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Russia - Winner of American Trade War?

Russia - Winner of American Trade War?

On 4th August 2018, U.S president Donald Trump tweeted “Tariffs will make our country much richer than it is today.

....Tariffs will make our country much richer than it is today. Only fools would disagree. We are using them to negotiate fair trade deals and, if countries are still unwilling to negotiate, they will pay us vast sums of money in the form of Tariffs. We win either way......

— Donald J. Trump (@realDonaldTrump) August 4, 2018

So far, there is no sign of his prophecy coming true. American president Donald Trump’s trade war with China, the European Union, Mexico, and many other nations worldwide have no clear winners or losers yet. Or so it seems.

In the last few months, America has strained their trading relationships with major trading partners by imposing increased tariffs which have resulted in rising tariff bills of American importers.

In all this chaos, the only country which seems to have gained more is none other than Russia.

Let’s analyze how Russia has gained from Americans firms and people paying high tariffs due to this trade war which have increased the profits of Russian companies.

Before we begin, let get to know Russia a bit more.

Russia - Country Overview

Russia is the world’s largest country by landmass and covers more than 11% of Earth’s inhabited area at 17,098,242 Km2. It has land borders with Norway, Finland, Estonia, Latvia, Lithuania, Poland, Belarus, Ukraine, Georgia, Azerbaijan, Kazakhstan, Mongolia, China, and North Korea. It also shares maritime borders with Sweden, Japan (by the Sea of Okhotsk) and the U.S. across the Bering Strait.

Russia - Country Overview

As per IMF, Russia’s population was estimated to be 143.896 million while its nominal GDP was estimated at USD 1.61 trillion for the year 2019. The per capita GDP for 2019 was estimated at USD 11,191.29.

According to the IMF, Russia is estimated to have a current account balance of USD 92.105 billion in 2019. Between 2017 and 2018, Russia current account balance grew at 71.04% due to a sudden increase in export of cereals and other materials. The current account balance is the difference between a country’s savings and its investment. It is the sum of the balance of trade (goods and service export fewer imports), net income from abroad and net current transfers. Thus, it is an important indicator which helps assess the health of any country’s economy. A positive current account balance indicates that the country is a net lender to the rest of the world, while a negative current account balance indicates that it is a net borrower from the rest of the world.

Russia - Export Growth

Russia’s export value in 2017 was USD 341 billion. It grew by 24.10% and reached USD 449.30 billion in 2018.

Mineral fuels including oil were Russia’s top export category valued at USD 237.6 billion. Iron, steel category was at second position with an export value of USD 23.4 billion followed by Cereals with an export value of USD 10.5 billion. Gems, precious metals category was on the fifth position with an export value of 9.2. Remaining categories in top 10 were wood (USD 9 billion), fertilizers (USD 8.2 billion), aluminum (USD 6.6 billion), copper (USD 5.4 billion) and electrical machinery, equipment (USD 4.9 billion).

Top 10 Countries Importing from Russia in 2018

As shown in the data generated by ITC (International Trade Centre) above, the top 10 countries importing Russian goods in 2018 were China, Netherlands, Germany, Belarus, Turkey, South Korea, Poland, Italy, Kazakhstan and the United State of America.

All these countries have witnessed a sharp increase in imports from Russia in 2016. The highest rise in imports between 2017 and 2018 is witnessed for China, Germany, and Turkey countries which have been major trading partners of U.S. and who have been most affected by President Donald Trump’s trade war and other policies.

China is the world’s largest importer of soybean. It has ditched the U.S. due to tariff war and increased soybean imports from Russia. As per Russia’s agriculture agency Rosselkhoznadzor, Russia exported around 0.85 million metric tons of soybean to China for July 2018 till May 2019. According to the Ministry of Agriculture of the Russian Federation, Russia is negotiating with China to increase exports of wheat, corn, and sugar. Apart from supplying soybeans from the entire country, Russia is also planning to increase the supply of non-GMO soybeans to China for which productions have already started in the Saratov region.

Before U.S. tariffs imposition, China accounted for more than 20% of American oil exports. But after tariffs, China has almost stopped importing U.S. oil and have relied on Russia to increase oil supply.

Gazprom’s Power of Siberia gas pipeline which is expected to become operational by December 2019 is expected to supply China with 38 billion cubic meters of natural gas per year. Chinese firms own 30% of Yamal liquified natural gas (LNG) project in the Russian Arctic region. These developments are expected to further boost petroleum and gas exports to China in the near future.

Russia also came to help Chinese firm Huawei which was banned from doing business with American firms. Russian telecom firm MTS signed an agreement with Huawei to implement 5G technology in Russia which is expected to benefit around 72 million subscribers.

Russia also managed to sell Turkey an American ally and NATO member state, their S-400 surface-to-air-missile (SAM) system despite huge pressure from the USA. In the end, Turkey stuck to this purchase which prompted to the U.S. to remove it from the F-35 program. The S-400 SAM system is also being purchased by China and India and there are around 13 countries who have shown interest in buying this system.

Conclusion

From the facts discussed above, it is clear that Russia is the clear winner of American trade war at least for now. U.S. President Donald Trump’s trade war has not only helped Russia improve it’s economic position but also deepen its relations with its neighbors and major American allies. Any way you look at it this is a win for Russia.

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