José Manuel Corrales
Doctoral Professor of Economics and Business at the Universidad Europea
Are China and Russia in a commercial war against Europe? It is not a question of alarming, but is clear that in addition to the war tensions in Ukraine, we are witnessing a very delicate situation in international economic and trade relations. In this sense it is very important to see how China evolves as a world economic power, in a complex context in which Europe is in the eye of the hurricane.
In recent weeks, dozens of Chinese cities have been under severe partial or total confinement, following a new surge of new cases of coronavirus that call into question the Chinese government’s controversial “zero covid” strategy.
Shanghai, with a population of 25 million inhabitants, has a fundamental strategic weight in the Asian giant and serves as a global financial center. Shanghai is home to the world’s leading commercial port, which accounts for 17% of container traffic and 27% of China’s exports.
The confinement to which the Chinese city is subjected makes it difficult for trucks to arrive to take goods by road or distribute them to nearby factories. Major multinationals and companies such as Volkswagen and Tesla have had to stop their activities due to the collapse of the port.
Because of these restrictions, ships are piling up in front of the coast, waiting for permission to enter the collapsed port. This causes thousands of containers to pile up in the port, putting the global supply chain back in check just when it was expected to recover from the pandemic.
The consequences in the international economic sphere are collapsed supply chains, strained supply chains, a much slower flow of imports and soaring inflation.
This situation of economic paralysis in the Asian giant is compounded by the war in Ukraine and strained international relations. Russia is imposing its pace in the war in Ukraine and is provoking blows in its hybrid war against the European Union. In addition to intensifying its invasion in the south and east of Ukraine, the closing of the gas tap to Poland, Bulgaria and Finland, are resounding steps in the escalation of the war and in its economic and propaganda war.
The conflict in Ukraine threatens to spread beyond Ukrainian territory and has already significantly affected the European economy, with inflationary dynamics in the markets, increases in energy prices, and an impact on the distribution chain. The announcement of the supply cut has already caused the price of gas to escalate across Europe in the fear that it will be applied to other European countries.
This gas cut-off is part of the escalation of the war and is an aggressive response to the sanctions imposed, raising prices and launching a deterrent threat to the entire EU. As the Polish government affirms, the supply cut-off by Gazprom is a violation of contracts, a kind of blackmail by Russia, which is trying to impose an extra-contractual payment plan in rubles through third parties without guaranteeing supplies.
In foreign trade, the alliance that can be observed between Russia-China may shift the centrality of the EU’s trade relations to other geographical areas. The problem of this dizzying escalation in the Ukrainian conflict is not so much that the EU will lose Russia as a customer, but as an energy supplier. Right now Russia is the EU’s most important supplier of some crucial imports, which cannot be replaced quickly. Russia provides about 45% of the EU’s total natural gas imports, and the EU’s natural gas storage facilities are currently only at one-third of their capacity.
Gasoline, electricity and other commodities have already reached record highs in these two months of war, with waves of price hikes, driving up the cost of living. This situation will be a drag on economic recovery and Europe’s GDP growth forecasts could be severely compromised, with a clear downward trend. The international economy is suffering from a sort of hybrid war whose outcome is not yet defined.
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