US struggles with penalty on Rusal, testing Donald Trump’s use of sanctions as a weapon

President Donald Trump’s attempt to wield US economic strength as a weapon against foreign adversaries is being tested as the Treasury Department struggles to contain the fallout from its sanctions against the world’s second-largest aluminium producer.

The financial penalties imposed on Russia’s United Co. Rusal in April were intended to punish its majority owner, billionaire Oleg Deripaska, as well as Russian President Vladimir Putin.

But global aluminium prices shot up as much as 20 per cent in the first week the sanctions were announced, throwing the global market into chaos that’s since continued, threatening a worldwide shortage of the metal, and forcing Treasury Secretary Steven Mnuchin to backtrack.

Rusal is among the largest companies the US has ever put on its sanctions designation list. The value of the aluminium producer has plummeted to US$4.15 billion as of October 5 from US$9.2 billion a little more than six months ago.

In general, Trump has made unprecedented use of financial levers to pressure countries including North Korea, Iran and even Nato ally Turkey. Sanctions designations jumped 30 per cent in 2017 compared to former President Barack Obama’s final year in office, according to the law firm Gibson Dunn.

Sanctions are a valuable tool for US presidents, essentially allowing them to take on adversaries without resorting to actual bloodshed. But the Rusal penalties have caused such widespread pain that Mnuchin may be forced to holster what’s become one of Trump’s favourite weapons in his global economic war.