A trade war between Russia and the West would have one loser in the long run: Economists have calculated that the Russian economy would be hit many times harder.
Militarily, the West is largely powerless to watch the Russian attack on Ukraine. But the economic sanctions are hitting Russia hard: the ruble has plummeted, inflation is skyrocketing, and many Russians are having acute problems getting cash at all. And in the long term, according to economists, the Russian economy will emerge as the clear loser from a trade war with the West.
A study by the Kiel Institute for the World Economy (IfW) and the Austrian Economic Research Institute (WIFO) shows that Russia would be hit many times harder than the West by a long-term halt to mutual trade relations. Accordingly, in the long term, Russia would have to reckon with a 9.71 percent lower gross domestic product every year. The Western Allies, on the other hand, would only have to fear a 0.17 percent drop in economic output.
“A trade war between Russia and the US and its allies would hit Russia’s economy hard in the long term”, states IfW researcher Alexander Sandkamp. The Allies might “may also be severely affected in the short term”but in the long term they could cope with the break much better.
Russian economy is more dependent than the other way around
Important for classification: The researchers do not calculate the short-term damage of the current sanctions. Rather, they use a model that simulates how trade flows adjust in the long term when international supply relationships are interrupted and what effects this has on the growth of an economy. Specifically, they simulate a doubling of the trade barriers that existed before the Ukraine war. On the other hand, the sanctions packages currently adopted are not included in the calculation.
According to the researchers, the fact that the Russian economy would be significantly more damaged in a trade war is due to the fact that Europe is much more important for Russia in terms of imports and exports than vice versa. In 2020, the EU was responsible for 37.3 percent of Russian foreign trade. Conversely, it was only 4.8 percent.
Political impact potential
Long-term import bans by Europeans would therefore hit Russia hard and could also influence the Kremlin’s policies, at least in the longer term. “Sanctions usually have an economic, but no political effect in the short term. If they are long-lasting and comprehensive, their potential for political impact can increase”says WIFO Director Gabriel Felbermayer, who also sits on the scientific advisory board of Robert Habeck’s Economics and Energy Ministry. “The simulation results give an impression of what is at stake for both sides in the long term: after an adjustment phase in world trade, Russia will be significantly weaker, but the damage to the Allies is manageable.”
The calculations also show which countries would be affected to what extent. The break in trade relations with Russia would be most expensive for the Baltic states of Lithuania, Latvia and Estonia, which have to reckon with minus 2 to 2.5 percent of annual GDP. Due to their geographical proximity, however, these are also particularly threatened in terms of security policy. According to the simulation, the trade restrictions with Russia cost Germany 0.4 percent of economic output every year. The USA is hardly affected at all.
China, on the other hand, could fill the gap and trade more with Russia in the future. Almost 14.6 percent of Chinese exports currently go to Russia, while imports from Russia only account for 2.8 percent for China. Even if Russia now exports more to China, according to the model calculations, the effects will be limited. The economists maintain that China is not the big winner of the crisis economically.
Source: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
