Global Trade Reflects New Reality
The ongoing conflict in Ukraine, followed by the global disruptions caused by the COVID-19 Pandemic, is contributing to a growing shift in trade flows, internationally. It is coherent with the emerging new economic order.
Realignment underway in Eurasia
Exports from Asia to the US declined by 11% in October 2022, compared to the corresponding month in 2021. In terms of manufacturing, orders from the US to China were down by 40% from a year earlier in November 2022, an even greater decline than in September and October, according to Supply Chain Heat Map data published by CNBC. This, in turn, is creating major problems for ocean freight carriers. On a month-to-month basis, China’s shipments to the US dropped 21% from August to November 2022.
At the same time, China’s trade through the railways with Russia via the Eurasian Land-Bridge has dramatically increased. The bilateral trade through oceanic routes, too, has increased. The trade ties between Russia and India have also increased during this period. The volume of China’s annual trade with the Gulf Cooperation Council (GCC) countries and Iran, combined, worth nearly USD 250 billion, and is now four times bigger than the volume of trade between the GCC nations and the US. Meanwhile, China’s goods trade with Africa is more than double of the US’ goods trade with the dark continent.
Trans-Atlantic trade, however, has increased in 2022. Goods exported to the US by Europe were up by nearly 25% since March 2022, while US exports to Europe have created a new record, thanks to huge supply of oil and LNG.
The EU’s illusory price cap on Russian oil
The European Union (EU), as well as the entire G7, agreed to limit the price they would pay for Russian oil to USD 60 per barrel as of early December (2022). The key to the plan is the stipulation that any shipowner or charterer that intends to transport the oil will have to provide an attestation that it would not be sold above the price cap.
However, Russian producers have found other buyers for their products for now. Bloomberg reported on December 9 that some of the Chinese independent refiners were snapping up cargoes of Russian Eastern Siberia Pacific Ocean (ESPO) crude that were set to be delivered in January 2023. “The export price of the nation’s main grade shipped from the Far East was assessed at USD 67.11 a barrel” on December 8. ESPO refers to oil produced in East Siberia, which travels to Asia via the 4,200km ESPO pipeline to the Pacific Ocean.
The data firm, Kpler, has claimed that China imported one million barrels of oil per day from Russia till November 2022, while neighbouring India imported 0.9 million barrels per day. The increment by India and China of their purchases in 2022 alone has offset more than 40% of the oil that Russia sold to the 27 EU nations. Several other nations are still importing Russian oil, as they are enjoying discounts on price.
When Western sanctions backfired
A study, released by the Belgium-based economic think tank Bruegel in October, shows that the economic reprisals against Russia are not working after nine and a half months. Last spring, the think tank predicted that Russian GDP would drop by at least 7-8% (and possibly as much as 11%) in 2022 as a result of the sanctions, while prices would rise by 20-25%. Foreign Direct Investment (FDI) by corporations was forecast to fall as much as 25-28% over the year.
However, according to a study carried out by NPR Radio, “Russia has not been brought to its knees.” According to the forecasters, the Russian GDP for 2022 would likely to fall, but only about 3.3-3.4%. Inflation, meanwhile, would likely to be 12% by the end of 2022. Of course, it is not a good piece of news for Russia, but not close to as painful as predicted. Meanwhile, the FDI is supposed to fall by a mere 1%.
However, there has been a very negative effect, in the crucial area of machine tools, machineries, mechanical appliances, boilers, electrical equipment, products of the chemical industry, aircraft, etc. In recent times, imports of such items have dropped considerably. In other words, Russia (and also China) must find new sources for importing such machineries, apart from expanding its own domestic industries.
This article was first published in Strategicalert portal of the Schiller Institute on December 14, 2022. The Schiller Institute is a Germany-based Political and Economic Think Tank founded by Helga Zepp-LaRouche, with stated members in 50 countries.
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