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Negative effects for Russia of the US-China Phase-One-Deal

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After a 1.5-year trade dispute between the United States and China in which both have raised mutual import tariffs from 3.8 percent and 8.3 percent to 21 percent each, and as a result of which the US-Chinese merchandise trade has dropped by almost USD 90 billion, US President Donald Trump and Chinese Vice Premier Liu He on January 15, 2020 signed the first phase of a highly controversial and fiercely negotiated trade agreement. On February 14, 2020 this so called “Economic and Trade Agreement” (ETA) entered into force and marked a new phase in the protracted geopolitical rivalry between Washington and Beijing.In this highly asymmetrical contract, the Chinese commit to open their market and to buy significantly more goods from the United States than before, which is in line with Trump’s wish for a lower trade deficit. This means a doubling of merchandise imports from the United States, because within two years Beijing is expected to increase spending on selected US goods by around USD 200 billion (compared to the base year 2017).In return for the Chinese concessions, Trump has only committed to waiving new tariffs and to halving the most punitive tariffs for a subset of products from the current 15 to 7.5 percent. In the usual American manner, this has so far only been promised as an oral understanding.According to the latest calculations by the Kiel Institute for the World Economy (IfW Kiel), the purchase commitments can result in significant trade diversion effects and market share shifts for China’s trading partners. As a result, Brazil (-19 percent), the EU (-17 percent) – including above all Germany (-7 percent), and Russia (-10 percent) would have to expect the greatest export losses.Accordingly, Russian exports to China could be 10 percent lower by 2021, which is equivalent to a loss of USD 3.1 billion.

Russian energy exports hit hardest

US presidents have always tried to ensure American energy dominance. The “Nord-Stream 2” pipeline, which is to bring 55 billion cubic meters of Russian natural gas to the German and Western European markets annually, remains a thorn in Washington’s side, but the Phase-One-Deal gives the USA better access China’s energy market – the world’s most desirable.A recent study by the Institute of the German Economy (IW Köln) shows that due to the agreed energy imports, the US would move from eleventh place in 2017 (USD 6.8 billion) to first place (USD 41 billion) in 2021 in China’s supplier list of energy carriers. In absolute terms, Russian crude oil exports to China would be the most affected : by 2021 they could be 12 percent lower, corresponding to a loss of USD 2.5 billion.On a relative scale the artificial trade changes would also significantly affect other important Russian export sectors to China. Exports of soybeans could decrease by 25 percent or USD 10 million, of sunflower oil by 29 percent or USD 40 million, of coal by 10 percent or USD 180 million, of seafood by 9 percent or USD 100 million, of aircraft parts by as much as a third (USD 40 million).Furthermore, the agreement may jeopardize Moscow’s intention to become an important natural gas supplier for China. In December 2019, the “Power of Siberia” gas pipeline was put into operation, under which a supply contract of over 38 billion cubic meters per year was concluded with China for a period of 30 years. Additional quantities are expected to be sold through an LNG terminal in Vladivostok in the Asia-Pacific region. Accordingly, China is to become the second most important gas sales market to Russia after the EU. However, the trade diversions in the ETA agreement could result in China’s imports of liquefied natural gas from Russia dropping by 25 percent by 2021, representing a loss of USD 10 million.According to Dr. Sonja Beer, economist at IW Cologne, it is too early to say exactly which group of Russian energy exports to China will be affected most.“The problem is that the energy section of the agreement only says that China will buy liquefied natural gas, crude oil, coal, etc. from the United States, but does not indicate which of these product groups is to be given priority and to what extent. More precise calculations are therefore not yet possible. However, due to the high Chinese import tariffs for American LNG (25 percent), we can assume that China will concentrate more on buying crude oil in the USA. Especially since China announced earlier this month that it would halve the existing 5 percent tariff for crude oil. It is impossible to predict exactly how trade flows will change in this case, but this could adversely affect Russia and Saudi Arabia, the largest suppliers of crude oil to China”, Beer explains, adding: “If Chinese LNG tariffs are significantly reduced, Beijing could buy more gas from the United States. This, in turn, could adversely affect Australia and Qatar and the prospects of increasing the supply of Russian gas to the Chinese market”.

Phase-One-Deal violates WTO criteria

Dr. Gabriel Felbermayr, President of IfW Kiel, also criticize the new trade deal between China and the USA.“The deal leverages free market principles in favor of the USA and to the detriment of third parties. “Managed trade”, i.e. explicit agreements on trade volumes for certain product groups, also clearly violates the WTO guidelines and thus undermines the multilateral trading system”, argues Felbermayr.After the likely re-election of Donald Trump as President of the United States, protectionism and “managed trade” trends are expected to further intensify in the global economy, which is still dominated by the United States. In any case, such a “managed trade” agreement with China is not the first of its kind under Trump’s presidential administration. Already on September 25, 2019, the United States and Japan announced a trade agreement that hardly fulfills the criterion of “essentially complete trade” under Article XXIV of the GATT (WTO), since the scope of customs liberalization is very limited and asymmetrical in favor of the United States.

Jurij C. Kofner is a junior economist with a research focus on Eurasian economic integration. He is a research assistant with the International Institute for Applied Systems Analysis (IIASA) in Vienna, Austria, where he participates in a research project on the challenges and opportunities of an EU-EAEU common economic space. He is also the editor-in-chief of the analytical media "Eurasian Studies" based in Munich, Germany. From 2017 to 2019 he was the founder and head of the Eurasian sector of the Centre for Comprehensive European and International Studies at the National Research University "Higher School of Economics" in Moscow, Russia and continues to be an expert with the sector. Currently Mr. Kofner attends advanced studies programs from various German institutions such as the German Bundesbank and the Kiel Institute for the World Economy.

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Economy

Another Look at the Prospects of a Eurasian Digital Platform

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In view of the idiosyncratic features of Eurasia with respect to the gravity of distance, a common Eurasian platform for digital economic agreements may allow the region to attenuate the effects of distance and severe economic fragmentation — most notably in the regulatory sphere — emanating from the sheer size of Eurasia and the multiplicity of regional integration arrangements. By consolidating regional, bilateral, as well as corporate alliances, a common Eurasian digital platform would allow its members to introduce greater consistency and compatibility into the existing set of digital economic agreements, thus providing the conditions for multilateralising existing digital arrangements and for creating new digital economic accords.

One of the ways to create a digital “platform of platforms” for Eurasia that is to include platforms for regional integration arrangements, regional development banks and regional financing arrangements (RFAs) of the countries of Eurasia.

  • The platform for regional integration arrangements would work towards advancing greater inter-operability into the digital platforms of Eurasia’s regional groupings such as the EU, the EAEU, ASEAN, RCEP, EFTA, BIMSTEC, SAFTA, GCC.
  • The platform for regional development banks and funds such as EDB, EIB, ADB, EBRD, SDF, CAF would focus on building project portfolios in the area of digital cooperation/digital connectivity/digital inclusiveness and work to advance digital economic agreements (DEAs) on the basis of the existing digital arrangements concluded by countries such as Singapore.
  • The platform for regional financing arrangements (ESM, EFSD, Chiang Mai Initiative Multilateralization, Arab Monetary Fund) would focus on the coordination of anti-crisis measures, the creation of ex-ante anti-crisis response mechanisms based on the use of “big data” and forward looking indicators obtained through digital cooperation and data exchange.

These three platforms can reinforce one another and can be further complemented by country-level and corporate-level platforms to form a Eurasian ecosystem of digital cooperation and inter-operability.

Such a Eurasian “platform of platforms” is:

  • Digital: it advances digital cooperation, including digital trade at the level of countries and regions
  • Regional: it places particular emphasis on building cooperation in areas that have hitherto lacked coordination, namely among regional integration arrangements and their development institutions
  • Scalable: it can be replicated in other parts of the world as well as at the global level via creating a regional layer of global governance

The current economic framework in Eurasia is fragmented and lacks the digital connectivity that would be predicated on cross-country and cross-regional digital agreements. This in turn limits the capability of countries to coordinate policies in areas such as trade, migration, digital economy development. A common platform would address the issue of the “digital gap” across the countries of Eurasia via promoting greater “digital inclusivity”, most notably with respect to the low-income developing economies. Such a common digital platform for Eurasia may prove to be particularly important for land-locked developing countries that face notable geographical/logistic barriers to trade.

Indeed, of all of the different parts of the global economy Eurasia stands to benefit the most from greater digital connectivity and inclusivity, given the prominence of the “distance factor” that constrains the intensity of economic cooperation within the region. The gravity of distance is particularly costly for Eurasia’s land-locked economies — in fact Eurasia harbours 26 out of 44 (59%) of all of the world’s landlocked countries. Moreover, the scale of “inwardness” of some of the regions of Eurasia in terms of geographical location is truly unique, whereby Kazakhstan is the largest landlocked country in the world, while Bishkek is the farthest capital city from the coast in the world (all top-5 of the most distant capitals from the sea coast in the world are in Asia).

Existing research suggests that digital platforms may exert a sizeable effect in reducing the gravity of distance: as noted by Pierre-Louis Vézina, “distance between countries impedes international trade, but it matters 65% less for trade on the eBay platform than for traditional offline trade… The online world is flatter”. Yet another study focusing on the EU evaluated the importance of distance for e-commerce. This study of 721 regions in five countries of the European Union shows that while distance is not “dead” in e-commerce, there is evidence that express delivery in e-commerce reduces distance for cross-border demand.

Ways of measuring the effectiveness of a common platform would include the scale of liberalization and trade facilitation in digital trade across the Eurasian platform; increases in the size of the portfolio of joint investment projects related to the digital economy on the part of the region’s development institutions, increases in cross-border and cross-regional trade and investment associated with the digital economy. The number of multilateral digital economic agreements (DEAs) facilitated by the platform would be a measure of the contribution of the initiative to multilateralism. Another important metric is increases in connectivity arising from the creation of the platform — this would concern increases in digital connectivity/inclusivity, most notably in developing economies.

A common digital platform in Eurasia will serve to improve coordination across countries as well as regional integration arrangements and their development institutions. It will also serve to transform the landscape of trade agreements by facilitating the conclusion of digital economic agreements and multilateralising existing digital accords. The common platform will also advance international cooperation in the digital sphere and other areas pertaining to the Fourth Industrial Revolution to strengthen the response to the Covid pandemic and improve the region’s capabilities in the health care sphere as well as other areas pertaining to the development of human capital. A more cooperative framework for Eurasia that aims to emulate best practices and standards across the platform will also be conducive to longer-term cooperation, a more active use of ESG standards and greater emphasis placed on economic sustainability.

The creation of the Eurasian digital platform may be a step towards building a global network of cooperation on the basis of a “bottom-up” plurilateral cooperation among regional blocs rather than a “top-down” framework devised at the global level. Such an approach conforms with the principles contained in the WEF’s White paper on Globalization 4.0 that advocates the use of flexible plurilateral trade agreements as a way of further advancing trade openness in key areas, including in digital trade and e-commerce: “open plurilateral agreements of this nature are the most promising way available to update the trade rulebook without further fragmenting the world economy and weakening its crucial multilateral foundation”.

The formation of an open digital platform for Eurasia renders it amenable to replication at the level of not only regional arrangements, but also at the level of country-to-country cooperation as well as multilateral corporate platforms. An important aspect of the operation of such a platform is the principle of openness and inclusivity — whereby developing countries benefit from greater “digital inclusion” and the possibility to join digital alliances with advanced economies across Eurasia. In this way, the operation of such a platform contributes to a more sustainable and balanced economic paradigm across Eurasia.

From our partner RIAC

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Future of the Chambers of Commerce of the World

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New world has already emerged; the global populace on economic fronts, now thinks and demands differently, smart are the nations cognizant of such tectonic shifts, adjusting post pandemic recovery and tabling new economic models. All over the world, some 10,000 plus Chamber of Commerce with some 45 million members represents a big slice of such global economics in post pandemic fights. Today, in metamorphosis, if each such chamber as a local pillar within a city needs to be on digital platforms of upskilling and exportability to enable displaying their individual members on the global stage and engaging marketplaces with updated skills will boost local global trades. Such narratives are no longer rocket sciences but as existing realities since last decade as necessary tools to survive in a digitized world. What are the challenges of such transformations? Hence awaits a bright future for the Chamber of Commerce of the world.

There is no business like small businessno further proof required as almost all economies of the world have now accepted small and midsize business as top of the agenda. Economic development teams have now understood that any uplift, upskilling, reskilling, unskilling of SME+MFG on AI+AV+VR platforms will only save national economies. On the National Mobilization of Entrepreneurialism Protocols already tabled by Expothon Worldwide, study more on Google, where the local chambers can enjoy an excellent opportunity to lead on such fronts. Critical mind shifts are essential, as new attitudes needed with an entrepreneurial mindset for such deployments.

Emergence of new business math: A $1000, investment in technology buys digital solutions, which were million dollars, a decade ago.  Today, a $1000 investment buys on global-age upskilling on export expansion that were million dollars a decade ago.  Today, a $1000 investment on virtual-events buys what took a year and cost a million dollars a decade ago. Today, any micro-small-medium-enterprise capable of remote working models can save 80% of office and bureaucratic costs and suddenly operate like a mini-multi-national with little or no additional costs. What opportunities all this creates for 10,000 chambers of the world and how can they shine with their 45 million membership on various platforms and uplift the local economic base? How such events tabled, planned and executed and what will it take to start the process, on a systematic basis on which there are starting points.

Now is the time for national mobilization of entrepreneurialism on digital platforms of upskilling for exportability, for some 200 nations and 10,000 cities. Imagine if chambers in selected nations mobilized 1K to 5K SME for digital platforms for rapid-fire upskilling of exporters and reskilling of micro and small-medium manufactures to quadruple productivity, performance and profitability leading to additional new jobs creations. This is like a Marshall Plan but in reality more like a turnkey digital platform economy maneuver seeking right and authoritative leadership. Imagine if doubling or quadrupling productivity created dozens of new jobs, this would add 100s of million new jobs in 1-2 years. Maybe not the best jobs but surely secure local grassroots prosperity. The new global vision of the chamber waits for massive digitalization and mind shift change to optimize such global power play.

Facing tribulations; when everything is upside down, every business model on its knees, every effort futile where human endurance is always on real test, the outside world now morphed into unrecognizable formats. This is not dystopia; this is a new world.

Creating triangulations; when strange combinations create brand new landscapes, when accidental triangulations germinate new powerful new solutions, innovative excellence takes over and entrepreneurialism becomes a super driver.

Awaiting transformations; when such new frontiers transform our ideas and accidents into real actions lifting us to the upper stratosphere, when superior critical thinking and complex problem solving finds new paths to lead forward, we embrace new normalcy. 

New global opportunities bring highly value added solutions to the local memberships of each chamber. The “Work + Office + Health + Money + Politics + Globalization” suddenly, all morphed into one gigantic blob of global calamity, forcing new challenges, creating new thinking and getting the world on brand new combinations of growth tracks. Now is the time for trade groups to come together, Local Department and Agencies, Trade Associations and Chambers across the world must unite in global narratives in participating on various aspects to boost their own local presence and their own memberships across the board. The challenge is open-mindedness to cope with SME + MFG +EXPORTS +PRODUCTIVITY + PERFORMANCE + PROFITABILITY + PLATFORM +ECONOMY aspects of expanding enterprises.

The new Trends: the global loss of credibility of institutions and distrust of political leadership will now open new narratives, new debates and bold new thinking. Absence of leadership will dispose of political correctness and seek disruption of political abuse. Almost every century there are such clashes of ideologies and strikingly humankind always survives no matter how battered. The game is about recognizing and defining values and understanding the global age of expanding diversity. Observe how new mindsets appear, how they shift, progress and advance. Therefore, becoming a lifelong learning student is not only a great start but also a safeguard from public hysteria. Without upskilling on global age platforms, the future is dark for economic development.

Next year this time, our world would have moved forward at much faster paces, but all due to almost free technologies. Those with mastery of national mobilization will have distinct advantages. By design nouveau-revolutionary, by style mobilization-centric, and by action deployment-ready, by results transformational; this economic-friendly thought leadership is a pragmatic approach to shake down lingering slowdown on global exportability and challenges midsize business economic management nation by nation across the world and offers immediately deployable solutions. Platform economy allows such mobilizations; global-age provides the right battlefields. Mostly, not dependent on new funding, rather deployment craved and execution starved. New mindsets urgently needed. The future is knocking; open the doors

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Dostoevsky’s Economic Cycles

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The prophecy should come true, but I will not explain it. Then in due time it will be remembered and recovered. He who has ears to hear, let him hear.F. M. Dostoevsky

In November 2021, the world celebrates the 200th anniversary of the birth of the great Russian writer Fyodor Mikhailovich Dostoevsky. For me, as a Russian economist, a real discovery and revelation was the economic article written by Fyodor Mikhailovich in “A Writer’s Diary”, which was in fact one of Dostoevsky’s last articles on the ways Russia was developing. In this article, Dostoevsky largely anticipates such key topics for the Russian economy as the “turn to the East”, the prioritisation of long-term development guidelines (as an argument in favour of the creation of the Stabilisation Fund in our time), the fight against bureaucracy, the importance of public confidence in the economic policy of the authorities, and much more. Dostoevsky’s economic legacy can serve in our time as a kind of a moral compass for Russian economic policy.

In the context of Russia’s experience in the 1990s as well as the current crisis of the global economic system, which is overly focused on achieving short-term benefits/results, Dostoevsky’s arguments in favour of reorienting economic policy from short-term to long-term guidelines are very relevant: “What if we are at least halfway able to force ourselves to forget about the current situation and direct our attention to something completely different, into a certain depth, into which, in truth, we had never looked, because we were looking for the depth on the surface?” But Dostoevsky is ready to soften his formula, and “here is what I will propose instead; not half to forget about the current one – I refuse half of it – but only one-twentieth”.

As Dostoevsky notes, the reorientation of funds to the most important long-term tasks can become a guarantee of achieving key targets for long-term development, despite short-term obstacles and difficulties: “re-focussing attention away from the current issues in the amount of at least one-twentieth part annually, on something else, then the matter will seem almost not fantastic, but quite even possible to start”.

Dostoevsky associates such a redistribution of budgetary funds for long-term development with what he calls “healing the roots”, which in the budgetary sphere of today we could associate with our “National Projects” designed to develop Russia’s “human capital”.

As a result, we can say that Dostoevsky formulated a kind of a budget rule, that largely anticipates the principles of the modern fiscal rule and our Stabilisation Fund (National Welfare Fund): “My thought, my formula is the following: a state that has experienced the well-known upheavals, please do not think too much about current needs, no matter how much they cry out, but think only about healing the roots – and you will get finances.” This formula largely meets the priorities that we observe in Russian budgetary policy today, with its emphasis on accumulating reserves to finance longer-term economic needs.

Another area of ​​economic policy that Dostoevsky writes about – administrative reform and the reduction of bureaucracy. As Fyodor Mikhailovich notes, when trying to reduce the bureaucracy, we often only get an increase in the number of officials due to the creation of countless commissions on administrative reform. “Are we capable of such, for example, a reduction: to move from forty officials to four at once? Of course, no one can have any doubts that four officials will often do what forty do, especially with the reduction of paperwork and, in general, with a radical transformation of the current formulas for doing business.”

Arguably, the most important economic thesis for Dostoevsky is the problem of the lack of trust on the part of the population with respect to economic policy, or, as Fyodor Mikhailovich himself calls it, “the problem of the moral/spiritual concern of the population.” Moreover, Dostoevsky notes the tendency that has become painfully familiar in Russia in the past several decades towards an outflow of capital while undermining this very trust/“moral calm”: “How can we make the spirit of the people, yearning and worried everywhere, be encouraged and calmed down? After all, even capital itself and its movement is in search of moral tranquillity, but without moral tranquillity it either hides or is unproductive.”

The problem of lack of trust in economic policy on the part of the population remains acute to this day – during Dostoevsky’s time, the writer noted how important it is to achieve long-term understanding and trust within the population: “We have little peace of mind, especially spiritual peace, that is, the most important thing, without spiritual peace there will be nothing. They do not pay much attention to this, but only achieve a temporary, material effect on the surface. There is neither calmness in the minds, and this is in all layers, nor calmness in our convictions, in our views, in our nerves, in our appetites. There is neither work, nor the consciousness that only by work ‘you will be saved’ – none in the least.”

Perhaps one of the most interesting predictions of Dostoevsky relates to the priorities of foreign economic policy and our regional development. In fact, Dostoevsky in his economic article substantiates the need for a Russian “turn to the East” and the active development of the Asian regions of Russia: “So, it is a necessity, because Russia is not only in Europe, but also in Asia; because a Russian is not only a European, but also an Asian. Moreover, there may be even more hopes in Asia than in Europe. Moreover, in our future destinies, perhaps Asia is our main gateway!”

For Dostoevsky, a turn to Asia is part of that very fundamental process of “healing the roots”, while Asia for Russia can provide a means of uplifting the spirit and gaining greater independence: “Meanwhile, Asia may indeed be our gateway into our future – I exclaim it again! And if we had at least partially assimilated this idea – oh, what a root would have been healed then! Asia, our Asiatic Russia – after all, this is also our sick root, which not only has to be refreshed, but must be completely resurrected and recreated!! … with a turn to Asia, with our new perspective on it, we may have something like what happened to Europe when America was discovered. After all, Asia for us is the same undiscovered America of that time. With the striving for Asia, we will revive the rise of spirit and strength. As soon as we become more independent, we will immediately find what to do, while with Europe, in the past two centuries, we have lost the habit of any business and have become talkers and lazy people.”

I don’t know how many times I have read Dostoevsky’s economic article, and each time I find in it something new for myself, a kind of new look at the problems we face in Russia today. Dostoevsky also writes about the exchange rate of the rouble, about the need for Russia to value its national currency – and then it will be appreciated by foreign investors as well. The observations by Fyodor Mikhailovich of the very possibility of imitating European economic practices on Russian soil are also extremely interesting and relevant. After 140 years have passed since the writing of the economic article, many of the observations of our great writer remain extremely relevant. This testifies to Dostoevsky’s astounding farsightedness and genius, but also to how entrenched some of the fundamental foundations of our country system turn out to be over time. Or could it be that we are dealing with the long-term Dostoevsky cycles, even more long-term than the Kondratieff’s waves? Plus ça change, plus c’est la même chose.

From our partner RIAC

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