Global Trade Reflects the New Reality

The conflict in Ukraine, following on the global disruptions caused by the COVID 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 America declined by 11% in Oct. 2022 compared to one year earlier. In terms of manufacturing, orders from the United States to China were down by 40% from a year earlier in November, an even greater decline than in October and September, according to CNBC’s Supply Chain Heat Map data. This in turn is creating major problems for ocean freight carriers. On a month-to-month basis, China shipments to the U.S. dropped 21% from August through November.

At the same time, China’s rail trade with Russia via the Eurasian Land-Bridge has dramatically increased, as has sea trade between Russia and China, and between Russia and India. China’s annual trade with the Gulf Cooperation Council countries and Iran, combined, is nearly $250 billion and is now four times U.S. trade with the same countries. China’s goods trade with Africa is more than double U.S. goods trade there.

Transatlantic trade, however, increased during 2022. Goods imported into the U.S. from Europe were up by some 25% since March, while U.S. exports to Europe are at record levels, due in particular to oil and LNG.

The EU’s illusory price cap on Russian oil. The European Union as well as the entire G7 agreed to limit the price they will pay for Russian oil imports to $60 per barrel, as of early Dec. 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 will not be sold above the price cap.

However, Russian producers have found other buyers for their products for now. According to a Dec. 9 Bloomberg News item, some of China’s independent refiners are snapping up cargoes of Russian ESPO crude that are set to be delivered in January. “The export price of the nation’s main grade shipped from the Far East was assessed at $67.11 a barrel” on Dec. 8. ESPO refers to oil produced in East Siberia, which travels via the 4,200 km Eastern Siberia Pacific Ocean pipeline to the Pacific Ocean, whence it is exported to Asian nations.

The data firm Kpler reports that for Nov. 2022, China was importing from Russia 1 million barrels per day, and India 0.9 million barrels per day. The increment by India and China of their purchases this year alone has offset more than 40% of the oil that Russia sold to the 27 nations of the EU. Several other nations import Russian oil, in part, because they can get discounts.

When Western sanctions backfire.. A study released in October by the Belgian-based economic think tank Bruegel shows that, after nine and a half months, the economic reprisals against Russia are not working. It was forecast, last spring, that as a result of the sanctions, Russian GDP would drop by at least 7-8% (and possibly as much as 11%) in 2022, while prices would rise by 20-25%. Foreign direct investment by corporations was forecast to fall as much as 25-28% over the year.

However, according to a report on the study by NPR radio, “Russia has not been brought to its knees. Far from it: Forecasters say Russian GDP for 2022 will likely fall, but only about 3.3−3.4%. Inflation, meanwhile, will likely end the year at roughly 12%: bad, but not close to as painful as predicted. And foreign direct investment? Estimates say it will fall by a mere 1%.”

But there has been one very negative effect, in the crucial area of machine tools, machinery, mechanical appliances, boilers, electrical equipment, products of the chemical industry, aircraft, etc. But today, such imports have dropped considerably, which means that, in addition to China, Russia must find new sources for importing such machinery, while expanding at the same time, its own domestic industries.