Just as certain classes of medication are sometimes in vogue and prescribed to help with all kinds of ailments, it seems that U.S. President Donald Trump and his team have stumbled upon a magical remedy for all the world’s problems: tariffs. Everybody and their retirement accounts are now acutely aware of tariffs’ (possible) power to fix (nonexistent) balance of trade problems—and very real power to send financial markets into a tailspin. With all the attention on Trump’s April 2 unveiling of “reciprocal” tariffs and its aftermath, the announcement of a novel economic statecraft tool, secondary tariffs, is going almost unnoticed.
President Trump is trying to make Russia and Ukraine agree to a ceasefire on terms that neither would likely find favorable. To achieve that Trump is having to use both threats and enticements.
For Ukraine, the threat is the withholding of U.S. military aid and, more importantly, operational intelligence that is key to the success of Ukrainian drone and missile attacks. It is an effective measure because American support is an important factor in the Ukrainian military effort. But what might be a threat that could be used to convince Russia? When Trump announced that he was “very angry” with Russia’s stance over the ceasefire negotiations, he mentioned secondary sanctions as a coercion tool, with similar measures announced a couple of days before that against Venezuela. These announcements coincided with the introduction of a bill in Congress outlining the same kind of measures. Will they work as intended?
In the three years since the beginning of the war, it has become clear that it is almost impossible to stop the Russian oil trade by going after Russian sellers or a myriad of shippers and payment intermediaries. This might be because the West was not prepared to apply a general ban on Russian oil purchases for third countries, and the attempts to enforce a price cap mechanism left space for plausible deniability for buyers and intermediaries.
But it was also clear that for any such mechanism to work, it would be necessary to destroy demand for Russian oil outside the sanctions framework and thus go after the buyers. Until recently, the Western coalition was unwilling to impose charges against Chinese, Indian, and Turkish refineries buying Russian oil. These are large enterprises, many with state participation, and sanctioning any of them would create a major crisis.
The new proposal turns that old logic on its head. What Trump and the lead sponsors of the legislation, Senators Lindsey Graham and Richard Blumenthal, are suggesting is not to punish individual companies for buying Russian oil, but the entire country where a company operates. If the bill is adopted, then punitive duties will be levied on all exports to the United States from the country where the Russian oil was purchased.
This is the antithesis of selectively applied sanctions. There might also be hopes for a positive side-effect: wouldn’t it be nice to wage a trade war and earn money from it, instead of spending on the costly administration of fine-tuned sanctions?
There are several issues with this approach. First, tariffs are rather blunt and long-term measures, ill-suited to be used as tactical weapons in a mediation attempt to push a less willing party to the negotiating table.
Second, the chain of action for this particular measure would be very long: to make the Russians do something, the weapon is not targeted at the Russians, nor at companies buying from the Russians, but at the buyer’s compatriots who export goods to America. To get the message to the Russians, it would have to work all the way back through the chain, and by the time it gets there, the circumstances might have changed several times, making the message obsolete.
Third, tariffs as a tool have diminishing returns. How are these punitive tariffs supposed to work? Will they be applied in addition to those announced on April 2?
There are already concerns that even current levels of tariffs could hurt American buyers just as much as overseas sellers, wreaking havoc on supply chains. The proposed secondary tariffs might also end up subjecting Americans to the penalties intended for the Russian state.
It is also unclear how these tariffs would be canceled once the country in question learns its lesson. Would they serve as an unusual punishment for its economy long after they have served their purpose?
The worst part of it is that even if the secondary tariffs were to scare off buyers, it is still unclear whether the world can really afford to manage without Russian oil exports. The proposed measure is effectively an invitation to Russia to play a game of chicken against the world economy. What if Moscow really does stop all oil exports?
The loss of oil revenues would create many problems for the Russian economy, but would not bring it to its knees immediately. The ensuing global fuel shortage might be partially alleviated by Saudi Arabia and the UAE, but would certainly make itself felt. It would still inflict enough pain to create defectors prepared to run the risk of U.S. wrath, driven by the need to meet their fuel requirements—or by profit opportunities.
If that happens, would the United States be prepared to apply its secondary tariffs to the perpetrators, most likely amid a major global economic crisis? Doing so would only exacerbate the problem, while doing nothing would destroy the credibility of U.S. economic statecraft. It looks like a lose-lose proposition, and a dilemma that would be best avoided.
