Trade in the West, China and Russia

A very interesting article here on EU and Russian trade shows that Russia is well integrated with EU trade and shows that some significant percentages of Russian trade were – actually are – with the EU (both imports and exports).

In 2020, less than 2 percent of EU total exports and imports went and came from Russia – remarkably, including oil and gas, while for the Russian economy this percentage was 34% of Russian imports of goods and services (and as a percentage of its GDP it was 21 percent in 2020). The article continues:

One factor explaining Russia’s sectoral trade profile and dependency is its poor labour productivity. Russian labour productivity in the industrial sector is 21 percent of US and 36 percent of EU’s labour productivity. In other words, the Russian economy needs five workers to do the job of one US factory worker.

Personally, I have my doubts that productivity is a key factor – though admittedly the differential is huge. I would actually like to have seen investment per employee instead – where I suspect – in an economy that owes so much to extracting mineral wealth, that there is little investment elsewhere – simply because the mineral wealth is so large.

I’d also add that the article mentions nothing of farming when we know that Russia is the world’s largest wheat exporter. That in and of itself is a potential threat to the world economy – if not to the EU’s.

However, Russia is a vulnerable economy for,

There were €22 billion of Russian imported products for which 75 percent came from the EU and the US, €7 billion for which this ratio was 85 percent, and €2 billion for which more than 95 percent of Russian imports were sourced from the EU and the US. In comparison, there were only ten product categories (out of 9,000) with a value of €8 billion (0.5 percent of EU imports) that the EU buys mostly from Russia – and half of the import value of these products were oil and gas.

The article is worth looking over, if you have the time. It does, I suggest, rightly conclude:

Understanding Russian import dependency, the number of product categories, and value of these products that Russia imports from the EU and the US is crucial to appreciate the economic shock to the Russian economy. The sudden stop in many of these exchanges will be difficult to overcome…..Some of it can be imported from elsewhere, but trade substitution of this scale in an economy under siege and faced with hard Foreign Exchange sanctions will take a very long time.

Turning to China there is this thread from the co-founder of the UK Trade Forum, David Henig.

He suggests that looking at the map of these Chinese initiatives, they may be now almost completely broken:

(Click to enlarge)

I’m afraid I cannot see this case – most of these lines are railways that already exist – and amount to no more than Chinese paid usage. I very much doubt that Russia will prevent that!

I do agree though, when he says:

Unless something changes, China is revealed as a weak foreign policy player, having to respond to events such as invasion and sanctions, even by supposed allies, and showing no ability to shape them…..

Indeed, if we look at the group of countries not criticising Russia, it is more awkward squad than reliable allies for China, in particular Pakistan and India. All that effort and money spent, and hard to say China has any reliable foreign policy allies.

Certainly we can conclude that China and Russia are not bosom buddies… So he concludes:

….reports of the death of Western dominance and inexorable rise of China are rather premature….

Perhaps.

But while possibly China is not so clever at foreign policy, it is much cleverer at domestic policy and its decision to require Western investment to require eventual majority Chinese ownership by a Chinese ‘partnership’ was inspired – and in stark contrast to the now vulnerable, and extractive, klepto-capitalist systems in Russia, based on the original advice of economists from the western world, which is a thoroughly self-defeating model.

As I’ve remarked before, in China, material prosperity is in a sort of equivalence with freedom.

In the West freedom is usually all.

While Ukraine has embraced the Western ‘ideal’, Russia is stuck with a deficit of both prosperity and freedom.

And it now looks as though, in Putin’s Russia, this deficit of both will be getting much worse.

That must be Ukrainian and Western hope…

Comments

  1. Graham -

    I read that some of the sanctions will affect their war-machine. Let’s hope so.

    An interesting article putting a useful perspective on the relative effect of sanctions. Of course all the headlines are about our dependency on Russian gas and oil and whether we will be able to heat our poorly insulated houses and run our gas-guzzling SUV’s.

    One of the exports not mentioned was our dependency on kleptocrats to keep the London laundromat running. But at least our leaden-footed Govt is giving them time to shift their assets to safer environments.

    I got an email from openDemocracy pointing out the investment by dubious figures in “Schools” and “Institutions” in some of our universities, particularly Oxford. Then there’s the son of a former KGB agent, and friend of Johnson, owner of 2 newspapers, and elevated to the HoL where he could have a say in UK legislation.

    Meanwhile the “institutionally xenophobic” Home Office (Simon Jenkins The Guardian) is doing its best to keep “the foreigners out.” (Jenkins)

  2. Schofield -

    As Neil Wilson points out there’s typically a lot of hot air being spouted in the West about trade sanctions undermining Putin’s Russia and this hot air as usual is the almost complete ignorance in the West to understand how sovereign monetary systems work not to mention fascist China’s willingness to help fascist Russia. Of course, you can make the argument Western leaders are throwing up a smokescreen about trade sanctions working to quieten down its masses! I prefer the argument that Western intelligence knows Vlad The Mad is unstable and would easily start a nuclear war which is why a No Fly Zone isn’t being pursued. A parallel lies with Mao in China causing the great famine (which killed approximately 36 million people through starvation) despite being repeatedly told his agricultural collectivisation policy was having this effect.

    https://new-wayland.com/blog/the-unreasonable-ineffectiveness-of-sanctions-on-russia/

    1. Peter May -

      I agree with Neil Wilson in principle – but I think in a dictatorial state a trading shock will cause considerable disruption because Russia is unlikely to be quick to react.
      In the meantime with a falling rouble what they do import will be more expensive and be inflationary. Even with a perfect understanding of MMT they won’t be able to produce everything they currently import from Germany overnight…
      It is then to be hoped that that disruption is sufficient to encourage enough dissatisfaction so that Putin has to go…

      1. Schofield -

        Well Neil Wison does make the point that Putin may not understand MMT and clearly the alliance of the two fascist countries China and Russia means both countries should be able to supply each other with the goods and natural resources each respective country lacks. It’s the West that’s in trouble because it’s allowed NeoClassical Market Fundamentalism to neglect a now obvious fundamental which is to make your country as self-sufficient as possible and if this is not possible to form a trading alliance like the EU. The EU of course has ham strung itself by failing to understand MMT but that may now be changing as a result of the large Covid spending by the ECB purchasing Eurozone member country bonds.

  3. Peter May -

    Thanks @Schofield for the link – now that is really something…..

    See below

  4. Peter May -

    “In placing so much weight on sanctions, are we not tacitly assuming that Putin’s regime, rather than using Keynesian fiscal and monetary policy to cushion the impact, will stick to the hawkish conservatism that dominated his regime’s fiscal policy up to the recent past?”

    Quite – if Putin realises his ‘freedom’ he will be all powerful.

    But his own personal wealth seems to be so considerable that I doubt he will be radical…

    Let’s hope…

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