Sanctions have not prevented Russia from being Ukraine's top trading partner. Why?

Author : Oleksiy Kushch

Source : 112 Ukraine

In 2020, Ukraine managed to significantly improve its trade balance. It happened not due to a successful development model, but due to an unsuccessful crisis model
23:37, 7 December 2020

Open source

As a result of the activation of it, the effective demand of the population and the investment demand of business traditionally aimed at imports, and not at domestic goods (50% of wholesale and retail trade in Ukraine is of foreign origin) have significantly decreased.

According to customs data, in January-November of this year, the total trade turnover amounted to $ 92 billion. Taking into account the forecast, following the results of twelve months, the ratio of this indicator to GDP will be more than 70%, which makes our economy extremely open to external shocks both in terms of exports and for critical imports, that is, dependent on the world price environment.

But in this crisis we were lucky: world prices for energy resources fell sharply (and this is a significant part of imports brought to Ukraine), but the prices for our raw materials exports (grain, sunflower oil, ore, metals) either have grown or if they have decreased, then insignificantly. As a result, according to the results of eleven months of 2020, exports amounted to $ 44.5 billion (hereinafter - customs data) against $ 46 billion in the same period last year. And imports amounted to $ 48.4 billion against last year's $ 54.2 billion. Accordingly, the negative trade balance (goods) decreased from -8.15 billion dollars to -3.93 billion, that is, more than twice.

Our main imports are: fuel ($ 7.18 billion), equipment in the form of boilers, reactors and machines ($ 5.2 billion) and vehicles ($ 4.93 billion). We also purchased electrical goods for 4.8 billion, plastics and polymers for 2.32 billion and pharmaceutical products for 2.17 billion.

In the first place among the items of Ukrainian export this year are agricultural raw materials and semi-finished products, which have replaced the products of the mining and metallurgical complex. Number one is cereals with an indicator of $ 8.54 billion. To it we add vegetable and animal fats (in simple words, sunflower oil) - $ 5.17 billion, oilseeds - $ 1.64 billion, and food industry waste (1.38 billion). By the end of the year, we will receive almost $ 20 billion in agricultural exports.

At the same time, we are not among the top ten in the world ranking of metal producers for a long time and continue to fall, having lost the 13th place. Exports of ferrous metals amounted to 6.98 billion dollars, exports of ore – to 3.87 billion and products from ferrous metals - to 0.8 billion. This is almost two times less than agricultural exports. The ratio of exports of metal and iron ore looks especially deplorable, which is constantly changing in favor of the latter. We are no longer even a blast-furnace country, but "children of the corn".

The highest achievement of our added value in the agricultural sector is oil, but even it is not bottled, but mostly in large "tanks". The Turks are engaged in bottling our oil, along the way, earning their five cents on one bottle. And Ukrainian natural resources in the form of iron ore became the basis for the development of Chinese and European metallurgy.

As for industrial products with a high level of added value, here the export figures are more than modest: in the section reactors and boilers - $ 1.38 billion, exactly the same as for food waste. Woodworking provided $ 1.29 billion in export earnings, but the Carpathians had to pay for this.

If we analyze the structure of our trading partners, an interesting picture emerges. There are no countries with which we recently bravely signed agreements on a free trade zone (FTA): Canada and Israel. On the other hand, China is in the first place, with a huge margin from others, with $ 13.7 billion of our trade turnover. In second place is Poland - 6.7 billion. And in third (hello to our officials) - Russia with 6.51 billion dollars. Belarus, which we "covered" with recent sanctions, is sixth with 3.8 billion. And behind them, main Ukraine's political ally (but for some reason not economic) is the United States with $ 3.6 billion.

If the trade balance is considered a key indicator of the effectiveness of foreign trade (like a scoreboard), then the above countries are grouped into several categories. These are the states for which we are a trading colony: China (minus $ 1.1 billion), the Russian Federation (minus $ 1.5 billion), and Germany (minus $ 2.7 billion). In this context, our market was divided by the Chinese, Germans, and Russians, and it is the latter who are in the lead, because to the indicator of the negative trade balance with them, we must also add a "minus" for trade with Belarus (-1.38 billion dollars).

In simple words, following the results of eleven months, we financed the Russian economy in the net balance of $ 1.5 billion and the economy of its ally Belarus – in another $ 1.4 billion (thereby reducing the volume of political subsidies from Moscow to Minsk by the indicated figure) ...

With a number of countries, we have an almost zero trade balance - Turkey, Italy.

Related: UK, Canada sign interim trade deal

But with the United States it is disproportionately large, given the relatively weak trade turnover. Ukraine has managed to earn a negative balance of $ 1.86 billion on a total trade turnover of $ 3.6 billion! That only testifies to the fact that the trading game goes practically in one gate (ours) and at the same time, we are constantly "taken out". This is not surprising, because the Americans have introduced a duty on Ukrainian metal and products made from it in the amount of 25%, while they are selling us their locomotives, that is, this is a model of cooperation in which even supplies of metal and wheelsets for the very locomotives that we successfully purchase are blocked, instead of producing our own….

As a result, it turns out that we have the largest trade turnover with a country with which Ukraine has not entered into an agreement on an FTA (China), and the most disproportionate negative trade balance with military and political ally number one (the United States).

And the entire sanctions policy, both of the previous one and the current government, only led to the fact that the Russian Federation is still in third place and the trade balance for billions of dollars in its favor has remained. And the main reason for this is the inability of our government to conduct a rational, selfish trade policy in their national interests, as Israel does with the Arab countries or, at one time, Finland had done with the USSR.

Does patriotism present in ill-considered actions when we sponsor the economies of the Russian Federation and Belarus for billions of dollars a year?

Effective power must generate meanings and be able to play for long. For example, the Japanese, having created the Economic Research Institute for ASEAN and East Asia (ERIA) in 2007, which over the past 10 years has actively generated ideas for future integration with Asian countries and clearly modeled the economic consequences for each participating country upon signing the agreement. And only after that, the country of the Rising Sun joined the recent RCEP agreement (Asia-Pacific trade cooperation, which united 15 countries, including China, Japan, South Korea, Australia).

And if we are so fond of the discourse in the style "would Stalin trade with Hitler?", then here we can answer that yes. Hitler, even during the war, would buy oil and raw materials for the defense industry from Stalin if he sold it. And Stalin would sell kitchen furniture and umbrellas to Hitler (if they were produced by the Soviet economy), for which the Germans would pay in cash.

Finland and the USSR developed their post-war relations approximately in accordance with this logic, when the Finns bought wood and supplied paper to the Soviet Union.

And the Israelis act in the same way, buying oil from the Egyptians and establishing beneficial economic cooperation with other Arab countries.

Well, we are left with the concept of "politicized economy" and "economized politics". And local "elites" and neighbors like it...

Related: Post-Brexit trade: Another London-Brussels negotiation failed

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