A common maxim I hear is that trade is good, because it allows specialized goods and services to be sold for a lower rate than what an item would have cost had that same good/service been produced domestically, and this in turn also allows for domestic specialization.

    However, as a result of trade sanctions, we have a natural experiment whereby a country that was once "fully integrated into global free trade" is now mostly outside of it (with the primary exception being China – more on that later). This gives us an opportunity to take a look and see how the shift of foreign goods/services providers to domestic ones has worked out for an economy (albeit one that is difficult to measure – more on that later as well).

    The primary example I can think of here is American fast food chains pulling out of Russia. They have been replaced with domestic equivalents, often in the very same locations with nearly identical offerings. But this is not just about the brand of the retail store: it goes all the way down the supply chain. While McDonalds in Russia may have in the past used their special potato grown primarily in Idaho, perhaps the "McDowells" of Russia is now using a domestic variety, and that money is now circulating more internally, creating more wealth and higher quality of life for the domestic potato farmer. Similarly, while with McDonald, profits were presumably exported to the US, now, profits remain domestic, giving at least some people/corporations more cash to spend.

    To expand on this more, this is an imperfect test. For starters, as I mentioned before, Russia still trades heavily with China, and so it hasn't been completely "cut off", which means this natural experiment is only so applicable. Additionally, Russia is not exactly known for producing beautiful accurate and publicly available economic data, either before or after the war. Nonetheless, we are able to estimate these kinds of things through light maps or other proxies, so perhaps we can still figure out how things compare before/after.

    One final sidebar: for most items, like burgers and fries, sodas, clothing, plants, rugs, paper, flowers, etc… – we don't depend on extremely specialized components, unlikely, say, airplanes. So the answer can also be that for burgers things are better, but for airplanes things are worse.

    Is Russia "in-housing" so many industries post-sanctions good long-term?
    byu/_alco_ inAskEconomics



    Posted by _alco_

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