Study on the consequences of trade wars
Russia has far more to lose than the West
3/3/2022 8:41 am
In an international comparison, Russia is only of minor economic importance. In the event of a trade war between Putin and the West, the country would have to reckon with significantly greater damage, says a new study. The United States and its partners would only be severely affected for a short time.
According to a study, the Russian economy has significantly more to lose in the long term than the allies in a trade war with the USA and its partners. According to a study by the Kiel Institute for the World Economy (IfW) and the Austrian Economic Research Institute (Wifo), Russian economic output is likely to be almost ten percent lower each year than if trade relations continued.
“A trade war between Russia and the USA and their allies would hit Russia’s economy hard in the long term,” said IfW researcher Alexander Sandkamp. The Western Allies are also likely to be severely affected in the short term. In the long term, however, they would only have to fear an annual decline in economic output of 0.17 percent.
The reason for the unequal distribution of costs lies primarily in Russia’s low economic importance: in terms of imports and exports, the latter are more important for Russia than vice versa. In 2020, for example, the EU was responsible for 37.3 percent of Russian foreign trade, but conversely only 4.8 percent of the EU’s foreign trade took place with Russia. If intra-European trade is also taken into account, the Russian share would be significantly lower.
Eastern European countries more affected
“Sanctions usually have an economic, but no political effect in the short term,” said Wifo Director Gabriel Felbermayr. “If they last long and are comprehensive, their potential for political impact can increase.” After an adjustment phase in world trade, Russia will be significantly weaker. “The damage to the Allies, on the other hand, is manageable,” says Felbermayr.
However, according to the simulation, the costs are also distributed very unevenly among the Allies. Eastern European countries such as Lithuania (-2.5 percent), Latvia (-2.0 percent) and Estonia (-1.1 percent) would be more affected in the long term. Germany and Austria, on the other hand, would only have to reckon with losses of 0.4 percent and 0.3 percent, respectively, of annual gross domestic product (GDP), and the USA only with losses of 0.04 percent.
As a result of the conflict, Russia could expand its trade with countries like China and, in particular, export more to these countries. In 2020, almost 14.6 percent of Russian exports went to China, but just under 2.8 percent of Chinese imports came from Russia. Overall, real income in China would therefore only increase by 0.02 percent annually in the model. “Economically, China would not be the big winner of the crisis,” is another conclusion of the study.