G7 sanctions and Russia’s pivot to China | Guide to the Global Economy

Summary

This week's Guide to the Global Economy discusses Russia's economic stabilization two years into its invasion of Ukraine, focusing on its trade reorientation from the EU to China. It also covers a weapons swap deal between the U.S. and Ecuador, which aimed to provide old Russian military equipment to Ukraine, and the retaliatory Russian ban on Ecuadorian banana imports. Additionally, it examines concerning trends at the WTO, like the dropping number of formal trade consultations compared to informal complaints, and outlooks for reforming its dispute settlement system.

Takeaways

• 😊 The team focused this week's research on the economic implications of the 2-year anniversary of Russia's invasion of Ukraine.
• 📉 There was an initial 50%+ drop in G7 exports to Russia after the invasion due to sanctions and companies pulling out.
• 🚛 China has filled the gap, increasing exports to Russia by 43% as Russia reorients away from the EU.
• 🛢 China is exporting industrial goods to Russia to support its war effort by providing raw materials, chemicals, etc.
• 🚗 Chinese car exports to Russia jumped 900% as Western companies pulled out of Russia.
• 💊 The EU still exports some goods to Russia like pharmaceuticals and food that are exempt from sanctions.
• 😳 Russia's increasing reliance on China could leave it vulnerable as the subordinate partner long-term.
• 👨‍💻 President Nabeua of Ecuador proposed exchanging Russian weapons for US military equipment to send to Ukraine.
• 🍌 Russia banned Ecuadorian banana imports in retaliation, which could hurt 20% of Ecuador's banana export market.
• 🤝 There is disagreement at the WTO over reforming the dispute resolution body, so major realignment is unlikely at the upcoming ministerial conference.

Q & A

What is the main topic of the research presented in the transcript?

The main research topic is analyzing Russia's trading relationship and economic implications two years after its invasion of Ukraine.

What happened to Russia's imports right after the invasion of Ukraine?

Russia's imports from G7 countries dropped by over 50% right after the invasion due to sanctions, export controls, and companies pulling out of Russia.

Why have China's exports to Russia increased recently?

China's exports to Russia have increased due to Russia reorienting its economy away from traditional suppliers like the EU and towards China. China also needs new export markets as other countries turn away from Chinese goods.

What goods is the EU still exporting to Russia and why?

The EU is still exporting goods exempt from sanctions like pharmaceuticals, food, and other items that are important for EU producers' livelihoods. There has been pushback on sanctioning these goods further.

What deal did Ecuador try to strike with the US regarding old Russian military equipment?

Ecuador's president proposed exchanging $200 million worth of old Russian military equipment for new US military equipment, with the intention of the US then sending the Russian equipment to Ukraine.

How did Russia retaliate when it found out about the proposed Ecuador-US deal?

Russia banned banana imports from Ecuador's 5 biggest banana companies, which account for 20% of Ecuador's banana sales.

What is significant about the divergence in WTO trade concerns and consultations after 2019?

It shows that while countries are raising many trade concerns, they are not moving to the formal adjudication process for resolving disputes due to issues with the WTO's appeals body.

Why has the WTO's appeals body been unable to function effectively since 2019?

The US has blocked appointments of new appeals judges since 2019 over concerns that the body oversteps its boundaries. This has left the appeals body without the quorum it needs.

Which two WTO members file the most trade consultations and complaints?

The United States and the European Union file the most WTO trade consultations and complaints.

What reforms are being discussed for the WTO appeals body and what is the likelihood of agreement?

Principles to govern appeals reforms have some agreement but specifics around composition and rules still have considerable disagreement, so major realignment is unlikely at the upcoming ministerial conference.