, many struggling to break out of recession, that are closely tied to our own; Massachusetts ranks second among all states in European trade as a component of our economy, and is further linked to Western Europe by cross-investment and other ties. Massachusetts exports to the EU are about 50 times exports to Russia and Ukraine.

The other significant dimension of the crisis involves global stability, with particular reference to emerging economies and to issues of war and peace. Russia is a major power economically and militarily, a G-8 country and a permanent member of the United Nations Security Council. Its constructive engagement in diplomatic initiatives can play an important part in facilitating the resolution of crises through international efforts, and cases when it opposes action (as in Syria) become all the more difficult. In sending troops into Ukraine (which it characterizes as a move to restore order in its “near abroad”) Russia casts doubt on its willingness and ability to fulfill this role going forward.

Most immediately, Russia is part of the ongoing negotiations to persuade Iran to forgo nuclear weapons development; the invasion of a country (Ukraine) that gave up nukes is not likely to prove helpful. It creates more uncertainty in the Middle East, where Israel, Saudi Arabia, and the United Arab Emirates are each a bigger exports market for Massachusetts than Russia and Ukraine together.