Russia is an economic pipsqueak; Trump’s Putin infatuation is baffling

One of the great mysteries of the day is why President Donald Trump seems so enamored with Russia and Vladimir Putin, given Russia’s third-rate economy. Perhaps the world will gain some insight into Trump’s rationale when he meets with Putin this coming Monday.

Granted, Russia has a large military and an enormous stockpile of nuclear warheads matched only by the United States, but is that sufficient reason for the United States to kowtow to Russia’s global ambitions and Putin’s seeming desire to recreate the Soviet Union? The data suggest otherwise.

{mosads}For starters, Russia is far from the world’s largest country. While it has a huge landmass, much of it is thinly populated and not very productive. Its population of 144 million, just 44 percent the size of the U.S. population, ranks ninth among the world’s countries, only slightly larger than Germany and Italy combined.

Russia’s economy, as measured by gross domestic product (GDP), renders it even more insignificant. Based on an average of GDP estimates by the World Bank and the International Monetary Fund, Russia’s GDP in 2017 totaled $1.55 trillion, just eight percent of the U.S. GDP.

Cross-border GDP comparisons are fraught with estimation challenges, but still, the difference in the size of the Russian and U.S. economies is enormous. Unlike China, Russia is hardly an economic competitor of the United States.

Two other GDP comparisons are illustrative of Russia’s economic weakness. Its GDP is barely more than that of South Korea, yet South Korea’s population is slightly more than one-third of Russia’s. In effect, the South Korean people are three times as productive as the Russians. 

The GDP of the European Union (EU), which Russia is aggressively trying to undermine, is 11 times greater than Russia’s GDP even though the EU has only three-and-a-half times as many people as Russia. Like the South Koreans, the EU population is three times as productive as the Russians.

In international trade, Russia does not amount to much other than as an energy exporter and, increasingly, selling wheat to China. Ranking just 16th among the world’s exporters, in terms of dollar value, Russia’s impact on global trade is minuscule compared to China or Germany despite its substantial oil and natural gas exports.

On a per-capita basis, Russia is even more deficient as an economic competitor. In 2017, Russia’s per-capita GDP was under $11,000, less than one-fifth of U.S. per-capita GDP and on a par with Turkey and Romania. 

Russia’s economic shortcomings long predate the sanctions imposed on it by the United States and other countries. Its economy is hardly a first-class performer for its citizens due to its weakness. In fact, they are not faring well.  

A 2016 article in the Yale Global Health Review documented the continuing decline of the health of the Russian people during the Putin years. According to the article, “male life expectancy in Russia is 13 years shorter than that of its counterparts around the world.”

Because of its low birth rate, shortened life expectancies and other socioeconomic problems, Russia is among those countries with a shrinking population and an aging workforce. Those trends are hardly indicators of a vibrant economic future.

Russia’s fiscal outlook, which has worsened in recent years, in part because of the decline in oil and natural gas prices, has led to a recent increase in the retirement age for both men and women and a boost in the value-added tax from 18 percent to 20 percent. Neither increase is very popular with the Russian people, which could cause Putin some domestic political pain.

Russia is an economic pipsqueak — apart from its nukes and its ability to make cyberwarfare, it certainly is not a bear. President Trump should neither be intimidated nor impressed by Russia.  If he is, then why? 

To use Trump’s recent characterization of Putin, in what way does he see Putin as a serious competitor?  Perhaps we will learn more next week.

Bert Ely is the principal of Ely & Company, Inc., where he monitors conditions in the banking industry, monetary policy, the payments system and the growing federalization of credit risk. Prior articles by Ely on banking issues and cryptocurrencies can be found here. Follow Bert on Twitter: @BertEly