Trump Spoke of High Hopes of Mending Ties Between Russia and the US, What Does This Mean for the Economy?
Donald Trump’s unexpected victory in November’s US presidential election may at first glance appear to be an out-and-out win for Russia. Indeed, during the election campaign Trump spoke of his hopes of mending damaged ties between the US and Russia. He also alluded to a number of potential policy actions that the Kremlin would welcome, including the possibility of withdrawing US security guarantees and military deployments to Eastern Europe, relaxing US sanctions on Russia, and even examining the possibility of recognising Russia's claim to sovereignty over Crimea.
However, while the initial reaction in Moscow to Trump’s victory was generally positive, various policymakers – including Vladimir Putin himself – have recently been sounding a note of caution. This echoes our own view: we are not convinced that much of Trump’s campaign rhetoric will translate into actual policy initiatives, for two key reasons:
Firstly, while the office of the US president is undoubtedly very powerful, any attempt to radically alter the US’s stance on Russia and at the same time to fundamentally revise Europe's security architecture (and the huge role the US currently plays in this) would encounter strong resistance from the US security establishment (as well as from much of the Republican Party). As such, even if Trump wanted to follow through with certain Russia-friendly policies, his ability to do so in practice is likely to be significantly constrained.
Secondly, Trump poses a new kind of geopolitical risk to the Kremlin – unpredictability. He is politically inexperienced and there is no guarantee that a Trump presidency will lead to an improvement in bilateral relations. Indeed, the president-elect’s agenda of strengthening the military, increasing defence spending and modernising nuclear weaponry could in fact cause tensions with Russia. Moreover, there are also concerns within Russia regarding the implications of a Trump presidency for the price of oil, given that crude oil remains the linchpin of the Russian economy. President-elect Trump’s vow to support the US oil industry – potentially by scaling back regulation and opening up all federal land for drilling – would exacerbate the ongoing global supply glut (despite the recent OPEC deal) and thus put downward pressure on already anaemic oil prices.
Consequently, despite Moscow’s initial cheering of Trump’s win there is currently no clear indication that US-Russia relations will in fact improve under his presidency – or even alter the status quo significantly in any way. With so many unknowns still hovering over the future direction of Trump’s foreign policy, and given his trademark unpredictability, we will be monitoring the situation very closely as it continues to develop.
Closely monitor the evolution of relations between Russia and the US once Donald Trump assumes the presidency; but be aware that, despite Trump’s generally Russia-friendly campaign rhetoric, there is no guarantee of an improvement in bilateral relations.
Note that while the chances of some form of easing have increased as a result of Trump’s election win, our current expectation is that the US sanctions regime on Russia – due for annual review in March – will be renewed. Indeed, given that both houses of Congress are now packed with ‘traditional’ Republicans with a hawkish stance on Russia, they are unlikely to agree to any deal that is seen as caving in to the Kremlin’s demands.