Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Historical Insanity

Ronald Reagan’s Solution could work better than Sanctions in Ukraine

President Ronald Reagan’s (R-California) counter-intuitive policy towards the Soviet Union could be a better strategy for ending the Ukraine War than sanctions. To explain, Reagan undermined the USSR by ending sanctions and increasing trade.

US President Joe Biden (D-Delaware) and others think they can force Russian President Vladimir Putin to end the Ukraine War with sanctions. The sanctions banning imports of Russian oil, gas, and coal. Additionally, they have frozen Russian central bank assets and blocked Russian access to the SWIFT system, the BBC reports. To elaborate, The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is the system banks use for money transfers.

Thus, Russia is being excluded from the global financial system. However, there is evidence that sanctions are failing. For example, Russia’s currency the ruble hit its highest level since May 2015 (52.3 to the US dollar) on 23 June 2022, CNBC reports. However, the ruble fell to 54.20 to the dollar on 25 June 2022.

Are Sanctions Failing?

Moreover, Chinese and Indian buyers are undermining sanctions by buying enormous amounts of cheap Russian oil, The New York Times reports. Chinese purchases of Russian oil grew by 55% in that period.

For instance, Chinese customers bought $13.5 billion worth of Russian fossil fuels between 24 February and 4 June 2022, The Visual Capitalist estimates. Conversely, Indian customers only bought $3.6 billion worth of Russian oil during that period.

The Russians are making money from oil. The Visual Capitalist estimates the Russians exported $97.7 billion worth of fossil fuels in the first 100 days of the Ukraine War. That works out to $977 million worth of fossil fuels a day.

Notably, the Europeans are still huge buyers of Russian fossil fuels. The Visual Capitalist estimates Germans bought $12.7 billion worth of Russian fossil fuels, the Italians bought $12.7 billion worth of Russian fossil fuels, and the Netherlands bought $8.2 billion worth of fossil fuels between February and June 2022.

Thus, the Russians are still making money from oil despite sanctions. Skeptics will say the sanctions are failing because the oil money is still rolling in.

Hence, people will ask if there is a better way. Perhaps there is and Ronald Reagan can show it to us.

How Reagan won the Cold War by Ending Sanctions

Although we remember Reagan as a strong anti-Communist, one of his first actions as President was to end sanctions against the Soviet Union.

On 4 January 1980, President Jimmy Carter (D-Georgia) limited US grain sales to the Soviet Union to punish the Kremlin for invading Afghanistan. Carter lost the 1980 presidential election to Reagan.

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On 25 April 1981, Reagan lifted the limits on grain exports, The New York Times reports. Reagan also ended Carter’s ban on the sale of phosphate fertilizers to the USSR. Reagan was keeping a promise he had made on entering office on 20 January 1981.

So why did such a strong anti-Communist end sanctions against the regime he called “the Evil Empire?” Unlike Biden and Carter, Reagan understood sanctions are a limited weapon that can backfire. For example, the Soviets could buy grain elsewhere.

In particular, Argentina, where ironically a right-wing anti-Communist military dictatorship, was greedy for Soviet cash. Hence, Carter’s effort to punish the Soviets hurt American farmers while enriching homicidal South American tyrants.

One strange side effect of Carter’s sanctions was the Falklands War. The Argentine generals thought their new Soviet friends would back their seizure of British territory. They lost when no Soviet warships came to the South Atlantic to help them.

Why the Soviets paid Cash for American Grain During the Cold War

Moreover, Reagan understood that grain sales weakened the USSR because its government had to find cash to pay for wheat. Since few consumers wanted the shoddy products of the Soviet industry. The Soviets had to sell off their natural resources to pay for American grain.

Thus, the Soviets helped pay for America’s Cold War effort by buying US grain and fertilizers. Moreover, the Soviets spent money they could have used on weapons or modernizing industry or agriculture to buy food.

The Kremlin had to buy food because Soviet leaders did not want the suffer the fate of an earlier Russian leader, Czar Nicholas II, who had tolerated food shortages. Nicholas was driven from the throne and eventually murdered by Communist thugs.

To stay in power, the Politburo had to keep food on Russian tables and vodka in Russian glasses. Soviet agriculture was so bad, the only way the Communist Party could achieve that goal was to sell off the nation’s natural resources (for example gold and oil). Strangely, one of the main suppliers of grain to the Soviets was the United States of America.

By 3 August 1982, Reagan was promising record grain sales to the Soviet Union in a speech to the National Corn Growers association, The Washington Post reports. “In other words, the granary door is open and the exchange will be cash on the barrelhead,” Reagan promised farmers.

Many people criticized Reagan’s decision. However, history proved Reagan right. In April 1988, Soviet troops began withdrawing from Afghanistan. By February 1989, the last Soviet soldier had left Afghan soil. On 25 December 1991, the Soviet Union itself dissolved a little over 10 years after Reagan’s gain decision.

What Would Reagan Do?

The sanctions regime is failing, we need. Indeed, many people blame the sanctions for high energy prices and rising inflation.

I think we need to ask what would Reagan do about the Ukraine War? Based on history, I think Reagan would have taken these moves.

First, Reagan would have sought a means of hurting the Kremlin without inflicting pain on ordinary Americans or Europeans. Hence, Reagan would not have implemented sanctions. For example, Reagan ended Carter’s grain sanctions that hurt American farmers.

Second, Reagan would have sought ways of putting maxim pressure on the Kremlin without open warfare. For instance, Reagan armed Afghan rebels who were killing Russian soldiers, and built up US military forces.

Third, Reagan would have kept up firm criticism of the Russians and their actions. For example, Reagan made speeches asking Soviet leader Mikhail Gorbachev to tear down the Berlin Wall and denouncing the Soviet Union as an evil empire.

Fourth, Reagan would take every opportunity to negotiate with Putin and the Kremlin. Notably, Reagan formed a close relationship with Gorbachev.

Fifth, Reagan would reach out to China for help. Another historical tidbit we forget is that Reagan sold American weapons to the People’s Republic of China, the Soviet Union’s enemy. One reason for the arms sales was to force the Kremlin to divert military forces from Europe to the Chinese border. By working with China, Reagan opened a new front in the Cold War to further hurt the Soviets. Reagan turned an enemy into an important ally.

Thus, Reagan would end the sanctions on Russia but give more weapons to the Ukrainians, work closely with the Chinese, and increase American military forces in Europe. Yet Reagan would also reach out to the Kremlin and ask for meetings with Putin.

Inflicting Pain on the Russians

In other words, Reagan would try to inflict pain on the Russians without hurting Americans or expanding the war.

Reagan would have armed the Ukrainians but imposed no sanctions. Similarly, Reagan would try to contain the Russians without fighting them. For example, by stationing American forces or warships in Finland or Lithuania. Yet Reagan would have sought a stronger relationship with China.

Would a Reagan-style strategy work against Russia today? I do not know. Unlike the Soviet Union, Putin’s Russia can feed itself and export food. Moreover, Russia has a powerful ally, China, with economic resources that rival or exceed those of the United States.

Unlike the Soviet Union, the Russians are exporting products other countries need and will pay for: oil and gas. Thus, the only way to stop the Russian oil exports could be to sell oil or gas to countries such as Russia and India at a lower price.

Additionally, we will need to separate Russia and China, as Reagan did. That will probably require ending tariffs and making some sort of deal, giving the Chinese leaders something they want. Perhaps a guarantee the United States will not fight for Taiwan or cheap oil.

Another possibility is to help the Chinese with their weapons programs. For example, help the Chinese efforts to build a fleet of nuclear submarines and aircraft carriers. Something that could benefit American defense contractors and lessen the need for American naval power to patrol the world’s oceans. Additionally, such generosity could show Beijing the United States is a not a threat to China.

We need to study Reagan’s Cold War success because the sanctions regime is failing. America and its allies will need new strategies to drive the Russians out of Ukraine. Strangely, Ronald Reagan could offer those strategies.