This story first appeared in the Feb. 7 print edition of GSA Business Report. Additional updates to BMW Group's response to the conflict in Ukraine, not included in the print story, can be found here.
South Carolinians may be more than aware of damage the Russian invasion of Ukraine has wreaked at the gas pump. But while Russian exports barely register on the economic radar for many states, South Carolina is the second largest exporter to the country by value.
The Palmetto State’s Russian export industry is worth $351 million each year, according to 2021 U.S. Census data, and makes up 1.2% of all export value for the state — higher than anywhere else in the United States but still a small part of the state’s $30 billion export industry.
A 162% or $17.9 million increase in state exports to Russia last December, along with the trade of gas turbines and precious metal compounds, contributed to South Carolina’s year-over-year export value, according to the Observatory of Economic Complexity.
The country was the fifth largest importer of vehicles from BMW’s Plant Spartanburg in 2020, according to the company.
Vehicles, aircraft parts and rubber tires are at the top of South Carolina’s export list. Russia turns to the United States for imported cars and aircraft. U.S. auto exports is an $11 billion market, according to OEC data. The Russians account for less than $800 million of that, according to the Office of the U.S. Trade Representative.
Export restrictions put into place on Feb. 24 include controls on avionics and aircraft components, as well as telecommunication devices, sensors, navigation equipment and microelectronics.
“With these export controls, we, together with our allies and partners, are technologically isolating Russia and degrading its military capabilities,” Thea Kendler, the U.S. assistant commerce secretary for industry and security, said in a Feb. 24 statement. “Russia’s access to cutting-edge U.S. and partner country technology will halt. Its defense industrial base and military and intelligence services will not be able to acquire most Western-made products.”
Parts and components used in civil aircraft will also require an Export Administration Regulations license, according to the U.S. Commerce Department.
“Even most products made overseas using sensitive U.S. technology will be restricted for export to Russia,” Kendler said in the statement. “Russia’s violation of Ukraine’s territorial integrity and sovereignty warrants this swift and expansive export controls response.”
On Feb. 28, Volvo Cars pulled the plug on any sales to Russia, once the auto company’s fastest growing market. The Swedish manufacturer assembles its S60 mid-size sedan in Ridgeville.
“We do not know the full impact today since all sanctions have not yet been imposed,” a Volvo Cars spokesperson told GSA Business Report in a statement. “However, considering the potential risks associated with trading material with Russia, including the sanctions imposed so far by the EU and U.S., Volvo Cars will not deliver any cars to the Russian market until further notice. We continue to monitor the situation closely.”
On March 1, BMW Group also put the breaks on all sales and manufacturing in Russia and approved a $1 million donation toward rescue efforts in Ukraine in partnership with UNICEF, according to the company.
“For sure, we will see further shortages throughout this year, and for sure, be affected by the worldwide crisis situation," Engelhorn told GSA Business Report on March 2. "We have to work closely with our suppliers to resolve these topics and see how we can improve the overall situation in the next months and in the years to come.”
Over the past decade, Boeing has filled orders for 63 jets for Russian customers, and at time of publication, still had 34 737 Max and 777F jets on backlog for airlines UTair Aviation and Volga-Dnepr UK Ltd. Ukraine’s SkyUp Airlines had seven 737 Max jets on backlog.
How the conflict may impact these orders remains unclear, but some industry professionals fear tightening sanctions may halt the supply of a critical mineral for Boeing’s passenger aircraft production line.
In 2021, Boeing signed a memorandum of understanding that Moscow-based VSMPO-AVISMA would remain the company’s largest titanium supplier for current and future airplanes, according to a news release. At press time, titanium was not included on the list of sanctions against Russian products.
Furman University economist Jason Jones said on Feb. 25 that the sanctions placed on Russian goods were not as stiff as they could be, and the stock market responded.
“Are there sanctions that could be engaged that would be more effective than others?” Jones said. “Yes, but the more effective they get in slowing Russia, the more painful they are for the West, because we are integrated.”
The day after Russia invaded Ukraine and the United States placed selective sanctions on a few banks and Russian oligarchs, stock values recovered, he said. Boeing’s stock began to climb from $196.42 on Feb. 23 to $205.34 on Feb. 28.
But if the war escalates and the civilian death toll rises, he believes the West will respond in kind, even at its economic peril.
“That’s a question that … politicians have to make about how aggressive they want to respond,” he said. “How much does keeping Ukraine independent from Russia matter versus the pain that you feel in your domestic country? That’s a political question. It’s not an economic question. That’s a political choice that they’re going to have to make.”i