Russia has invaded Ukraine. This horrific act of warfare and unprovoked aggression has shaken the world. It is painful to watch the human tragedy unfold in Ukraine. The good people of Ukraine were aspiring to peace, prosperity, and democracy. Their aspirations got in the way of the megalomania of Russia's leader, who wants to recreate the Soviet Union in all but name. Putin is squandering the peace dividend that his country had achieved during the last decades, all in pursuit of his delusional dreams of empire. History will not judge him kindly. Ukraine posed no military threat to Russia, and was unlikely to become a NATO member any time soon, if ever. Putin is simply unable to stomach the idea that Ukraine could become a successful and prosperous democracy, perhaps even a member of the European Union, and a state that the Kremlin could not control like the atrocious puppet regime in Belarus. Western democracies are looking at all possible ways to sanction Putin's regime for this aggression.

Here in Canada we are wondering how our trade links with Russia may be affected. What exactly are we trading with Russia? Could trade sanctions be used against Russia? And how vulnerable is Canada to potential retaliation?

Canada's trade with Russia is minuscule. The $2.14 billion worth of imports from Russia amount to 0.35% of Canada's total imports, while the $0.66 billion worth of exports to Russia amount to just 0.10% of Canada's total exports. The following two tables show the top 25 commodity groups of imports and exports.

The table shows that the top imports from Russia are fertilizers, crude oil, and various metals and minerals.

The table shows that the top exports to Russia are industrial machinery and aircrafts.

Trade with Russia is too small in volume to matter much in the greater scheme of things. Yet, export controls will likely come into place to prevent any further exports of high-tech gear to Russia. Similarly, Canadian producers may decide to pivot to find alternative upstream suppliers for minerals and metals.

Russia's main exports are fossil fuels: oil and gas. Cutting off export revenue will require trade sanctions that prevent alternative routes of selling these fuels, in particular to China. Without China's cooperation, trade sanctions are likely to fail. The increasing prices of oil (to no small extent driven by the situation in Ukraine) has benefited Russia immensely. As a result of rising oil and gas prices, Russia's monthly export revenue has nearly doubled between December and January 2021. Oil and gas exports acount for roughly three-fifths of Russia's export revenue. For trade sanctions to be effective, they will need to cut off a large part of that revenue.

While targeting Russia's oligarchs with sanctions will perhaps undermine support for Putin in the long term, as my economist colleague Paul Krugman has recently argued in The New York Times, sanctions are unlikely to make Putin change course today. Some sanctions have a much clearer short-term effect. In addition to cutting off several Russian banks from SWIFT, the most important sanction involves the freezing of foreign reserves of Russia's central bank. This prevents the Bank from propping up the value of the Ruble, which has already dropped by nearly 40 per cent since the beginning of 2022. Already, the Russian central bank had to raise its key interest rate to an unprecedented 20 per cent, and people are lining up at ATM machines to take out cash and foreign currency while they still can. Economic pain will start to spread into shops and supermarkets all across Russia as many imported goods disappear and other goods become more expensive.

We should not be under any illusions that economic sanctions will make Putin stop the war against Ukraine. Putin is more likely to double down and intensify the war effort in response to the strong and spirited Ukrainian resistance. But sanctions will have a long-term effect of imposing a steep price on Russia's economy, a price that Putin probably didn't expect. Russia is quickly becoming an international pariah state, a no-go territory for international trade and commerce.