U.S. trade agreement with China and its consequences for Ukraine

Author : Olexandr Honcharov

Source : 112 Ukraine

For some reason, our Cabinet is silent, as if it didn’t know that since January 15, 2020, China lost to the United States, signing the first phase of a new trade agreement between the countries (apparently, the trade war of the giants, lasting 1.5 years, came to an end and the Americans won). It is very important for us how the terms of this agreement will affect our national economy, trade and incomes After all, we live in a global world
23:35, 21 January 2020

So, firstly, our grain traders are now worried about the fact that the United States will become the main grain export power. China has committed to buy $ 32 billion worth agricultural products in 2 years (that is, 25% of all agricultural imports from America in 2020 and 30% in 2021)!

Moreover, in addition to traditional purchases of soybeans, China will increase purchases of corn, poultry, chicken, cotton and nuts. By the way, in the past 2019, due to this trade war, Ukraine managed to replace 80% of the American corn supply to China with its high-quality corn.

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This year, the Chinese do not need such a volume of purchases, the United States will close all their needs. By the way, American agricultural operators are already calculating their benefits from the signed agreement.

Secondly, hryvnia in relation to the dollar will be strengthened, creating problems for our exporters, since the United States benefits from a weak dollar. Well, after the trade wars, currency wars will follow, in which developing countries, like Ukraine, will be the first to feel the power of attacks on national financial markets. The United States has incomparably greater possibilities of pressure on world currencies (Ukraine is not worth comparing, everything is clear).

Thirdly, again, everyone is silent, but last Friday, January 17, for the first time the rate of GDP-warrants of Ukraine issued during the restructuring of our external debt in 2015 overcame the mark of 100% of par and amounted to about 100.3% of face value (while the main holders of GDP-warrants remain the American Franklin Templeton and Thomas Row Price investment funds)!

I remind you that ex-Finance Minister Nataliya Yaresko restructured Ukraine’s external debt in 2015 as follows: she wrote off only 20% of our external debt - $ 3.5 billion, but American investment bankers obliged us to issue GDP warrants (or GDP bonds), and for the remaining amount of debt we were given a delay of only 3 years to pay interest and the loan body.

Actually, no one wrote off the debt, therefore, on September 3, 2019, taxpayers paid $ 661 million in bonds and paid off $ 444 million in interest rates (the interest rate on these securities was set at 7.75% per annum).

Related: China won't hike grain import quotas for U.S. trade deal

But this is only the beginning of our long and very large payments. We will pay until 2040 based on the calculation that if the real (excluding inflation) GDP of Ukraine grows from 3% to 4%, then our payments will amount to 15% of GDP growth. If this growth is above 4%, we will have to pay 40% of such an increase. And why then did Arseniy Yatsenyuk and Natalya Yaresko agree to these predatory conditions?!

Indeed, this means that for Ukraine is not profitable to show GDP growth above 4% per year. That is why on Friday, January 17, the deputy head of the National Bank Dmytro Sologub estimated the possible payment of GDP-warrants of Ukraine in 2021 at the level of about 100-110 million dollars. He emphasized: "Mathematics is easy there: 3.5% of growth gives a payment of 100-105-110 million dollars in 2021."

And he also noted that the question of determining the exact amount of payment should be posed to the Ministry of Finance and looked for in a detailed description of the conditions for the GDP-warrants issuance.

And all this happens in our country when the current world economy risks returning to the era of the USA Great Depression of 1930s. Yes, that’s exactly what IMF Managing Director Kristalina Georgieva believes, emphasizing that the deterioration of the situation in economic sphere can be caused by social inequality and instability of the financial sector. Well, that’s exactly about Ukraine.

However, the Ukrainian authorities, despite high salaries and bonuses, are not going to smooth out inequality in a country where domestic national income per capita is only $ 2600 (that’s how much everyone Ukrainian would get if everything earned within the state for the year was equally divided between citizens). For comparison, in Poland it is $ 14,200, in Switzerland - $ 83,600.

Unfortunately, Ukraine remains the poorest country in Europe, and in the global income ranking, we only take the 144th line out of 202. Accordingly, a new IMF study shows that there is already a tendency to return to the “turbulent 1920s”, which ultimately led to the financial collapse of 1929, noted the head of the Fund.

Related: Trump promises to end the trade war with China in mid-January

In this case, she cited Great Britain as an example where 10% of the richest citizens have as many properties as 50% of less affluent people.

Well, it is unnecessary to speak what record highs have the inequality in Ukraine reached. In a word, we monitor how soon the forecasts of the IMF managing director will be realized. Moreover, in Ukraine, neither the ministers themselves nor the heads of state corporations have yet given intelligible answers to the questions of what to do and how to live?

Roughly speaking: the worse, the better. In any case, the growth of real incomes of ordinary Ukrainians is the business of ordinary Ukrainians themselves, everyone else "above" has a profit, nothing personal.

So what should we do? First of all, we must begin to provide quality investment services by creating an international commodity exchange platform in Kyiv. This project has already been prepared; only the political will of the president and the Cabinet is needed for its implementation.

If we do not become civilized and understandable for large foreign investors, we’ll see a collapse. Without foreign direct investment, no country in the world has yet been able to boost its economy and national markets.

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