Trump Lacks Room to Move on Sanctions on Russia, Economists Say

File Photo of White House with South Lawn and Fountain

(Bloomberg – bloomberg.com – Andre Tartar, Anna Andrianova – April 3, 2017)

What a difference three months can make.

Donald Trump dropped enough hints during the campaign and in the run-up to his inauguration as U.S. president to turn most economists into believers in an imminent easing of sanctions imposed against Russia over the crisis in Ukraine. But as scandals swirl around Russia’s suspected meddling in the U.S. presidential election, and pressure mounts on Trump and his administration, analysts have been quick to hop off the bandwagon.

“Trump is hogtied on Russia, and can’t ease sanctions,” said Per Hammarlund, chief emerging-market strategist at SEB SA in Stockholm. “The EU will not ease sanctions before initiating negotiations with Russia, the rebels in eastern Ukraine and the government in Kiev. There is simply no political room for reducing sanctions unilaterally without a quid pro quo.”

  • The share of those who say the U.S. will start relaxing its penalties during the next 12 months has dropped to 25 percent, less than half what it was in January, according to a Bloomberg survey of 20 economists.
  • The loss of faith that the European Union will do so has plummeted just as precipitously, with just 20 percent seeing the bloc beginning sanctions relief over the coming year’s time, down from 44 percent.

While Trump hasn’t confronted the subject head-on, a drumbeat of criticism aimed at Russia from his top lieutenants has all but taken the option off the table. From Secretary of State Rex Tillerson to Defense Secretary James Mattis, the message in recent weeks has been that U.S. sanctions would remain.

As for the EU, it’s maintained the unanimity required to continue extending its restrictions. Ukraine, the pro-Russian rebels and the Kremlin accuse one another of repeatedly breaching the peace agreements signed in 2015 in Belarus.

Without the sanctions, Russia’s economic growth would get a boost equivalent to 0.2 percentage point of gross domestic product this year and 0.5 percentage point in 2018, according to a Bloomberg survey conducted in December.

While the initial set of penalties imposed over Russia’s takeover of Crimea in 2014 will stay, other adjustments in the regime are possible, according to Gunter Deuber, an analyst with Raiffeisen Bank International AG in Vienna.

“Some cosmetic easing of sanctions could be in the pipeline early in 2018, conditional on a decrease in Russian meddling in Ukraine,” he said. “The U.S. administration may look for some foreign-policy successes and fatigue with Russian sanctions at the EU level may increase in 2017, while Russia might be also more interested in a sanctions easing ahead of the presidential elections.”

©2017 Bloomberg L.P. All Rights Reserved. Article also appeared at bloomberg.com/news/articles/2017-04-03/trump-hogtied-on-russia-changes-minds-on-relief-from-sanctions