Can sanctions against Russia work without China?


Now that Western powers have imposed sweeping economic and financial sanctions on Russia following its invasion of Ukraine, many are wondering if China’s non-participation will undermine their effectiveness. One also has to ask whether rich countries can do more for the poor in many developing countries who are the collateral damage of war and sanctions.

Based on data from 2019 (the last full year before the pandemic), China is Russia’s largest trading partner, accounting for around 14% of Russia’s exports and 19% of its imports. This seems to suggest that China’s participation in the sanctions could make a big difference. But two additional considerations significantly qualify this conclusion.

First, more than 60% of Russian exports to China are crude oil and refined oil, which – at least for now – are exempt from European Union sanctions. Thus, a decision by China to join the sanctions regime would block less than 40% of Russian exports to the country, or less than 6% of total Russian exports.

Second, Russia’s trade with Europe as a whole is far greater than its trade with China. For example, Russia’s combined (pre-sanctions) exports to the Netherlands and Germany alone exceeded its exports to China. This also suggests that one should not overestimate China’s potential contribution to the overall effectiveness of the sanctions regime.

Russia cannot easily divert its European exports to China. Its main exports, oil and gas, would face constraints in terms of pipeline capacity and Chinese refining capacity. The sharp depreciation of the ruble could help promote Russian non-energy exports to China, but China’s much stronger manufacturing base limits its need for such imports.

Proponents of even tougher sanctions should also consider possible secondary economic consequences. If the West decided to target the Russian energy sector and China replaced its energy imports from Russia with imports from the Middle East or other regions, gas and electricity prices in United States, Europe and elsewhere would likely increase further.

While China may well refuse to participate in Western sanctions against Russia for geopolitical reasons, economic considerations may also play an important role. As its trade with Russia before the pandemic was three times greater than that between the United States and Russia and almost seven times greater than that between the United Kingdom and Russia, the economic costs of comprehensive sanctions, including on energy, would be significantly higher for China. (and Germany) than for the United States or the United Kingdom. These additional costs could jeopardize the Chinese government’s GDP growth target of around 5.5% in 2022 at a time when domestic demographic forces, tightening regulations and geopolitical tensions with the West are already exerting a enormous downward pressure on growth.

Financial compensation

One way to encourage China to participate in the sanctions (and to persuade other countries like Germany to stop importing Russian energy) is for the United States to offer partial financial compensation to countries that would bear a disproportionate share of the resulting economic burden. But that doesn’t seem politically feasible in America.

Another potential small boost for China would be a UN General Assembly resolution explicitly calling for full-fledged economic sanctions against Russia. The General Assembly has adopted such resolutions in the past, and the permanent members of the UN Security Council (including Russia and China) cannot veto them. In this regard, the recent US-drafted General Assembly resolution condemning the Russian invasion missed an opportunity by not including a recommendation to member countries to impose economic sanctions on Russia. This would have placed current Western sanctions under the UN banner.

Of course, big countries can still ignore UN resolutions. For example, each year the General Assembly votes, often by an overwhelming majority, to demand that the United States end its economic embargo against Cuba. The United States is ignoring these votes and there is nothing anyone else can do to change the situation.

It is perhaps these UN resolutions that led the United States not to refer to economic sanctions in its recent resolution regarding Russia’s invasion of Ukraine. But other countries like Canada or Australia could do it. Given China’s insistence on supporting a UN-centric world order rather than the US, this could play at least some role in influencing ordinary Chinese people.

The distributive consequences of full sanctions could also be significant. A maximum pressure economic blockade that leads to regime change in Russia or otherwise stops the war in Ukraine is one thing. Sanctions that fail to achieve these goals and yet destroy the livelihoods of ordinary Russians, many of whom oppose the war, are quite another thing. Low-income Russians are probably less able to handle the sanctions burden than the oligarchs. By driving up the costs of gas and utilities, as well as the prices of other commodities, the sanctions would also impose hardship on people in many other developing countries who have not yet fully recovered from the induced income losses. by the pandemic.

As the heartbreaking scenes in Ukraine continue to unfold, the growing calls to tighten the economic blockade against Russia are understandable. China’s non-participation will ultimately not make a big difference. But the negative distributional consequences of war and sanctions for the poor in developing countries are very real. Rich countries should consider providing financial assistance to people in developing countries who have less means to cope with the added hardships.

Shang-Jin Wei, a former chief economist at the Asian Development Bank, is a professor of finance and economics at Columbia Business School and Columbia University’s School of International and Public Affairs.

Copyright : Project Syndicate

Previous Man United must sell anyone who doesn't fit Ten Hag's style
Next What future for crypto and asset tokenization?