How Russia's invasion in Ukraine will affect the American economy

There are many possible impacts. However, focusing on three shows the potential for a bumpy 2022.

How Russia's invasion in Ukraine will affect the American economy

WASHINGTON -- Russia's incursion in Ukraine this week is more than an international story. It could also have profound effects on the United States, with economic and political consequences for an electorate in disarray.

Americans should have felt more joy last year. It saw high economic growth and low unemployment rates. But survey, after survey showed that Americans still feel the country is in trouble. This mindset is affecting a lot of Americans, regardless of whether it's rising inflation or the ongoing COVID-19 saga.

The fallout of Russia's invasion into Ukraine and the economic sanctions that accompanied it has the potential to make that mood more angry as the 2022 midterms near.

There are many possible impacts. However, focusing on three shows the potential for a bumpy 2022.

Let's begin with an economic measure that people often mention: the Dow Jones Industrial Average. It is often used by voters as a measure of retirement account health. Although it's a simplified explanation (retirement investments can be more complex than one stock index), many Americans still value the DJIA numbers. The index could look uncertain for the near future.

Stability is important for investors and businesses. Sanctions and war create the exact opposite situation.

The Dow was in a slump even before the invasion. Russia-Ukraine tensions likely played a part. The Dow was down by 2,500 points or 7 percent as of Friday's closing, compared with the beginning of the year. Although it was up from the Thursday crash that followed the invasion on Thursday, the larger message seemed to have been increased volatility.

When people look at their retirement accounts and worry about the money that they "lost," large amounts of uncertainty can cause hand-wringing. Of course, the story is much more complex than that. The markets move up and down and much of what was considered "lost" was only theoretical. People who looked at their online 401(k), statements never actually had it.

Despite the Dow's January dip, it is still higher than where it was at either the end 2020 or 2019. The DJIA is a psychological measure of wealth, not a real one. Numbers that fluctuate between positive and negative can cause consternation.

However, other measures have a greater real-world impact. Take oil prices, which have risen since the Russian invasion.

Oil prices have been increasing since January but they have been on the rise for the past few weeks due to the escalating situation in Ukraine. The Brent Crude oil measure has seen the price per barrel rise 24 percent since the start of the year, from $79 to close to $100 by Friday.

Rising gas prices can cause inflation across the board. The shipping of merchandise is essential. This means that fuel is required for trucks, trains, and tankers. If these prices remain high, consumers will pay more.

Consumers feel pain at the pump when filling up their trucks and cars with gas. In November Data Download pointed out that rural communities are often more affected by rising costs. They are more likely than other areas to have pickup trucks and/or vehicles that use less fuel. These increases could be a catalyst for rural voters to turn out in greater numbers and vote.

The supermarket checkout is another place Americans can feel the effects of the invasion. Together, Russia and Ukraine represent around 29 percent of the world’s wheat export market. This week's actions caused wheat prices to climb.

Although the price rises for the commodity are pre-eventual to the events in Ukraine this week, they have accelerated since February. There was also a brief, sharp spike Thursday. Wheat futures prices were at $8.59 per bushel by Friday evening. This was a 13 percent increase from the starting price of the year.

The United States imports very few wheat from Ukraine. The United States is actually a net exporter by a large margin of wheat. However, if global supplies decrease, prices can rise which can impact your local market as well.

While the Russian invasion of Ukraine is still fresh, its true meaning and impact will be revealed slowly. But, what's more, 2022 will see the United States and its allies implementing sanctions as a way to respond.

The true power of sanctions is in the form political pressure on the country under sanctions. It takes time to create this in any environment. But it is even more difficult in Russia where authoritarian leadership is less susceptible to public opinion.

President Joe Biden on Thursday announced that the United States and its allies would increase sanctions against Russia. He also said that the Ukrainian people will likely be in line for many difficult weeks and months. This timeline indicates that any economic disruptions caused by the Russian invasion will be long-lasting. A already sour electorate will have many reasons to feel worse in the months ahead.

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