The Russian invasion of Ukraine has placed a strain on the Russian economy, despite an increase in Russia’s GDP. While Russia’s war-oriented economy has increased its GDP to over $2 trillion, its inflation rate is hovering at 8.6%. The war in Ukraine is adding to the inflation rate, in that war factories are running day and night, and increasingly compete with other sectors of the Russian economy for labor. As a result of this, there is upward pressure on wages and in the prices of raw materials. This is leading to a steady increase in inflation which shows no sign of abating. Using the Phillips Curve for a short-term analysis of a country’s economy can be useful. The advent of stagflation interfered with the Phillips Curve, but this interference came about because of exogenous factors. The wage and price controls imposed by President Nixon, the switch from a hard currency to a Fiat economy, and coupled with end of the Vietnam War led the American economy in 1970 directly into stagflation
The Phillips Curve
The Phillips Curve while accurate for short term analysis is not that reliable in long term analysis. “The Phillips curve is an economic theory that inflation and unemployment have a stable and inverse relationship. Developed by William Phillips, it claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.
The original concept of the Phillips curve has been somewhat disproven due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.”
For the present time, the Russian economy shows some similarities to the American economy when the United States was mired in the Vietnam War. Both economies were on a war footing, both economies were showing signs of rapid inflation, with demand being driven by the production of goods that are meant to destroy instead of goods that assist in the creation of wealth.
Further information is needed to estimate the chance that the current Russian economic profile would lead to the type of stagflation that the United States experienced towards the end of U.S. involvement in Vietnam.
It should be noted that the Russian sovereign wealth fund, the National Wealth Fund has been used to help fund the war in Ukraine. In 2022 the fund had $210 billion. At the beginning of 2024 the fund stood at $130 billion.
Worsening Russian Demographics
The Russian demographic situation is bad and getting worse. According to BOFIT, the Bank of Finland Institute for Emerging Economies, the Russian population has been declining since 2000. Only 1.27 million babies were born in 2023, while there were 1.71 million deaths in 2023. Over 444,000 more deaths than births. The age group of young adults in their childbearing years, 25 to 30, is five million less than 10 years ago.
Of particular note, the Russians who fled Russia at the beginning of the Russo-Ukraine War have been educated in the IT fields, a sizeable brain drain when Russia needed everyone. . It should be noted that over 300,000 young men of military age have fled Russia. At the same time, older people are now 24% of the Russian population. In the 2040s that percentage will increase to 27%. While there has been an influx of migrant workers from Central Asia, this has been sharply curtailed because of acts of terrorism in Russia from this population group.
The Unequal Treaties with China
When the Russia Empire began expanding eastward, it eventually began to have border friction with China. Russian expansion to the east reached the Amur River. China, then ruled by the Manchu Empire reacted with military force and forced Russia to sign the Treaty of Nerchinsk in 1689. On that day, the Chinese military had the superior military force. By signing the treaty Russia lost access to the Sea of Okhotsk, and the markets of the Far East. Russia’s influence was pushed back to the western part of Lake Baikal.
This treaty would last until 1858. While China was heavily involved in putting down the Taiping rebellion, the Russian general Nikolay Muraviev took advantage of this situation. Muraviev massed an Army on Mongolia and Manchuria. He then demanded that China make territorial concessions and the Qing Dynasty relented.
The result was the Treaty of Aigun. The Russians gained all of Siberia with the political border between Russia and China to the Amur River. The Treaty of Aigun is considered to be one of the “unequal treaties.”
While Mao Zedong once questioned the legality of the Unequal Treaties, he acknowledged that there was no hope of recovering the lost territory.
The circumstances are different today, currently China is totally dependent on imported oil, and the free use of the world’s oceans. Ironically it is the United States navy which guarantees peaceful transit on the world’s oceans, and in the event of conflict, those ocean trade routes would not be open and free. In the event of conflict, China will need an alternative source of oil, and the land taken from China by the Treaty of Aigun has plentiful reserves of the oil she needs.
In the event of a collapse of the Russian economy and government, the ability of Russia to protect its sovereignty in Siberia would be negligible except for the use of nuclear weapons. It is doubtful that Russia being so weakened would revert to the use of its nuclear weapons,
Such an adjustment to Russia’s polity would be a strategic threat to the United States, and might mean the United States, along with its allies, sending military forces into Siberia to prevent such a happenstance. There is precedence for this.
The American Expeditionary Force in Siberia and the Archangel Campaign
The Archangel Campaign was brought about by the Treaty of Brest-Litovsk which ended Russia’s involvement in World War One. The Allied Powers were concerned that the vast amount of military supplies in Archangel that had built up prior to the signing of the treaty would fall into German hands. Another concern was to rescue the Czechoslovak Legion, some 50,000 soldiers trying to leave Russia and make their way to allied lines in Western Europe. An additional issue was the hope of western troops defeating the Bolshevik forces and ending the threat of Communism.
The United States participated in the Archangel Campaign from September 4, 1918, until June 2, 1919. The original purpose of the American military forces was to safeguard military supplies that had been sent by the Allied powers to Russia. The United States did not want those supplies falling into German hands. After the civil war in Russia intensified, and the US troops were being sucked into that war. With the American people yearning for peace, the U.S. forces were soon withdrawn.
An Attempted Seizure of Siberia by China Would Pose a National Security Threat to the United States.
Any attempt by China to seize Siberia in the event of a Russian economic and political collapse would present a serious threat to the national security interests of the United States. China’s economy is not capable of non-steady state growth. China’s economy only grows when it has additional economic inputs, and even this is only temporary growth.
An annexation of Siberia would provide China with an oil supply route that is over land, and not subject to the interference by the US Navy. It would also cement China’s claim to be an Artic Power. It would provide a proximity to the American landmass and allow China to exert military pressure upon the American landmass.
To prevent a Chinese expansion into Siberia, the United States should make it clear that the United States is prepared to guarantee Russia’s sovereignty by any amount of force it deems necessary to prevent the Chinese from trying to annex Siberia. As distasteful such an action is, the U.S. actions would have to be coordinated with the Russian government.
