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Originally published December 19, 2014 at 3:01 PM | Page modified December 21, 2014 at 8:50 AM

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Russia’s ties to Northwest put trade gains at risk

Russia was one of Washington’s fastest-growing export markets. As a World Trade Organization member, it would, for example, cut tariffs on commercial airplanes in half and strengthen intellectual-property protections.


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Russia is closer to the Pacific Northwest than you might think and not merely in history, when the czars dreamed of adding the Oregon Country to their Alaska possession.

Consider Wellons, a 50-year-old company in Vancouver, Wash., that makes lumber dry kilns and other biomass-fired energy systems. It maintains an office in Moscow. So Russia’s economic troubles are more than academic for it and some other businesses in the region.

Among them: Microsoft, Starbucks, Paccar, F5 Networks, Genie (Terex), Intel and Trident Seafoods.

Boeing represents the largest source of Washington state merchandise exports to Russia. Titanium from Russia is critical to the company, which buys 35 percent of the metal from the Russian producer VSMPO. Boeing also operates a technical-research center and a design center in Moscow, among other activities.

“The impacts on Washington state companies working in Russia are serious,” Derek Norberg, president of the Seattle-based Council for U.S.-Russia Relations, told me last week. “Russia was always a tricky place to do business, and under the current economic conditions, it has gotten more complex.”

Current economic conditions are the collapse of the ruble and jacking up of interest rates in an attempt to stabilize the currency. The price of oil, Russia’s most important export, has fallen nearly 50 percent since June. Inflation is driving consumers to buy up products in anticipation of higher prices. Recession, if not depression, is looming.

Add to that the pain of sanctions imposed by the West because of Russian President Vladimir Putin’s annexation of Crimea and attempts to destabilize and even break off the eastern part of Ukraine.

Perhaps the biggest loser in the Northwest is the optimism that surrounded Russia’s becoming the 156th member of the World Trade Organization (WTO) in 2012. Back then, the Washington Council on International Trade saw Russia as a growing opportunity for companies in the state.

Russia was one of Washington’s fastest-growing export markets. As a WTO member, it would, for example, cut tariffs on commercial airplanes in half and strengthen intellectual-property protections. With the world’s 11th largest economy and a growing middle class, the future looked promising.

It may eventually meet those expectations. In the meantime, one of Putin’s countermeasures was to ban imports of certain foodstuffs from the West, including large apples from Washington growers.

There are larger dangers.

University of Oregon professor and blogger Tim Duy noted that Russia is a “classic emerging-market crisis story.” To which Nobel laureate economist and New York Times columnist Paul Krugman added, “Russia isn’t that unusual a story, except for the nukes.”

Large Russian companies hold debt borrowed in dollars. A cascade of defaults raises the danger of contagion across the global financial system. Russia’s troubles have added to a loss of confidence across emerging markets.

Those who invested their 401(k)s in Russia are being pummeled. PIMCO’s bet there caused its Emerging Market Bond Fund to lose 9 percent this month, according to Morningstar.

Andrew Pease, London-based global head of investment strategy for Seattle’s Russell Investments, said the coming year would warrant “caution” for all emerging markets.

Also, the jitters have caused a flight to safety of the dollar. The Russian central bank and many Russian companies have also loaded up on dollars. The resulting stronger dollars will put all American exporters at a disadvantage.

Exports would be further dampened if Russia’s recession spreads to Europe, or if it helps cause deeper problems in the European economy by cutting off supplies of natural gas in retaliation for sanctions.

We likely won’t see a replay of 1998, when a financial crisis caused the Russian government to default on its debt. But it is also difficult to see the way out for Putin, whose corruption and attempt to reconstitute the Russian empire have done so much to damage the nation’s economy.

This is not someone who would seek a lifeline from the International Monetary Fund. But he has proved shrewder than his critics expected more than once.

Norberg, head of the trade association, said, ”Assuming a global meltdown is averted ... the Western companies that stay in Russia will be in position to ride the Russian economy’s recovery. And as we saw in the early 2000s, that ride back up can be quite impressive.”

You may reach Jon Talton at jtalton@seattletimes.com



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About Jon Talton

Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest
jtalton@seattletimes.com

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