Rutgers professors discuss effects of Russia's invasion of Ukraine on American, global economies.

Russia’s invasion of Ukraine has affected the economies of countries around the world, including the U.S., according to an article from the Associated Press.

Parul Jain, a professor in the Department of Finance and Economics, said that the crisis has caused a rise in oil prices, which has increased energy costs for American companies.

She said that the rise in oil prices is expected to increase the inflation rate of the U.S. as well as increase the cost of gasoline for American consumers, 60 percent of whom are living paycheck to paycheck.

Jain said that economic sectors that use special metals such as the automotive and aerospace industries may also be affected by the crisis as Russia is a major exporter of commodities such as nickel and platinum. 

She said that despite the detriments that Russia’s invasion of Ukraine may cause to American markets, the U.S. is in a strong enough position to handle any damage.

Jain said that it is expected that the gross domestic product (GDP) of the U.S. will experience a slight decrease this year and the inflation rate may rise to over 4.5 percent. Though, she said the overall effect of the invasion on the American economy is not predicted to be that drastic.

“The U.S. economy is in a good position with the unemployment rate at 3.8 percent," Jain said. “Estimates indicate that a sustained $20 per barrel increase in oil prices reduces U.S. real GDP growth by a modest 0.3 percent.”

In response to the crisis in Ukraine, she said that the U.S. has adopted severe sanctions against Russia and private American companies have made changes to their business in Russian markets. 

She said that Visa and Mastercard have suspended their Russian operations by ceasing their payment processing services. Starbucks and McDonald’s are also closing their restaurants and cafes in the country, she said. 

“These changes are largely symbolic and show solidarity with Ukraine while simultaneously denouncing Russia’s invasion,” Jain said. “However, it sends a strong message.”

John Landon-Lane, a professor in the Department of Finance and Economics, said that he thinks it is currently too early to tell what the economic impact of Russia’s invasion of Ukraine will be on American markets. 

He said that the crisis may have repercussions relating to Ukraine’s role as a major exporter of grains, weather and barely in Europe. The lack of current grain and food production in the country will cause an increase in prices that may benefit producers from other countries but negatively impact consumers, he said.

The world’s financial markets have also been affected by the invasion with countries around the world borrowing funds at higher rates, Landon-Lane said. 

Though as these debts roll over, he said these countries will have to pay higher interest rates, which will have a negative impact on foreign economies including those in Europe and North America.

Landon-Lane said the invasion has multiple outcomes that will result in economic ramifications, regardless of what happens. If the situation escalates into a war involving multiple countries in Europe, it will cause an economic depression, he said.

If the invasion continues without escalating, Landon-Lane said oil prices will continue to stay high, which will cause recessions in countries all over the world. 

“The U.S. produces enough oil for (some) consumption so in that sense, it is a little insulated, but the rest of the world doesn't,” he said. “The rest of the world buys U.S. goods, and so, in some sense, that is what you have to worry about — if the rest of the world goes into a big recession, that is going to affect us.”

Landon-Lane said that he does not believe any positive effects will result from the invasion and while Americans may not feel the effects now, they will eventually.

Jain said that the U.S. has been able to call upon other countries to enact their own economic sanctions against Russia, which may push the situation to a close. 

“There is hope that the situation may be diplomatically resolved, particularly as the effects of the sanctions start hitting the Russian economy with greater force,” Jain said. “They simply cannot afford a long-drawn battle.”

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