Conservatives in the United States have been positioning tariffs as a potent tool to boost American industry. It sounds patriotic, doesn’t it? But sometimes patriotism comes with a price. Tariffs can cause a heavy burden on U.S. consumers, increasing their household spending and causing financial anxiety.

The new U.S. President Donald Trump delayed day-one tariffs but stayed true to his campaign promise, signaling tariffs on all Chinese imports. He vowed 25% duties against Canada and Mexico starting on Feb. 1.

Tariffs generally lead to higher prices, but China could absorb some of the cost – although this has historically not been the case. Some argue that past tariffs didn’t fuel overall inflation, and that’s partially true. The Consumer Price Index rose 2.4% in 2018 but slowed to 1.8% in 2019. Price increases impact certain sectors, particularly those subject to tariffs.

But don’t mistake that for Chinese exporters footing the bill. Importers took on the burden, sacrificing their profits, but Americans still paid the price. According to the National Bureau of Statistics, 95% of U.S. tariffs were reflected in the prices of imported products as soon as they entered the American border. This means American importers paid $95 for every $100 in tariffs. Even two years later, prices remained sticky.

Research by two economists, Pablo D. Fajgelbaum and Amit K. Khandelwal, highlights why this happened during earlier trade wars: Sudden tariffs left U.S. importers stuck with pre-signed contracts, unable to adjust demand or shift the cost to consumers.

Price elasticity puzzle

In a future trade war, even with a warning, tariffs on all Chinese imports could drive overall inflation, with Trump promising to target all products, not just specific sectors. This is where price elasticity comes into play. Chinese companies can push tariff costs down to U.S. buyers in industries with rigid demand, where consumers can’t easily switch or reduce purchases of essentials, as evidence from previous trade wars suggests.

Rigid consumer behavior centered around certain products – such as ship-to-shore cranes, which the U.S. imports from China and needs for its construction purposes – almost always challenges the protectionist policy outlook since consumers end up bearing the brunt of rising tariffs. With no domestic firms producing these cranes, a 25% tariff now hits ports with at least $131 million in extra costs.

Looking ahead, the key question is how much of the tariff burden China will absorb – and for how long. Beijing is playing the long game. With the Belt and Road Initiative and stronger ties to BRICS countries, China is diversifying its trade and reducing dependence on the U.S. This makes Beijing less likely to lower prices to keep its foothold in American markets.

Alternative markets dilemma

As Trump’s trade war gains momentum, U.S. businesses will scramble to find alternatives to Chinese imports. However, this quest for new suppliers is not without its challenges. If the U.S. follows through on its threats to impose tariffs on imports from the European Union, Canada or Mexico, the cost of imports from these countries could also rise. This situation is further complicated by the fact that Russia is also under sanctions, leaving businesses with fewer affordable options.

During the previous trade war, tariffs were also applied to steel and aluminum from Canada and Mexico. As a result, domestic price indexes for competing iron, steel and steel mill products rose by 10.2% to 17.7% between February and September 2018.

What happens when there’s no escape route? Consumers stock with fewer affordable options and pay more, whether the goods come from China or somewhere else.

Supply gap dilemma

When tariffs are in play, inflation can rear its head if local production can’t fill the gap left by imported goods. Boosting domestic production is not a straightforward solution. In the previous trade war, Trump attempted to lower interest rates to dissuade industry leaders from expanding their offshore investments in production facilities and attracting capital back into the country. This strategy could help boost domestic production and partially fill the supply gap, but it’s not a silver bullet.

Since real wages in the U.S. are significantly higher compared to China, American production will always be less cost-effective.

Many American companies still produce in China, drawn by both – its cheap labor and the “In China, for China” strategy, which keeps them close to the Chinese market sphere as well as neighboring nations such as Vietnam, Malaysia and India. Even after the imposition of trade tariffs, U.S. foreign direct investment in China continued to rise. It reached $107 billion in 2018, increased to $109 billion in 2019 and grew to $116 billion in 2020. Therefore, bringing capital back can be a great rhetorical phrase, but it is out of step with economic realities.

Trump’s China policy can produce a blowback effect, making Chinese citizens more pro-domestic and protectionist in their market outlook. According to data from the China Academy of Information and Communications Technology, foreign mobile phone shipments to China dropped by 47.4% in November 2024 compared to the previous year.

As a result, Chinese consumers are likely shifting toward domestically made products, forcing U.S. companies to increase investments in China to remain competitive.

The result? A supply gap at home, inflation climbing higher and consumers left with footing the bill.

Competition and price monopoly

The lack of alternatives can lead to higher prices – even for domestically produced goods, as producers face less pressure to keep prices competitive.

When Trump imposed a 20% tariff on washing machines, the effects rippled through the market in unexpected ways. As anticipated, the price of foreign-made washing machines climbed due to the new tariffs. According to the National Bureau of Statistics, the price of washers rose by nearly 12%. However, the surprise came when prices for domestically produced washing machines also started to rise. It didn’t stop there – prices for dryers also began to increase by a similar amount.

In industries where entry of new players is tough and the size of base capital is directly linked to the longevity of a business, tariffs can take the steam off the competition. Many believe monopolies are a thing of the past in the U.S., but think again. Take March, for instance, Apple faced accusations of monopolizing the market. This is important because electrical devices are a massive slice of U.S. imports from China. In 2023 alone, items like smartphones, computers, lithium-ion batteries, toys and video game consoles comprised 27% of all goods imported from China. If tariffs hike prices and competition shrinks, consumers could see costs skyrocket in this sector.

With fewer players in the game, producers can charge higher prices and basically have a price monopoly. And here’s the kicker: If the supply line can’t be quickly ramped up, prices will rise even more. Take the example of solar panel tariffs. When a $1 tariff is placed on manufacturers, the price of installed photovoltaic panels subject to the tariff increases by $1.35. So, while tariffs are projected to protect domestic industries, they may only create higher prices for the consumer in the long run.

Import dependency problem

Besides all those critical areas, there is yet another blind spot: Raw materials prices. Some industries rely heavily on imported raw materials and tariffs on these imports can increase production costs. We saw this play out in 2018 when tariffs on Chinese goods increased input costs for many American industries.

Ford and General Motors even slashed profit forecasts in 2018, blaming higher steel and aluminum prices caused by 25% tariffs. The ripple effect hit products like nails, bumpers, tractor parts, wires and cables, forcing additional tariffs on “derivative” steel and aluminum goods by 2020.

Things may get worse as China has started to retaliate. Recently, they’ve restricted exports of key minerals like germanium and gallium, which are vital for making semiconductors, solar panels, EV batteries and infrared tech. With China controlling 94% of global gallium and 83% of germanium, finding replacements is no small feat.

2025 will be a critical year for the U.S. economic outlook. It would not just determine where American citizens will have to narrow their margins but also shape an economic order where the U.S. may be sidelined by several emerging powers to continue trading with China despite the risk of sanctions looming large.

To read the op-ed as it was published on the Daily Sabah website, click here.

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Tariffs have a long history. They were first levied in ancient Greece, by the city-state of Athens around 399 BC on imported grain to raise funds for the government. As modern economies emerged in the 1600s and 1700s, the major European powers used tariffs both to raise revenue and to promote their domestic industries. Economist Adam Smith, author of The Wealth of Nations, supervised tariff collection as Customs Commissioner for Edinburgh, Scotland, from 1778 until his death in 1790. Alexander Hamilton drew on British and French experience when he recommended tariffs for the new U.S. republic, and they were legislated in July 1789 by the First U.S. Congress.

Tariffs were a logical tool to restrict imports because demanding cash payments right at the port has a strong deterrent effect on imports and delivers cash immediately. But modern technology makes quotas possible. A quota is a fixed limit on the volume of imports allowed to enter in a quarter or a year. A quota can be set in terms of units or weight or other volume measure. The computer systems of Customs and Border Protection and the U.S. Census enable data on import value or weight or other metrics to be compiled from all points of entry on a daily basis, and thus can be enforced by the power of Customs to grant or deny entry to any shipment.

Tariffs have the distinct advantage of raising revenue for the government. Last year, the U.S. government collected $80 billion in tariff revenues. But tariffs have the disadvantage that they can be nullified by price cuts by the foreign exporter. This is especially true if a foreign government is willing to subsidize its export industries. China has built its manufacturing sector through widespread subsidies, some public and some clandestine, including free land for manufacturers, cheap government-backed bank lending, and other methods. If the U.S. implements a tariff of 25% on any product line, the Chinese Communist Party government can enable its exporters to cut price and absorb the tariff through a variety of policy levers.

Even without subsidies, economies of scale can make it profitable for foreign producers to cut prices in response to a tariff. It can, for example, be more expensive to shut off a furnace or a semiconductor fabrication facility than to keep it running. Therefore, as long as the product coming off the line can achieve a price that pays for the cost of the materials, a producer can find it worthwhile to keep producing and sell the output in a foreign market at a price 25% or even 50% below the price in its home market.

Quotas avoid all these problems by setting a firm limit on the volume of imports in any product category. This enables the government to allow in sufficient imports to meet domestic demand while the domestic industry ramps up production. The quotas can be varied as industry capacity changes. This can safeguard against shortages while encouraging domestic producers to invest and ramp up production.

There are three main types of quotas: (1) absolute quotas, 2) tariff rate quotas and (3) voluntary quotas.

Absolute quotas are a firm limit on imports, typically set in volume, such as tons of imports per year. They have the advantage of allowing domestic firms to plan for the future because they can have more confidence about the market opportunity for several years to come. If imports are strictly limited by quota, then domestic producers can assess the likely size of the domestic market and can invest and hire workers to meet that expected demand. Tariffs don’t deliver that sort of predictability because in today’s world, China and many other exporting nations can react to tariffs by cutting their export prices or by challenging tariffs with legal action.

A firm quota can control imports more reliably than tariffs. The quota arrangements on steel imports agreed with South Korea, Japan, and the United Kingdom have done an effective job of keeping steel imports from those nations flat to slightly down.

Price Impacts

The impact on U.S. prices is another important consideration. As we have explained before, tariffs tend to raise U.S. prices by some 10% to 20% of the value of the tariff. In other words, a 25% tariff can be expected to raise U.S. prices in the tariffed product segment by 2.5% to 5%. The price impact of a quota is broadly similar. A U.S. International Trade Commission study of the quota on Japanese auto imports in the 1980s found that the price of Japanese imported vehicles rose by $1300 while the price of U.S. autos rose by $660. The large price impact on U.S. autos resulted from the dominant role of Japanese autos in offering competition to the U.S. Big Three which tended to set very similar prices. The Japanese imports constituted 22% of the U.S. market in 1981.

The price impact of a quota will depend on how restrictive the quota is and how much competition exists in the domestic market.

Tariff rate quotas (TRQs) work by allowing a fixed volume of imports to enter at either zero or a low tariff rate and then imposing a higher tariff rate once imports pass that threshold. The 2018 tariffs on residential washing machines used a TRQ. The first 1.2 million units entered at a tariff of 20% and any units above that paid a 50% tariff. The TRQs were effective in that they led Samsung and LG Electronics to open U.S. manufacturing facilities to ensure that they could sell all their U.S. products at zero tariff. In that case, the washing machine price, as measured by the consumer price index, rose in 2018 but fell back in 2019 until by the end of 2019 it was back at the pre-tariff level. The price impact was minimal, but the benefit of thousands of new jobs in the industry was real and still with us today.

Voluntary quota agreements vary in their effectiveness. The voluntary agreement the U.S. made with Mexico in 2019 to restrict steel imports has been largely ineffective, as we have shown in previous articles. Unless the U.S. Customs has the power to stop imports by denying entry once a quota has been reached, a voluntary quota will depend on good will on the side of the exporting nation and its companies.

One of the best examples of a successful voluntary quota was the 1981 “voluntary export restraint” (VER) agreement the U.S. reached with Japan in 1981. In this agreement, Japanese auto producers agreed “voluntarily” but under pressure from the Reagan administration to limit auto shipments to the U.S. to 1.68 million units a year (later raised to 2.3 million units). This agreement carried on until 1994. The U.S. “Big Three” auto industry was then under siege from imports, the energy crises of the 1970s and a host of other problems. The VER agreement gave the Big Three a breathing space in which to reorganize their businesses and become more efficient, changes which they achieved at least partially over the course of the 1980s.

In a well-informed, objective overview of the VER experience, two economists from Radford University pointed out that in that mid-1980s breathing space, the Big Three successfully reduced the weight and size of their new vehicles, increased fuel efficiency, forged better working relations with unions, and brought down the breakeven price of their vehicles.

Equally important, the VERs prompted Japanese producers to open auto assembly plants in the U.S., led by Honda with a plant in Marysville, Ohio, and Toyota with a plant in Georgetown, Kentucky. Mazda, Mitsubishi, Isuzu and Subaru followed. Japanese “transplant” assembly plants today account for some 3 million vehicles a year, or over a quarter of U.S. light vehicle production. Further, the “Toyota Production System” (sometimes called “lean production”) was introduced at Toyota and Honda, and U.S. Big Three were able to learn from this system, improving their production processes and their efficiency.

Conclusion

Quotas can offer greater certainty and predictability and encourage greater domestic investment in an industry than tariffs can. A major advantage of tariffs is that they deliver revenue to the government of the importing nation. Voluntary quotas have been favored for foreign policy reasons. They appear to be a mutual solution rather than one imposed by the importing nation. But unilaterally imposed quotas with the explicit aim of rebuilding domestic industry offers a more certain path for the growth of domestic production, employment, and broad economic value.

To read the article as it was published on the Coalition For A Prosperous America webpage, click here.

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On 15 September, the European Commission allowed a temporary ban on Ukrainian grain imports (maize, wheat, rapeseed and sunflower seed) to expire. The ban had been introduced on 2 May 2023 under pressure from five EU countries bordering Ukraine (Bulgaria, Hungary, Poland, Romania and Slovakia), which feared their own producers would be harmed. Initially set for one month until 5 June, the ban was subsequently extended.

It is unclear what impact the end of the ban will have as Hungary, Poland and Slovakia have also introduced unilateral bans. Nevertheless, ending the EU-level import restrictions (which applied only in the five countries) was the right decision for several reasons.

First, Ukraine, which has been fighting Russian aggression for more than a year and a half, deserves exceptional support from the EU, also in the economic and trade spheres. Grain is one of Ukraine’s most critical exports. Russia has largely blocked the maritime export route since it withdrew, on 17 July 2023, from the United Nations sponsored Black Sea Grain Initiative (BSGI). Thus, facilitating exports to the EU, and via the EU to third countries, provides a respite for Ukrainian agriculture producers and the country’s balance of payments.

Second, the temporary ban introduced in May was problematic from the point of view of the integrity of the European single market and the EU’s common trade policy. In the long run, it was ineffective because grain imports from Ukraine could enter the ‘bordering’ countries via other member states within the EU customs union and common market.

Third, it was good that the Commission did not give in to the aggressive pressure from some EU countries, which demanded an extension of the ban until the end of 2023. The Commission’s decisions should be determined by the EU Treaties and EU strategic interests in the long run, rather than attempts to please various lobbies in individual countries and to meet their short-term political needs.

Fourth, advocates of the extension used disputable economic arguments. In particular, there is little evidence in the available statistics for the supposed massive influx of Ukrainian grain to the EU. Volumes of the two main grain import items (wheat and maize) were declining from their peaks in Q4 2022 and Q1 2023 already before the introduction of the temporary ban.

In the 12 months from August 2022 to July 2023, total EU imports from Ukraine amounted to the equivalent of 4.6% of EU average wheat production and 22.2% of average maize production in 2018-2022. However, EU maize production in this period decreased by more than 20 million tonnes compared to 2021 because of a bad harvest. The imports from Ukraine only compensated partly for this gap. Meanwhile, the EU increased its grain exports to African countries, so global grain export flows were just rerouted.

Fifth, the Commission’s decision is good for stabilising global food markets and keeping global food prices affordable, especially in the context of the expiry of the BSGI. This is a critical issue for food security in developing economies, particularly in Africa and the Middle East.

However, the Commission’s decision also has drawbacks.

As a condition for not extending the EU import ban, Ukraine was forced by the Commission to introduce export control measures “…to prevent any market distortions in the neighbouring Member States”. What is meant by “any market distortions” remains unclear and may be a subject of arbitrary interpretation. Incidentally, distortions can be caused by internal policies and institutional solutions in EU countries, rather than imports from Ukraine.

The Commission’s press release suggests export licensing as an instrument of export control in Ukraine. This is not a good policy tool, especially in Ukraine’s imperfect institutional environment where it may encourage corruption.

Most likely, this was an attempt by the Commission to reach a compromise with the five bordering EU countries. Unfortunately, this attempt failed. The continuing unilateral import bans in Hungary, Poland and Slovakia also extend the restricted food product list. Ongoing election campaigns in Poland and Slovakia do not help in making rational policy decisions.

The unilateral bans are grave policy mistakes. First, they are an open infringement of the EU Treaties, according to which trade policy is the exclusive competence of the EU governing bodies. Second, they undermine the EU policies on Ukraine. Third, they partly undermine the impressive records of the three rebelling countries (and their societies) in supporting Ukraine. They bring into question their solidarity with the struggling nation and their sincerity in endorsing Ukraine’s EU membership aspiration.

Ukraine has filed lawsuits against the three countries at the World Trade Organisation, and is considering introducing retaliatory import bans. In response, Hungary, Poland and Slovakia have withdrawn from the Coordination Platform, which monitors Ukrainian grain exports. Poland’s prime minister Mateusz Morawiecki threatens to introduce additional trade sanctions against Ukraine. Such a scenario can only please the Kremlin.  

Dr. Marek Dabrowski is a Non-Resident Scholar at Bruegel, co-founder and Fellow at CASE – Centre for Social and Economic Research in Warsaw and Visiting Professor at the Central European University in Vienna.

To read the full first glance, click here.

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The decline was driven by a massive drop in consumer spending in the U.S. and Europe, caused by inflation, fallout from the Covid-19 pandemic, and bell-tightening in households around the world.

But it masked a stark rise in energy, and agriculture, imports that is becoming one of China’s pivotal roles in the global economy.

China’s imports of coal and lignite soared 47.4% by value to $4.5 billion, and more than doubled by quantity, rising 110.1% to 39.9 million tons, and imports of natural gas rose 3.8% by value to $5 billion and also more than doubled by quantity, up 116.9% to 10.4 million tons.

Ironically, it’s China’s massive boom in electric vehicle construction and use that is driving imports of environmentally-polluting coal. The rock is need to fuel power plants that feed the batteries used by EVs. Although it’s thought to be a 19th century technology, coal consumption reached eight billion tons in 2022, an all-time record, according to the International Energy Agency. The world’s three largest coal producers, China, India and Indonesia, “all hit production records in 2022”, according to the IEA.

The energy trade underpins China’s special relationship with Russia. Exports to Russia soared 91.2% to $9.6 billion, while imports rose 14.2% to $11.3 billion.

China has also been hiking imports of food and agriculture. Imports of agricultural products rose 4.5% to $21.2 billion. Imports of soybeans increased 5.4% by value to $6.1 billion, and 24.5% by quantity to 10.3 million tons.

Exports of manufactured goods to China’s key customers fell. Shipments to the European Union dropped 13.2% to $44 billion, exports to the U.S. fell 23.7% to $42.7 billion, and exports to ASEAN countries decreased 15.5% to $43.3 billion.

The declines were spread around all major categories of manufactured goods. Exports of high-tech products, for example, fell 16.1% to $68.7 billion. Exports of toys dropped 25.9% to $3.5 billion. Exports of footwear fell 21% to $4.5 billion.

No wonder that the government was prompted to offer an explanation for the drop in consumer goods-based trade.

“A weak global economic recovery, slowing global trade and investment, and rising unilateralism, protectionism and geopolitics” were the reasons for falling exports, Lu Daliang, a government spokesman, told reporters.

One exception was again the EV-based car trade. Exports of automobiles rose 109.8% to $7.8 billion. Another rare bright spot: exports of household appliances increased 4.1% to $7.5 billion.

The import market presented a bleak picture. Imports from the EU fell 0.6% to $24.9 billion, and shipments from the U.S. fell 4.3% to $14 billion. Imports from ASEAN countries declined 3.2% to $34.1 billion. Imports of high-tech products fell 9.8% to $58.5 billion.

But there were bright spots here, too. Imports from France increased 20.5% to $3.4 billion, and shipments from the Netherlands soared 63.8% to $1.6 billion. China imports large quantities of aircraft parts, cereals and perfumes from those countries. And overall imports of automobiles rose 5.3% to $3.8 billion.

John W. Miller is Trade Data Monitor’s Chief Economic Analyst, in charge of writing TDM Insights, a newsletter analyzing key issues through trade statistics. John is an award-winning journalist who’s reported from 45 countries for the Wall Street Journal, Time Magazine, and NPR.

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Here are Trade Data Monitor’s top 10 ongoing trade trends at the start of 2022:

1.   The Post-Covid Trade Bump is Over

In 2022, global trade recovered from the Covid-19 slump. When all the numbers are tallied, it’s expected to increase 3.5% over 2021, according to the WTO. Governments handed out stimulus payments to their citizens that they used to buy consumer goods. Now that money is spent and inflation is biting into their budgets, causing a sharp shrinking in spending that’s deflating global trade. The WTO notes that imports will decline in different parts of the world for different reasons. In Europe, higher energy prices due to the war in Ukraine. In the United States, “monetary policy tightening will hit interest-sensitive spending in areas such as housing, motor vehicles and fixed investment.” China “continues to grapple with COVID-19 outbreaks and production disruptions paired with weak external demand.” And for developing countries, “growing import bills for fuels, food and fertilizers could lead to food insecurity and debt distress.” Rising energy bills will cause consumers to spend large percentages of their paychecks driving their cars and heating their homes, and less money on shoes, toys and gadgets.

2.   U.S. is Exporting More Gas to Europe

Energy will dominate global commodities markets. Russia’s invasion of Ukraine and subsequent geopolitical maneuvering have remade energy supply chains. Russian oil and gas now flow to China, India and Turkey, instead of Europe, which is discovering its appetite for U.S. liquid natural gas from Texas and Appalachian fracking wells. Thanks to new infrastructure on the East Coast and the Gulf of Mexico, the U.S. has steadily been increasing its gas export capacity, and sending more LNG tankers to Le Havre, Antwerp, and Rotterdam. U.S. gas exports to France, for example, increased 518% to $6.8 billion in the first 10 months of 2022, up from $1.1 billion over the same time period in 2021. By quantity, they rose 282.6% to 26.4 million cube meters, from 6.9 million cube meters. The energy trade across the Atlantic will reinforce the U.S.-EU relationship, reorient global markets, and provide investment to further boost production in the U.S.

3.   Russia is Selling its Oil and Gas to China and India

Europe’s ban on importing energy from Russia has forced Moscow to look elsewhere to customers. Although Russia has stopped disclosing its trade statistics, TDM’s dataset of other countries allows us to see where Russian oil and gas are going.

China’s imports of oil and gas from Russia increased 62% year-on-year to $77.8 billion in the first 11 months of 2022, from $48 billion over the same time period in 2021. India ramped up its energy imports from Russia 592% year-on-year to $22.9 billion from $3.3 billion over the first 10 months of 2022. China has also started processing and exporting oil. Chinese exports of petroleum products, mainly fuels, rose 46.6% by volume in November to 6.1 million tons. Because of price increases, by value they increased 98% to $5.4 billion.

4.   China is Losing Export Markets to Other Asian Countries

Political tensions with China have spooked manufacturers who have been moving production to other Asian countries. In November, Chinese exports of high-tech products, for example, declined 23.6% to $74.8 billion. Exports of mobile phones were down 33.3% to $11 billion. Exports of toys declined 21.7% to $3.6 billion, and shipments of textiles fell 14.8% to $11.3 billion. There was a notable exception: Exports of motor vehicles, a burgeoning industry in China, including the production of electric cars, surged 113.3% to $7.7 billion. Meanwhile, countries, like Vietnam, Singapore and Malaysia are grabbing markets China is ceding. Vietnamese exports, for example, rose 23% year-on-year to $185 billion over the first six months of 2022. Malaysia’s outward shipments increased 21% to $294.5 billion over the first 10 months of 2022.  

5.   China is Importing Fewer Commodities

As China’s manufacturing export economy loses some steam, its appetite for iron ore, nickel, copper and other industrial metals is slackening, and supply chains are migrating toward other big Asian economies like Vietnam, Malaysia and Singapore.

Chinese imports of iron ore fell 2.1% to 1.02 million tons over the first 11 months of 2022. Nickel imports shrank 10.1% to 37.4 million tons.

There were a few exceptions for commodities essential to the kind of mature industrial economy China has become. Copper imports, for example, rose 8.7% to 23.2 million tons. 

6.   Nearshoring is Changing Trade Flows

Companies are manufacturing closer to home, boosted by domestic subsidies and spooked by rising geopolitical risk which has led to import tariffs, export controls on computer chips and other strategic goods, and other forms of protectionism.

For example, U.S. total trade with Canada increased 23% to $668.6 billion over the first 10 months of 2022, while trade with Mexico rose 20.3% to $656 billion. Total trade with China, meanwhile, increased only 10.9% to $587 billion. The Biden administration’s subsidies for domestic manufacturers of semiconductors and electric-vehicle batteries is expected to lead to more trade with neighboring trade partners.

7.   The Rise of High-Tech Local Supply Chains

This nearshoring trend is especially prevalent in the U.S., where trade is increasingly unpopular. In August, the U.S. imposed export controls on shipments of computer chips to China. Apple has moved to diversify its manufacturing process to rely less on China and more on the U.S. These moves are already having an impact. In the first 9 months of 2022, for example, U.S exports of processors and integrated circuits to China fell 34.2% to $5.1 billion, while shipments of those products to Mexico increased 11.8% to $6.9 billion. The U.S.’s top market for overall high-tech exports was Mexico, where shipments rose 16.5% to $36.7 billion.

8.   Trade in Renewables is Thriving

There is a silver lining to a worsening overall picture. Global trade in electric vehicles, solar panels, windmills, and batteries and their ingredients is thriving. The world’s efforts to decarbonize economies combined with developments in battery technology are boosting global trade in electric vehicles. Germany is emerging as the dominant player on the global market for electric vehicles. Its EV exports rose 55.4% to $16.4 billion in the first nine months of 2022. China is number two, with shipments increasing 115.4% to $11.8 billion. U.S. exports declined 1.9% to $3.8 billion. That boom in electric vehicle trade has boosted shipments of materials related to making batteries needed for electric cars and trucks. Exports of lithium batteries by their top supplier, China, increased 83.4% to $34.9 billion in the first nine months of 2022 from $19 billion over the same time in 2021.

9.   Latin America and Africa are Diversifying Exports  

Although free trade has taken a hit, there are still plenty of countries and people benefiting, and even emerging out of poverty, thanks to free trade. The Middle East is expected to record the strongest export growth in 2023, at 14.6%, followed by Africa, at 6%. And countries that have been traditionally been prisoners of their dependence on resources have been mixing it up. Chile, for example, has been diversifying away from its staple exports of commodities, especially copper. The South American country exported $6.1 billion of fish in the first 10 months of 2022, up 32.5% from 2021. It increased shipments of edible fruits and nuts 35.2% to $7.6 billion. 

10.   The U.S. Will Export More

A year ago, we suggested that the U.S. might be about to lose its place as the world’s top importer to China. That didn’t happen. In the first 10 months of 2022, the U.S. imported $1.6 trillion worth of goods, up 21.6%, compared to China importing $1.3 trillion, up 5.8%. But it’s on export markets that we expect the U.S. to make an even bigger comeback. The biggest part of this will be in energy. In the first 10 months of 2022, the U.S. increased fuel exports 73.6% to $183.2 billion. But investments in high-tech production, tensions with China, and nearshoring will boost U.S. high-tech trade with trade partners. In the first 10 months of 2022, the U.S. increased high-tech exports 8.2% to $153.5 billion.

John W. Miller is Trade Data Monitor’s Chief Economic Analyst, in charge of writing TDM Insights, a newsletter analyzing key issues through trade statistics. John is an award-winning journalist who’s reported from 45 countries for the Wall Street Journal, Time Magazine, and NPR.

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Last week, China reported exports up 7.1% year-on-year to $314.9 billion in August, falling short of expectations. Analysts had expected exports to increase around 13%.

Most significantly, exports to the U.S., China’s top trading partner and the world’s biggest importer, fell 3.7% to $49.8 billion.

By contrast, overall U.S. imports from all countries this year increased 20.5% to $1.9 trillion over the first seven months of 2022.

As suggested by the stock market slump, and the inflation numbers, appears that things are changing. The overall world economy shrank in August for the first time in over two years, according to a survey of purchasing managers surveyed by S&P. “Consumption patterns are shifting back from durable goods to services,” research group Capital Economics wrote. “Going forward, high inflation and tighter financial conditions elsewhere will also be an increasing drag on foreign demand for Chinese goods.”

Other headwinds faced by China’s export machine include a resurgence of Covid-19, heatwaves, power outages, and Russia’s war in Ukraine which continues to hurt supply of some commodities.

By comparison with the U.S., exports to the EU, whose economy appears in better shape, rose 11.1% to $51.4 billion. Exports to ASEAN nations rose 25.2% to $49.4 billion. Exports to Vietnam rose 11.5% to $12.4 billion. There is one market that continue to take more Chinese exports. Exports to Russia rose 26.7% to $8 billion.

There are signs that the slump in U.S. consumption is having a real effect on Chinese industrial activity. Chinese factories need fewer raw materials. Natural gas imports fell 14.5% to 8.8 million tons. Coal imports increased 5.5% by quantity to 29.5 million tons and 31% by value to $4.1 billion.

As China’s export power fades a bit, its importance as a global market of over a billion consumers will grow. Imports from the U.S. declined 7.3% to $13 billion. Imports from the EU rose 3.5% to $26.1 billion. Imports from ASEAN countries increased 5% to $34.5 billion.

The slowdown in trade with the U.S. reflects a change in balance of power. Imports of soybeans, a key promise by China during the Trump administration, fell 24.5% by quantity to 7.2 million tons and 6.5% by value to $5.2 billion.

China’s activity as part of the complex global supply chain has diminished. High-tech imports fell 11% to $63.7 billion.

Inflation continues to distort trade statistics. Exports of fertilizers, for example, increased 24% by value to $1.4 billion, but fell 0.3% by quantity to 2.8 million tons. Mobile phone shipments increased 21.5% by value to $9 billion but fell 3.1% by quantity to 67.7 million units.

In some cases, however, price inflation hasn’t impacted exports. People are simply buying less than they were before. For example, exports of household appliances fell 16.5% by value to $7.2 billion and 18.7% by quantity to 280.8 million sets. Exports of suitcases and luggage rose 24% by value to $3.2 billion and 16.7% by quantity to 261,770 tons.

People continue to go outside and travel more. Footwear exports increased 16.4% to $5.5 billion.

Increasingly in trade statistics, there is an apparent split of the global economy by class. Put simply, trade in goods for rich people is booming. Motor vehicle exports rose 65.3% by value to $6.1 billion and 47.5% by quantity to 307,914. Imports of motor vehicles rose 27.7% to $4.5 billion. By quantity, they increased 26.5% to 75,841. Paper pulp imports rose 12.5% to $2.2 billion.

In basic consumer goods, however, the slump is real. Exports of high-tech products fell 3.7% to $76.9 billion.

By John W. Miller – John is Trade Data Monitor’s Chief Economic Analyst, in charge of writing TDM Insights, a newsletter analyzing key issues through trade statistics. John is an award-winning journalist who’s reported from 45 countries for the Wall Street Journal, Time Magazine, and NPR.

The post Lower Chinese Exports to U.S. Signal Possible Economic Slowdown appeared first on WITA.

Canada, a G-7 member, took action first, both banning imports of oil and applying 35% tariffs to other imports from Russia and Belarus.

The United Kingdom has also taken action on revoking MFN treatment of Russian goods.

In the European Union, action has been announced denying most favored nation status to Russia. The European Commission provided the following question and answer about denying Russia MFN treatment.

“What are the consequences of denying Russia most-favoured-nation (MFN) status?

“Removal of MFN status means suspending the benefits that come from being a WTO Member, more specifically the benefit of not being discriminated against by other Members. For example, MFN treatment guarantees that a Member will not be subject to higher tariffs than other Members, or to import bans that do not apply to other Members. Suspension of MFN treatment means that the Member concerned – in this case Russia – may be subject to higher tariffs and import bans.

“The EU has decided to act not through an increase on import tariffs, but through set of sanctions that comprise bans on the imports or exports of goods, as this is much quicker and more effective than preparing a completely new tariff schedule from scratch.
“In practice, the EU has already removed a number of trade benefits that Russia previously enjoyed through the imposition of sanctions. Additionally, the EU has restricted the provision of SWIFT financial services to certain Russian banks, which constitutes a disapplication of MFN vis-à-vis Russia under the General Agreement on Trade in Services (GATS). Todayʼs sanctions remove further trade benefits from Russia.”

In the United States, the President through executive order has restricted exports of luxury goods and many other items to Russia and Belarus and banned imports of oil, gas, coal and a number of other products reviewed in earlier posts.

Such actions constitute treating Russia and Belarus differently (though Belarus is not a WTO Member and hence not entitled to MFN treatment by reason of WTO membership). To formally remove most favored nation treatment from Russia in the U.S., Congress must act. On Thursday, March 17, 2022, the House of Representatives passed a bill that would, inter alia, deny MFN treatment to Russia and Belarus and encourage USTR to take other actions at the WTO to block forward movement on Belarusʼ accession to the WTO and urge other WTO Members to similarly deny MFN treatment to Russia. 

The vast majority of imports from Russia are oil and gas products ($17.4 billion of $29.7 bill total imports in 2021) which already banned by Executive Order. Other products (worth about $1.5 billion) have also been banned by Executive order. Of the remaining imports the following fourteen 4-digit HS categories accounted for $8.14 billion of the imports from Russia in 2021. 

HS7110 PLATINUM $ 2,449,856,890

HS7201 PIG IRON AND SPIEGELEISEN IN PIGS, BLOCKS OR OTHER PRIMARY FORMS $1,157,617,274

HS7207 SEMIFINISHED PRODUCTS OF IRON OR NONALLOY STEEL $886,744,073

HS3102 MINERAL OR CHEMICAL FERTILIZERS, NITROGENOUS $723,784,769

HS2844 RADIOACTIVE CHEMICAL ELEMENTS AND ISOTOPES AND THEIR COMPOUNDS $669,931,951

HS7601 ALUMINUM, UNWROUGHT $423,969,585

HS7202 FERROALLOYS $419,659,133

HS3104 MINERAL OR CHEMICAL FERTILIZERS, POTASSIC $366,158,625

HS4412 PLYWOOD, VENEERED PANELS AND SIMILAR LAMINATED WOOD $345,745,434

HS9306 BOMBS, GRENADES, TORPEDOES, ETC., AMMO $173,633,545

HS7106 SILVER (INCLUDING SILVER PLATED WITH GOLD OR PLATINUM) $144,208,220

HS8412 ENGINES AND MOTORS NESOI, AND PARTS THEREOF $133,429,434

HS8108 TITANIUM AND ARTICLES THEREOF, INCLUDING WASTE AND SCRAP $130,833,908

HS4002 SYNTHETIC RUBBER AND FATICE IN PRIMARY FORMS, ETC. $114,129,678

For three of the 14 categories, the column 2 rate is duty free just like the column 1 rate — HS7110, HS3102, HS 3104. For three others, column 2 rates range free to 45% (HS2844, HS8108) or 65% (HS7106. The other 8 categories had column 2 rates that were all above free and generally substantially higher than column 1 rates.

HS 7201, column 2 rates rom 2.5% to $1.10/tonHS7207, 20%
HS7601, 10.5-25%
HS7202, 6.5-35%; up to 6.6cents/kg. HS4412, 40-50%
HS 9306, 30-45%
HS8412, 27.5-35%
HS4002, 20%.

When the legislation becomes law (likely by end of March), the higher column 2 rates will apply to all imports from Russia and Belarus not banned from entry. For those categories that would remain duty free under column 2, President Biden will have the authority to raise rates (actually he will have the authority to raise rates on any products from the two countries).

While the trade actions outlined above are but one part of a much broader set of sanctions imposed by many trading partners, they add to the breadth of sanctions being imposed in light of the unprovoked invasion of Ukraine by Russia and the complicity of Belarus. The sanctions will remain in place and will likely continue to be increased until Ukraineʼs sovereignty is respected, Russian troops (and various mercenaries brought in by Russia) withdrawn and a freely elected Ukrainian government either remains in place or is elected.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

To read the full commentary from Current Thoughts on Trade, please click here

The post Banned Imports, Higher Tariffs, Other Actions By Trading Partners As Russia And Belarus Lose Most Favored Nation Treatment By G-7 Countries And EU During The Conflict In Ukraine appeared first on WITA.

Tariff rates on two Russian imports

Palladium, “MFN”:           0%
Palladium, “Column 2”:    0%

King crab, “MFN”:            0%
King crab, “Column 2”:     0%

WHAT THEY MEAN:

The Biden administration’s ban on Russian oil, coal, and gas is a large though not total trade sanction, cutting off about 60% of American imports of Russian goods. (Last year’s import total was $26 billion; energy made up $16 billion.) Congress, meanwhile, is considering a bill to revoke Russia’s “Most Favored Nation” tariff status. Some observations on this more complex measure:

Fundamentally, it means the tariff rates a country applies generally — as an example, the U.S.’ 6.5% “MFN” tariff on umbrellas (tariff line 66019100) applies to European umbrellas, Chinese umbrellas, Brazilian umbrellas, etc. (Following the late Senator Daniel Moynihan’s noble but forlorn hope to make trade policy terms of art more comprehensible, the U.S. also uses the term “permanent Normal Trade Relations or “NTR” to mean the same thing, but others don’t.) MFN tariffs are also a core feature of relationships among WTO members, as membership entails accepting a “non-discrimination” obligation requiring them to give one another equal tariff rates.

What then does “revoking” MFN status mean? In practice, should Congress pass such a law, buyers of Russian goods would no longer pay the current U.S. tariff rate. Instead they would pay the rates created in the 1930 “Smoot-Hawley” Tariff Act during the Hoover presidency.  These rates are now listed in “Column 2” of the U.S. Harmonized Tariff Schedule; as an example, an umbrella gets a 40% Column 2 tariff. More broadly, standard estimates of Smoot-Hawley average tariffs are (a) about 20% overall, based on dividing tariff revenue by import value, as opposed to 2.8% in 2021 (or 1.4% excluding the Trump-era tariffs on Chinese goods and metals) or (b) an even higher average of 59% excluding duty-free goods.

As the averages and the umbrella example both suggest, non-MFN tariffs are generally seen as quite punitive, and often are so in reality. However, they are much less punitive in the specific Russian case.  This is because Russia is mainly a natural-resource exporter, and Column 2 tariffs on natural resources are actually rarely high and often zero. In 1930, both Congress and Mr. Hoover wanted very high tariffs on manufactured goods and farm products, but avoided them on raw materials to keep costs low for U.S. factories. These sorts of things — energy, specialty metals, chemical inputs for fertilizer — make up most of America’s 21st-century purchases from Russia. A look at MFN and “Column 2” rates on the U.S.’ top 25 Russian imports last year (accounting for $22 billion of a $26 billion total) yields this result:

1. Energy ($16 billion): Eight crude and refined oil, gas, and coal products made up about 60% of all U.S. imports from Russia last year.  The Column 2 tariff on crude oil is 21 cents per barrel —twice the “MFN” 10.5 cents per barrel, but still insignificant.  So revoking MFN tariffs on energy would be unlikely to change trade flows at all, since the increases basically raise rates from about 0.1% to about 0.2%.  If the goal is to impose economic costs, yesterday’s ban will do a lot more.

2. Four specialty metals ($2.1 billion): palladium, rhodium, uranium, and silver in bullion form. Here, revoking MFN changes nothing, as U.S. tariffs are zero on these things at MFN, and also zero in Column 2.

3. Five natural resources and basic chemical products (also $2.1 billion): Diamonds are zero at MFN, and 10.5% in Column 2; likely some impact, but not a huge one.  The others — king crab, potassium chloride, urea, and urea/ammonium mixture (the latter two used as fertilizer precursors) — are all zero tariff now and also zero in Column 2.

4. Four industrial metals ($2.5 billion): The largest is pig iron at $1.2 billion, for which rates rise from zero to $1.11 per ton.  This was probably a lot in 1930, but is about 0.2% — not significant — at the 2022 market price of about $500 per ton. Increases are higher for the other three:  zero to 10.5% for unwrought aluminum alloy, zero to 11.5% for ferrosilicon, and zero to 30% for ferrosilicon.

5. Four value-added manufactured products ($1.5 billion): Here, a shift to Column 2 means a steep tariff increase.  For birch-faced plywood, tariffs rise from zero to 30%; for bullets and cartridge shells, zero to 50%; for semi-finished steel products, zero to 20%; and for reaction engines, zero to 35%.

Altogether, then, revoking MFN status for Russia imposes some penalties, but in most cases not very significant ones given Russia’s unusual export pattern.  It may nonetheless be an appropriate symbolic and moral gesture, in particular if many WTO members join in it.  But as a policy measure meant specifically to impose economic cost, the energy import ban is the one with practical real-world impact.

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

To read the full commentary from the Progressive Policy Institute, please click here. 

The post Trade Fact Of The Week: America’s ‘Non-MFN’ Tariffs On Natural Resources Are Usually Low appeared first on WITA.

In the United States, President Biden announced new actions in the form of an Executive order which bans –

“The importation into the United States of Russian crude oil and certain petroleum products, liquefied natural gas, and coal.

“* * *

“New U.S. investment in Russia’s energy sector, which will ensure that American companies and American investors are not underwriting Vladimir Putin’s eff orts to expand energy production inside Russia.
Americans will also be prohibited from financing or enabling foreign companies that are making investment to produce energy in Russia.”

The Executive Order reads in full –

“By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.), and section 301 of title 3, United States Code,

“I, JOSEPH R. BIDEN JR., President of the United States of America, hereby expand the scope of the national emergency declared in Executive Order 14024 of April 15, 2021, and relied on for additional steps taken in Executive Order 14039 of August 20, 2021, finding that the Russian Federation’s unjustified, unprovoked, unyielding, and unconscionable war against Ukraine, including its recent further invasion in violation of international law, including the United Nations Charter, further threatens the peace, stability, sovereignty, and territorial integrity of Ukraine, and thereby constitutes an unusual and extraordinary threat to the national security and foreign policy of the United States. Accordingly, I hereby order:

“Section 1. (a) The following are prohibited:

“(i) the importation into the United States of the following products of Russian Federation origin: crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products;

“(ii) new investment in the energy sector in the Russian Federation by a United States person, wherever located; and

“(iii) any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.

“(b) The prohibitions in subsection (a) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or license or permit granted prior to the date of this order.

“Sec. 2. (a) Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set forth in this order is prohibited.

“(b) Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited.

“Sec. 3. Nothing in this order shall prohibit transactions for the conduct of the official business of the Federal Government or the United Nations (including its specialized agencies, programs, funds, and related organizations) by employees, grantees, or contractors thereof.

“Sec. 4. For the purposes of this order:

“(a) the term ‘entity’ means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization;

“b) the term ‘person’ means an individual or entity; and

“(c) the term ‘United States person’ means any United States citizen, lawful permanent resident, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.

“Sec. 5. The Secretary of the Treasury, in consultation with the Secretary of State, is hereby authorized to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by IEEPA, as may be necessary to carry out the purposes of this order. The Secretary of the Treasury may, consistent with applicable law, redelegate any of these functions within the Department of the Treasury. All executive departments and agencies of the United States shall take all appropriate measures within their authority to implement this order.

“Sec. 6. (a) Nothing in this order shall be construed to impair or otherwise affect:

“(i) the authority granted by law to an executive department or agency, or the head thereof; or

“(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

“(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

“(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

“JOSEPH R. BIDEN JR. “THE WHITE HOUSE,
“March 8, 2022.”

The new prohibitions do not prevent honoring existing contracts in the next 45 days. President Biden reviewed that the steps were taken after consultations with allies realizing that many allies were not in a position to take identical action at the moment reflecting very different situations in terms of domestic production of oil and gas and dependency on imports from Russia. (“We’re moving forward on this ban, understanding that many of our European Allies and partners may not be in a position to join us. The United States produces far more oil domestically than all of European — all the European countries combined. In fact, we’re a net exporter of energy. So we can take this step when others cannot. But we’re working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russian energy as well.”).

The United Kingdom announced that it would phase out imports of oil from Russia during 2022. (“UK prime minister Boris Johnson’s government said it would phase out the import of Russian oil by the end of the year. Kwasi Kwarteng, UK business secretary, said the British government would organise an ‘orderly transition’ away from Russian oil imports. But Rishi Sunak, UK chancellor, told a cabinet meeting that consumers would pay a price for the ban, with lower-income households particularly hard hit. The UK is less dependent on Russia than much of mainland Europe, with Russian supplies making up 8 per cent of overall oil imports into the UK. Johnson is expected to make a statement later this week on reducing British imports of Russian gas.”).

The European Commission announced a proposed ambitious program to diversify gas supplies and expand renewables to achieve a potential two- thirds reduction in dependence on Russian oil and gas by the end of 2022 for the European Union. The program, RePowerEU, was announced on March 8th and contains a number of documents. The opening statement of Executive Vice-President Timmermans is copied below in part.

“Opening remarks by Executive Vice-President Timmermans

“* * *

“It is abundantly clear that we are too dependent on Russia for our energy needs. It is not a free market if there is a state actor willing to manipulate it.

“The answer to this concern for our security lies in renewable energy and diversification of supply.

“Renewables give us the freedom to choose an energy source that is clean, cheap, reliable, and ours. And, instead of continuing to fund fossil fuel imports and fund Russian oligarchs, renewables create new jobs here in Europe.

“With the plan we outline today, the EU can end its dependence on Russian gas and repower Europe. Fit for 55, once implemented, will reduce the EU’s total gas consumption by 30% by 2030. That’s 100 billion cubic meters of gas we will no longer need.

“Now, we will take it to the next level.

“By the end of this year, we can replace 100 bcm of gas imports from Russia. That is two-thirds of what we import from them. This will end our over-dependency and give us much needed room to maneuver. Two thirds by the end of this year.

“It is hard, bloody hard. But, it is possible, if we are willing to go further and faster than we have done before.

“REPowerEU is our plan to make Europe independent from Russian gas.

“It is based on two tracks:

“First: we will diversify supply and bring in more renewable gases.

“With more LNG and pipeline imports, we can replace 60 bcm of Russian gas within the next 12 months.

“By doubling sustainable production of biomethane we can replace another 18 bcm, using the Common Agricultural Policy to help farmers become energy producers.

“We can also increase the production and import of renewable hydrogen. A Hydrogen Accelerator will develop integrated infrastructure and offer all Member States access to affordable renewable hydrogen. 20 million tonnes of hydrogen can replace 50 bcm of Russian gas.

“We will also start replacing natural gas with renewable gases. This, in sum, is the first pillar of REPowerEU.

“In parallel, we must accelerate our clean energy transition. Renewables make us more independent, and they are more affordable and reliable than the volatile gas market.

“So, we need to put millions more photovoltaic panels on the roofs of our homes, businesses, and farms. We must also double the installation rate of heat pumps over the next 5 years.

“This is low-hanging fruit. By the end of this year, almost 25% of Europe’s current electricity production could come from solar energy.

“In addition to this, we need to speed up permitting procedures to grow our on- and offshore wind capacity, and rollout large-scale solar projects. This is a matter of overriding public interest.

“Some of these changes will not happen overnight, and that’s why we also need to prepare for next winter.

“By October, gas storage facilities in the EU must be filled up to 90% capacity. And the Commission is ready to support joint procurement of gas.

“Finally, and most importantly, we need to protect those who are struggling to pay their energy bills.

“Our plan today proposes several ways to help the most exposed households and businesses.

“Kadri will go through these in more detail.

“To conclude, RePowerEU is our plan to break our dependency on Russian gas, and to find freedom in our energy choices.

“We can do it, and we can do it fast.

“All we need is the courage and grit to get us there. If ever there was a time to do it, it is now.

While Australia does not appear to have announced a ban on imports of Russian oil into Australia, its two oil companies have announced cessation of procurement or lack of procurement from Russia. 

Other actions

While the U.S. Congress has bills pending before both the House of Representatives and the Senate that would remove normal trade relations status on Russia (i.e., end most favored nation treatment) and instruct the US Trade Representative to seek suspension or removal of Russia from the WTO, press reports indicate that with President Biden’s action on Russian oil, gas and coal, the Administration has asked for a different piece of legislation from Congress, one that wouldn’t (at least at present) address normal trade relations or Russia in the WTO. While Canada has suspended normal trade relations on goods from Russia and Belarus, U.S. inaction presumably reflects the focus of the U.S. and European allies on other sanction issues while seeking internal support for the step of suspending normal trade relations.

On March 9, 2022, the EU announced additional financial sanctions of Belarus and an expansion of individuals being sanctioned in Russia. Most of the press release is copied below.

“The European Commission welcomes today’s agreement of Member States to adopt further targeted sanctions in view of the situation in Ukraine and in response to Belarus’s involvement in the aggression. In particular, the new measures impose restrictive measures on 160 individuals and amend Regulation (EC) 765/2006 concerning restrictive measures in view of the situation in Belarus and Regulation (EU) 833/2014 concerning Russia’s actions destabilising the situation in Ukraine. These amendments create a closer alignment of EU sanctions regarding Russia and Belarus and will help to ensure even more effectively that Russian sanctions cannot be circumvented, including through Belarus.

“For Belarus, the measures introduce SWIFT prohibitions similar to those in the Russia regime, clarify that crypto assets fall under the scope of “transferable securities” and further expand the existing financial restrictions by mirroring the measures already in place regarding Russia sanctions.

“In particular, the agreed measures will:

“Restrict the provision of SWIFT services to Belagroprombank, Bank Dabrabyt, and the Development Bank of the Republic of Belarus, as well as their Belarusian subsidiaries.

“Prohibit transactions with the Central Bank of Belarus related to the management of reserves or assets, and the provision of public financing for trade with and investment in Belarus.

“Prohibit the listing and provision of services in relation to shares of Belarus state-owned entities on EU trading venues as of 12 April 2022.

“Significantly limit the financial inflows from Belarus to the EU, by prohibiting the acceptance of deposits exceeding €100.000 from Belarusian nationals or residents, the holding of accounts of Belarusian clients by the EU central securities depositories, as well as the selling of euro- denominated securities to Belarusian clients.

“Prohibit the provision of euro denominated banknotes to Belarus.

“For Russia, the amendment introduces new restrictions on the export of maritime navigation and radio communication technology, adds Russian Maritime Register of Shipping to the list of state-owned enterprises subject to financing limitations and introduces a prior information sharing provision for exports of maritime safety equipment.

“In addition, it also extends the exemption relating to the acceptance of deposits exceeding €100.000 in EU banks to Swiss and EEA nationals.

“Finally, the EU confirmed the common understanding that loans and credit can be provided by any means, including crypto assets, as well as further clarified the notion of “transferable securities”, so as to clearly include crypto-assets, and thus ensure the proper implementation of the restrictions in place.

“Furthermore, the amendment introduces new restrictions.

“Furthermore, an additional 160 individuals have been listed in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

“The listed individuals include:

“- 14 oligarchs and prominent businesspeople involved in key economic sectors providing a substantial source of revenue to the Russian Federation – notably in the metallurgical, agriculture, pharmaceutical, telecom and digital industries -, as well as their family members.

“- 146 members of the Russian Federation Council, who ratified the government decisions of the ‘Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the Donetsk People’s Republic’ and the ‘Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the Luhansk People’s Republic’.

“Altogether, EU restrictive measures now apply to a total of 862 individuals and 53 entities.”

As Russia continues to escalate its hostilities in Ukraine, the U.S., EU, G7 and other countries continue to make clear that there will be major costs imposed on Russia for the unprovoked war. While many of the sanctions are financial, some are trade focused. The move away from Russian oil and gas and the restrictions on the export to Russia of materials and technology for the sector will significantly reduce Russian gross domestic product over time with so much of the economy currently tied to oil, gas and coal.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

To read the full commentary from Current Thoughts on Trade, please click here.

The post U.S. Joins Canada In Banning Imports Of Russian Oil And Gas; EU Announces Plan To Drastically Reduce Reliance On Russian Gas; United Kingdom Will Phase Out Imports Of Oil And Gas From Russia By End Of 2022; Australian Oil Companies Stop Purchasing Russian Oil appeared first on WITA.

Europe has had some trade sanctions against Russia since 2014, when the country first invaded Ukraine and annexed Crimea. This sanctions programme altered European exports and reduced its size. Europe’s exports of goods to Russia in 2021 was about 89 billion euro compared with 118 billion euro ten years prior. EU countries that are proximately close to Russia were then affected not just by EU sanctions but also Russia’s counter sanctions, for instance of agricultural products. But they weathered the storm quickly. For instance, Estonia’s exports of dairy products to Russia dropped by 66 percent between 2013 and 2014. However, the country’s exports of dairy products to other countries went up, leading to only a 1 percent decline in total dairy exports in that year.

A macro analysis of EU-Russia trade tells a different story about general dependencies. Obviously, the new sanctions will hurt the global economy. Russia is a global exporter of commodities that are traded globally, and the Russian invasion has already pushed up prices of many raw materials and agricultural commodities. There are products in which a significant supply comes from Russia, and which needs to be found somewhere else. As Poland prime minister Mateusz Morawiecki learned from its Australian counterpart when trying to replace Russian coal with coal coming from Australia, these adjustments take some time and require additional resources. There is also a lesson here: the concentration of market power in the production of any product carries geopolitical risks.

Uncoupling the Russian economy from the West will have costs but they will hit the Russian economy far, far harder. In 2020, less than 2 percent of EU total exports and imports went and came from Russia while for the Russian economy this percentage was equal to 34 percent. This difference alone shows how asymmetrical the economic effects of the sanctions will be. Add to that the geographical scope of the sanctions. Many countries are sanctioning Russia, leaving it with few chances to reallocate its total trade, while the sanctions only affect a small portion of Europe’s total trade. It is one thing to find new trading partners for 2 percent of your total trade. It is a totally different thing to find substitutes for one third of your total trade.

The effects of the Western sanctions on the Russian economy are proof that the Russian economy is much more intertwined with the West than most people think. Russian imports of goods and services as a percentage of its GDP were 21 percent in 2020, lower than the OECD average (26%) but larger than India (19%), China (16%), Brazil (15%), and the United States (13%). The EU is Russia’s main supplier of foreign goods, accounting for 34 percent of Russian total imports, significantly more than China which represents 24 percent. The EU and the US together supply 40 percent of Russian total imports. As a result of the trade and financial sanctions, and the associated financial and reputational risks that now come with any transaction with a Russian entity, this trade is rapidly shrinking to a fraction of what it was.

Figure 1 below shows Russian imports broken down by economic sector and its value as a percentage of Russia GDP between 2010 and 2020. The data shows that Russia’s main imports are machinery, chemicals, and other manufacturing goods, and that Russia depends on the rest of the world for the supply of many complex products. 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.

Figure 1: Russian imports per sector and imported goods and services as a percentage of Russian GDP

Source: UNCOMTRADE, World Bank, authors’ calculations.

Moreover, Russia’s dependency on the West’s manufacturing capacity – particularly European – is shown in the value that foreign businesses add to the Russian economy. Four of every ten dollars of Russian demand for manufacturing goods came from outside Russia and the EU alone contributed 14 percent to Russian’s total demand of manufacturing goods. In comparison China – the factory of the world – added 9 percent. To pay for these imports, Russia exports minerals, oil, and gas. In 2020, exports of these products represented 59 percent of Russian total exports while Russian exports of machinery and chemicals were 5 percent and 6 percent respectively. Russia’s trade profile is one in which Russia exports minerals, oil, and gas and imports manufacturing products.

The effect of the sanctions in the Russian economy will be felt sector by sector as Russian companies stop receiving foreign products, technology, and expertise. Many imported products are relatively sophisticated, which will make finding alternative suppliers much more difficult. The Russian economy relies heavily on EU and US companies for many imported products. In 2020, there were 1,716 product categories (out of 4,385) with a value of €57 billion (28 percent of Russian total imports) for which at least half of Russia’s imports came from the EU and the US. Figure 2 plots each individual product category for which EU and US businesses supply at least 50 percent of Russian imports. The size of the bubbles corresponds to the value of the products. Some of the most important product categories were medicines, vehicles parts, IT components, machinery’s parts like valves and pipes, and iron and steel. Figure 2 also shows that for some product categories, Russia’s dependency on the EU and the US is much higher than 50 percent. 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.

Figure 2: Russian imported product with half or more of imported value sourced from the EU and the US (2020)

Source: UNCOMTRADE, authors’ calculations.

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. There are significant amounts of imports on machinery, pharmaceuticals, chemicals, transport equipment, and electronics that Russia buys from the EU and the US. 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.

Fredrik Erixon is a Swedish economist and writer. He has been the Director of the European Centre for International Political Economy (ECIPE) ever since its start in 2006. The Financial Times has ranked Erixon as one of Brussels 30 most influential people. 

Oscar Guinea is a Senior Economist at ECIPE. Oscar previously worked as an Economic Adviser at the Scottish Government in the Office of the Chief Economic Adviser on topics ranging from monetary policy to the impact of Brexit and migration on the Scottish and UK economy. 

Vanika Sharma is a Researcher at ECIPE. She is a recent Master’s graduate from Sciences Po, Paris in International Economic Policy with concentrations in Global Risks and East Asia. 

Renata Zilli is a Research Assistant at ECIPE. She is a recent graduate of the master’s degree in International Economics and Latin American Studies of the Paul H. Nitze School of Advanced International Studies of the Johns Hopkins University. 

To read the full commentary by the European Centre for International Political Economy, please click here. 

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