The simple economics of a tariff on Russian energy imports | VOX, CEPR Policy Portal – voxeu.org

by | Apr 13, 2022 | Financial

Editors’ note: This column is part of the Vox debate on the economic consequences of war.
As Russia’s invasion of Ukraine continues, EU policymakers are weighing more severe sanctions. At the centre of this debate is the question of whether to restrict imports of – or in the extreme case, embargo – Russian oil and gas. While many economists have focused on the effects of an embargo, Hausmann (2022) and others have argued that placing tariffs on imports from Russia instead may damage the Russian economy at much lower cost to the EU (Bachmann et al. 2022, Chaney et al. 2022, Chepeliev et al. 2022). However, the conversation about tariffs has not yet clarified a key question: Should the EU hold back from tariffs on Russian oil and gas because it depends on them?
A simple, supply-and-demand analysis of this question reveals a surprising answer. Unlike an embargo, tariffs can be designed without considering the EU’s dependence on the goods in question. This is because (a) tariffs allow EU consumers to continue buying goods if they value them enough, and (b) while tariffs do raise costs for EU consumers, they also raise revenue for the EU central budget – which can be sent back to consumers. 
What matters is therefore not how reliant the EU is on Russia, but rather h …

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