A New Trade Wars Era Is Coming: What Is in It for Russia?

13.04.2018

The world returns to the era of trade wars. Protectionist measures, taken recently at the initiative of US President Donald Trump, only brought to the public space the agenda, which has been implemented by various countries for several years. The WTO remains an important venue for dispute resolution, but it cannot provide fair trading conditions for all participants. In this situation, countries have to rely on themselves, and Russia’s positions are very vulnerable. Such conclusions were made by participants in the expert discussion “World Trade Wars: What Are We to Expect?” which took place on April 12, 2018.

According to Daria Davydova, Head of the WTO Participation section, Department for Trade Negotiations of the Ministry of Economic Development of the Russian Federation, protectionism has remained one of the key issues on the WTO agenda since 2016. According to the report for 2016, the WTO member countries adopted more than 3,000 protectionist measures, of which less than a third were eliminated. The United States is now the absolute leader of the protectionism drive, she said. The measures it takes, in particular, the increase of tariffs on steel and aluminum, go beyond the WTO scope. “If all countries understand that they can apply the same measures, we will be on the verge of serious changes, potentially leading to collapse,” Davydova said.

The global confidence in the WTO has been undermined, said Simon Evenett, Professor of Economics at the St Gallen University, who participated in the discussion via video link. Big players do not want to follow the WTO rules, although they would be happy if the rest did so, he said. According to Evenett, the US will not leave the organization, but Washington does not expect the WTO to play a role in finding solutions.

The peculiarity of the past year is that it became a transition stage from the covert protectionism to the transparent one, the expert believes. Until 2018, many countries distorted the structure of world trade in their favor, Evenett said, but did not make statements of the type heard from Washington today. Last year Trump’s main priority was the tax reform. Having achieved his goals there, he began to implement his protectionist program, whose main target is the population of those US states, which believe that they are hit hardest by the international competition.

Following the trade wars, currency wars will start, said Alexander Losev, Director General, Sputnik Asset Management. According to him, this is an easy way to “plunge the world into chaos, and then to restore the balance.” Losev recalled that China regards the devaluation of the renminbi as a weapon in the trade war. In turn, President Trump, who campaigned for a strong dollar prior to his election, began to weaken its exchange rate after coming to power. “America is the main currency manipulator,” Losev said. “But how long this will last is not yet clear. The problem is that we are now witnessing a reversal of the credit cycle, and the next rate hike by the United States in September will be a real coup de grâce for many peripheral capital markets.” We are on the verge of a crisis similar to that in Asia in 1997, he noted.

In this situation, Russia’s positions are extremely vulnerable. Measures taken by the US to protect its producers are already hitting Russia’s exports. So, in 2017, Russia sold $650 million worth of steel and $2 billion worth of aluminum, said Andrey Spartak, Director of the All-Russia Market Research Institute (VNIKI). As to aluminum, the United States is the most important market for Russia, accounting for 30% of its exports. The restrictions imposed on deep-sea drilling technologies are related to the forthcoming US entry to the European gas market. Meanwhile, the development of exports is one of the possible drivers of the Russian economy, and restrictive measures are a direct threat to the country’s development.

Obviously, with the existing structure of the Russian economy, participation in trade wars may lead to disastrous consequences, the participants in the discussion believe. According to Alexander Losev, in this context Russia is “not even a pawn in the game, but a square through which bishops and knights will jump.” The experts see the way out of the situation as follows:

- Increasing the creativity of the economy. Emphasis on artificial intelligence, digitalization and robotization, which requires investment in hard science. Restoration of the triad “fundamental science – applied science – training”;

- Creation of more comfortable conditions for the small business, making it part of production chains of export-oriented big companies; decrease of the regulatory burden;

- Use of the military-industrial complex as a driver for development of technologies and creation of jobs in related industries.

The participants put certain hopes on free trade agreements with such countries as China, India and Iran, the confluence of the EAEU projects with the Chinese Belt and Road initiative, as well as with the North-South transport corridor intensification. The latter, in their opinion, could be the project where Russia is able to demonstrate its capabilities in the sphere of intellectualization of transport systems, as well as security export, creating for itself a new niche in the world economy.

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