Here's how Russia's invasion of Ukraine could impact Michigan's economy

Posted at 11:00 AM, Mar 01, 2022

DETROIT (WXYZ) — The invasion of Ukraine is causing concerns for people around the globe. The human toll of war is heartbreaking. It also has a worldwide economic impact.

7 Action News spoke to Russian history, business and economic experts about what the potential impact could be here in metro Detroit.

Related: What will economic sanctions on Russia mean for prisoners like Paul Whelan?

The United States responded to Russia’s invasion of Ukraine with economic sanctions. The goal is to hurt Russia’s ability to fund the conflict and to damage the economy in such a way that it creates political pressures on President Vladimir Putin.

“We are in uncharted territory right now,” said Paolo Pasquariello, a professor of finance at the University of Michigan.

He teaches a class on international finance. He says it is not clear yet how the sanctions on Russia will impact banks around the globe leading to market volatility. To understand the concern, the collapse of the global financial services firm Lehman Brothers contributed significantly to the financial crisis in 2008. This is a completely different scenario, but finance experts are closely watching the situation, anticipating unanticipated consequences.

“Any economist who pretends to give you an answer with certitude about this is lying to you. We don’t know,” said Pasquariello.

“It’s really destabilized the Russian economy,” said Aaron B. Retish, a Russian history professor at Wayne State University.

The sanctions in place block the Kremlin getting to its more than $600 billion in reserves in the U.S., or in U.S. dollars in foreign countries. They also cut off some Russian banks from the SWIFT financial messaging system, which is used by thousands of banks around the world.

“So most Russians are going to find themselves cut out of financial systems,” said Pasquariello.

“You will see the ruble continue to collapse and prices in Russia continue to rise,” said Retish.

Here in the United States, what impact can we expect to see?

“Probably the most obvious will be filling up your car with gas. The price is likely to go up,” said Retish.

Related: Gas prices continue to climb in Michigan amid Russian invasion of Ukraine

Russia is the largest natural gas exporter in the world. Russia’s invasion of Ukraine has lead to uncertainty in that market, increasing demand.

The sanctions also on a limited basis are impacting some local businesses that trade with Russia.

“We have so may connections between Detroit, our automotive sector and Russian businesses,” said Marian Reich is president of Global Ties Detroit, a U.S. State Department organization that sponsors citizens to build business relationships in other countries.

She has spoken to Russians she has worked with in the past in recent days.

“They are all very concerned. Many are speaking up about what their government is doing. And they are very concerned about their ability to do business to travel,” said Reich.

"I have clients that range from FIN-TECH companies to healthcare, called med tech companies, to mobility companies," said Jonathan Quarles.

Jonathan Quarles is CEO of the BTL Group and an international business consultant. He had a trip through Global Ties Detroit to Russia planned to build connections for Detroit businesses that is now on hold. He says the technology and mobility companies are just a couple sectors with ties.

He says his concern is with the people whose lives are on the line and thinking about how the more connected economies and people are, the less likely perhaps war is. It reminds him of his purpose.

“In the midst of all the politics, it is about people. There are innocent people whose lives are being taken,” said Quarles.

“We can increase peace, understanding and prosperity through these connections,” said Reich.

And while we may feel some economic impacts locally, experts tried to put it in perspective.

“It affects the economy obviously most drastically in Ukraine and Russia. It will affect the economy in Europe, especially those that border Russia and are most dependent on Russian goods such as the Netherlands, and then us least of all,” said Retich.

“The trade linkages between the U.S. and Russia are relatively small,” said Pasquariello.