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: ‘Nothing is off limits’ as Congress prepares sweeping new Russia sanctions bill, analyst says

Congressional leaders are preparing a ”wide ranging” economic sanctions bill that will strip Russia and its ally Belarus of permanent normalized trade status, opening the door for large tariff increases on Russian imports of key commodities like palladium and aluminum.

The bill may even include provisions aimed at China, which has so far declined to pressure its northern neighbor to cease its invasion of Ukraine, according to an analysis by Henrietta Treyz, director of economic policy at Veda Partners.

“According to our conversations with staff across Capitol Hill, the only red lines in the sanctions universe right now are installing a no-fly zone over Ukraine and imposing sanctions or embargoes that would hurt food supplies for the Russian people,” Treyz wrote in a Wednesday note to clients. “Everything else is on the table.”

If the United States were to implement a no-fly zone, as Ukrainian President Volodymyr Zelensky has requested, it would likely involve U.S. forces targeting Russian air defenses and war planes, risking widespread conflict with a nuclear-armed Russia. NATO leaders have ruled out such a step, though some in Congress still favor leaving open the door to tougher military measures if Russia escalates the war.

Rep. Michael McCaul of Texas, the ranking Republican on the House Foreign Affairs Committee, told Punchbowl News Wednesday that the U.S. should start thinking about “red lines” that would instigate escalation on the part of the U.S., including Russia’s use of chemical weapons or tactical nuclear weapons.

“I think we need to start asking these questions,” McCaul said. “We have one hand tied behind our back and one hand reaching out, and I think a lot of Americans, we don’t want to just sit back and watch a boy hit the little kid on the playground.”

Treyz estimated there is a 35% chance that the trade bill could include provisions aimed at China because members of the House increasingly believe that “China is playing a role in the invasion.” A more likely scenario could be that China is included in the House version of the bill, but stripped from the final legislation from the Senate, in an effort to warn China against aiding Russia.

“Headline risks for capital markets, those with gold exposure, cryptocurrency and specific alloys including aluminum
DJUSAL,
+2.60%
,
steel
HRN00,
-2.22%

and rare earths are all present and nothing is off limits,” Treyz added, noting that the airline sector
JETS,
+5.01%

could be impacted by titanium tariffs, while automakers could be impacted by new tariffs on imports of neon.

According to a recent report by the Congressional Research Service, imports from Russia account for just 1% of total imports to the U.S., though Russian sources compose a much larger share of imports of key commodities. For instance, Russian sources accounted for 53% of imports of titanium products, and if Congress revokes Russia’s permanent normalized trade status tariffs on those goods would rise from 15% to 45%.

Last week, President Joe Biden announced a ban of U.S. imports of Russian oil, which made up about half of all Russian imports in 2021.

Treyz said that further legislation could be drafted in coming weeks that could impact U.S. investors, including legislation that could oust “Russian-exposed companies” from U.S. exchanges and “curb the ability of asset managers to hold Russian owned or operated businesses in their portfolios.”

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