America’s new economic sanctions may hurt Russia’s recovery

IN LATE June Daimler, a German carmaker, broke ground on a new Mercedes-Benz plant north-west of Moscow. “We are confident in the long-term potential of Russia,” Markus Schäfer, a board member, said at the ceremony. The €250m ($296m) factory marked the first investment by a Western carmaker since America and the European Union slapped sanctions on Russia as punishment for its aggression in Ukraine three years ago.

After more than two years of recession, Russia is projected to return to growth this year. Until recently, the chill that sanctions put on the investment climate seemed to be thawing. “People had begun to forget about them,” says Chris Weafer of Macro-Advisory, a Moscow-based consultancy. But in late July America’s Congress voted to expand the sanctions. Vladimir Putin responded by demanding that America reduce its diplomatic staff in Russia by some 750 people. (Most of those affected are likely to be Russian employees.) He also shut down the American diplomatic dacha in Moscow’s Serebryany Bor forest—even the barbecues had to go.