What $1.8 Billion Aid Package to Ukraine Means for American Consumers

Blog Summary

In "What $1.8 Billion Aid Package to Ukraine Means for American Consumers," Loretta Kilday examines the implications of the U.S. government's substantial military assistance to Ukraine amid its conflict with Russia. Announced on December 21, 2022, this aid package includes advanced weaponry such as the Patriot Air Defense System and Joint Direct Attack Munitions kits, significantly enhancing Ukraine's defense capabilities.

Details of the Aid Package

The $1.8 billion package comprises $1 billion for air defense and precision-strike capabilities and $850 million in security assistance. The inclusion of the Patriot system, known for protecting against various airborne threats, represents a significant upgrade for Ukraine's military.

Financial Implications for American Consumers

Despite the aid package, the overall impact on American taxpayers is minimal. The U.S. federal budget for FY 2023 is projected to exceed $5.872 trillion, making the $1.8 billion aid relatively insignificant in this context. However, the ongoing conflict has broader economic implications, contributing to global market instability, supply chain disruptions, and inflationary pressures.

Economic Effects

The invasion has disrupted supply chains, particularly affecting essential imports like neon gas, palladium, platinum, and pig iron, impacting about 12% of the American economy. The manufacturing, electronics, and automotive industries are particularly vulnerable to these shortages.

Investor Concerns

While the U.S. economy has shown resilience, the European economy's struggles could affect American investments due to interconnected financial markets. However, historical data suggest that geopolitical crises typically do not have long-term impacts on investors. Diversified investment strategies can help mitigate these risks.

Conclusion

The U.S. aid to Ukraine underscores a commitment to global security and democracy. While it has some economic repercussions, the broader impact on American consumers remains limited. The Financial Policy Council (FPC) continues to advocate for policies that support economic stability and growth.

For more information, visit Financial Policy Council.

Blog Content

On December 21, 2022, President Joe Biden and the Secretary of State, Antony Blinken, announced that the United States will provide $1.85 billion in additional military assistance to Ukraine. The announcement was made during Ukrainian President Volodymyr Zelensky’s first overseas trip to the White House since the outbreak of the Russian invasion of Ukraine.

President Zelensky and other Ukrainian officials have advocated for increased Western support, including providing advanced weapons, such as the Patriot system, to assist Ukraine in its ongoing conflict with Russia.

Will there be any financial consequences for American consumers as a result of this and future aid packages to Ukraine?

Details of the aid package

The aid package includes a $1 billion drawdown for “expanded air defense and precision-strike capabilities” and $850 million in security assistance. One of the crucial components of the aid package is the inclusion of the Patriot Air Defense System, considered one of the most advanced systems
of its kind in the U.S. arsenal.

The Patriot system offers protection against a wide range of airborne threats, including aircraft, cruise missiles, and ballistic missiles. It typically includes launchers, radar, and other support vehicles.

Also included are an undisclosed number of Joint Direct Attack Munitions kits or JDAMs. These are designed to modify large bombs by adding tail fins and precision navigation systems.

These modifications transform the bombs from simple “dumb” munitions, which are dropped from fighter jets onto their targets, into guided weapons.

This will enable the bombs to be released and then guided to their targets with high accuracy. It is a significant upgrade in military capabilities for
Ukraine.

This marks the 28th time the Pentagon has quickly delivered weapons to Ukraine. The U.S. has provided a total of $21.3 billion in military aid to Ukraine since February 2022, which shows a long-term commitment to support Ukraine in this war.

How much aid has the U.S. sent to Ukraine, and what does Zelensky plan to do with it?

The Biden administration, and the U.S. Congress, have provided Ukraine with nearly $50 billion in assistance in 2022, according to The Kiel Institute for the World Economy, a research institute in Germany.

This includes a variety of forms of support, such as humanitarian aid, financial assistance, and military aid. The aid is helping a wide range of Ukrainian individuals and organizations, including refugees, law enforcement agencies, and independent radio broadcasters.

While the aid package includes a diverse range of support, a significant portion of the aid is military-related.

Additionally, many other countries, including most members of NATO and the European Union, have provided large aid packages to Ukraine.

During Ukrainian President Volodymyr Zelensky’s address to a joint session of Congress on December 21, 2022, the President emphasized that the financial assistance provided by the United States is not charity but rather an investment in global security and democracy.

He assured that Ukraine would handle this aid in a responsible manner. He also expressed gratitude to the American people for their support while making a case for further assistance. Zelensky, who had just returned from the front lines of the ongoing conflict with Russia, was making his first visit outside Ukraine since the Russian invasion began.

Financial implications for American consumers

The conflict in Ukraine is primarily a humanitarian catastrophe. Still, like past disasters on a grand scale, it has had an impact on the global financial markets and made investors rethink their approach.

The developing conflict in Russia and Ukraine, inflation that has reached four-decade highs, and looming interest rate increases from central banks are the three hazards that have already roiled financial markets in 2022. The Russian invasion is just the most recent of these risks.

Because the Covid-19 pandemic, which also had a negative impact on the global economy, was just ending, the Russian invasion will have significant but difficult-to-predict economic implications.

How much do taxpayers pay for defense?

It is well known that the US military receives a significant percentage of our tax dollars. This shouldn’t come as a surprise because the military is responsible for safeguarding the country and its citizens. Defense and security account for more than 10% of the government budget, which is equivalent to the percentage of taxes paid that goes to the armed forces.

If we take 2020’s data into consideration, the defense budget was $690 billion. 

“Operation and maintenance” received $279 billion in tax money, making it the highest spending area out of the $690 billion total. The price of military activities, such as planning, equipment upkeep, and training, was covered by this category. The military healthcare system was also supported by it.

With $161 billion, “military personnel” was the second-largest spending category. In this case, it’s about the pay and retirement benefits that are given to service members.

The price of buying weapons and systems, which came in third with $139 billion, came in third. After that, $100 billion was allocated for developing new tools and weaponry.

Different viewpoints

Many individuals support the massive amounts of tax money going to the military, while many others do not. The budget set aside for defense is still the subject of intense discussion. The idea is that more money should go into other things like a universal healthcare system, and less should be spent on “useless” military activity. 

Although, there’s no denying that the military receives a significant portion of the federal budget, given the importance of national defense to the safety and well-being of the country and its citizens.

Will giving aid to Ukraine affect American taxpayers?

The Congressional Budget Office estimates the total U.S. federal budget will exceed $5,872 trillion in F.Y. 2023. Based on this information, it seems that sending $1.8 billion in military aid to Ukraine is not likely to have much of an impact on American consumers’ finances. 

In what ways will the economy be affected?

Different facets of the Russian invasion of Ukraine are covered every day. The United States’ involvement in the conflict affecting NATO security, military and humanitarian aid to Ukraine, and the application of sanctions on Russia are frequently discussed. A distinct viewpoint on how the conflict has affected the U.S. itself is less noticeable. At the source, in transit, and at the final destination, supply chains have been broken.  Therefore, it is crucial to assess how these disruptions affect the American economy and identify which goods are most likely to experience shortages as a result.

Numerous items used by American enterprises are imported from Russia and Ukraine. The Observatory of Economic Complexity’s research indicates that four essential ones—neon gas, palladium, platinum, and pig iron—will be in limited supply. The shortages are probably going to directly affect 12% of the American economy.

The conclusions are based on a subjective examination of the sectors that depend on the identified vital commodities and their contribution to the GDP of the United States. The manufacturing, electronics, and automobile industries will all experience a direct impact.

How concerned should American investors be?

According to a report by the CSIS, the impact of aid to Ukraine on the U.S. economy has been negligible, at least to date. And the U.S. economy was growing steadily as of October 2022, and personal income was estimated to have reached $25.66 trillion in current dollars. The conflict and sanctions
haven’t had much of an impact on the US economy, but Europe’s economy is struggling, which could have an impact on US investment. Professional management may be able to assist US investors in controlling the dangers of long-term international stock investing.

Even while markets have become turbulent since the Russian military entered Ukraine, the rise in US stocks during the early stages of the conflict was more due to anxiety about US monetary policy than it was about Russian military strategy. 

As of now, the markets’ response to the conflict is consistent with history, which demonstrates that geopolitical crises often don’t have long-term effects on investors. New indications, however, show that the economic effects of the conflict and the ensuing sanctions may be getting worse.

How protected is the US?

The US is better protected from the repercussions of the Ukraine war than Europe due to its massive domestic economy and capacity to cover its energy demands without importing. Even if the US avoids recession, but Europe does not, the international structure of financial markets may cause US investors to experience greater volatility in the months to come. 

The economy of the European Union is bigger than that of the US, and many US-listed companies get a considerable portion of their revenue from customers in Europe. Consumer spending may decrease if they are concerned about losing their employment during a recession, which might also affect stock prices and company profits for US investors.

What investors should keep in mind?

Despite geopolitical uncertainties, US investors shouldn’t lose sight of the potential long-term gains that come from investing in foreign stocks. In fact, it is quite possible that over the next 20 years, foreign companies will beat US stocks. These expectations are in part due to the fact that US market values are currently high by historical standards and that US equities have increased more than those of other nations over the past two years. While targeting long-term gains, diversification and expert management can assist in managing short-term dangers.

There are several places, nations, industries, and sectors where stocks and bonds are held. An advantage of a diversified strategy is that investors often have very little direct exposure to investments in Russia and much less exposure to investments in Ukraine. Investors that have that level of
diversity may feel more at ease when faced with global issues. Here, considering the broader perspective is crucial. Don’t be frightened; just stay focused.

What’s next?

The United States government continues to provide a significant amount of aid to Ukraine, with Congress now poised to approve an additional $44.9 billion in assistance as part of a larger spending bill.

This move will secure continued support for Ukraine from the United States in the coming year and beyond, despite the change in political control of the House of Representatives, where Republicans will take over the majority in January.

Author Bio: Attorney Loretta Kilday has more than 36 years of litigation and transactional experience, specializing in business, collection, and family law. She frequently writes on various financial and legal matters. She is a graduate of DePaul University with a Juris Doctor degree and a spokesperson for Debt Consolidation Care (DebtCC) online debt relief forum. Please connect with her on LinkedIn for further information.