/ world today news/ Economists from the IMF built a model in which the world will be divided into two trade blocs: the US-EU on one side and China-Russia on the other. What will be the consequences of geo-economic fragmentation?
Two blocks
Experts have warned that two camps may be formed that do not interact in any way: the first will be led by the US and the European Union, and the second by China and Russia. And they won’t interact.
“And it’s not just because of the conflict in Ukraine. In recent years, trade restrictions in sectors such as commodities and semiconductors, which are considered critical to national security and strategic competition, have increasingly outweighed global economic integration and its shared benefits,” the experts noted. from the IMF.
The world’s two largest economies, the US and China, have introduced a number of bilateral trade barriers in recent years. And during the pandemic, many countries decided to limit the export of medical goods and food, the authors of the study recall.
Trade barriers were weakened in the twentieth century, but the trend has reversed in the last decade.
“All these developments could be early signs of wider geo-economic fragmentation – a politically driven reversal of economic integration in which international trade is a central component,” experts warn.
Reduced access to export markets will lead to a spike in prices for many goods. Some will find themselves in deficit, and according to the IMF, the “Eastern” bloc will suffer the most in this situation.
Block configuration
Economists point out that the process of globalization is indeed showing signs of splitting the world economy into two key trading blocs – China and the US.
“However, this does not mean that these regions will stop all interaction with each other, since such a blockade will lead not only to a sharp increase in the prices of a large number of products, but also to the suspension of any scientific developments on both sides due to the lack of certain materials for conducting tests and laboratory research”, says Ekaterina Novikova, Associate Professor from the Department of Economic Theory of Plekhanov State University.
However, if this happens, the consequences for each of the unions are difficult to predict.
“The answer to the question of who will gain the most and who will lose depends on the specific configuration of the blocks – above all on where Africa, Central Asia and Ukraine will join. For example, if Kazakhstan, Uzbekistan, Namibia, South Africa, Niger and a number of other African countries, Ukraine will join the Sino-Russian alliance, then the Atlantic bloc will obviously experience a shortage of uranium, a strategic raw material for energy,” explains Sergey Tolkachev, deputy head of the Department of Economic Theory at the Financial University of the Russian Government.
Metal deficiency
Thus, the Atlantic block will be significantly inferior to the Russian-Chinese (Eurasian) block in proven reserves of rare earth metals.
“Russia and China together have reserves of approximately 75 million tons, excluding Kazakhstan and other Central Asian countries. While the Atlantics, together with Australia and even Brazil, have approximately 60 million – mainly because of Canada. However, Greenland reserves are estimated at more 49, but their development requires huge costs,” says Tolkachev.
According to Antonina Levashenko, head of the Russian Center for Competence and Analysis of OECD Standards, the prices of hydrocarbons and metals such as molybdenum (40% produced in China), tin (48% produced in China), titanium (the largest supplier of titanium plates in the world is the Russian company “Avisma”), tungsten (70% of deposits in China). In addition, already today some metals that are mined in Russia and China have an acute shortage – for example, lead.
“Such a blockade for the American-European bloc will lead to a shortage of platinum and palladium, as well as lithium (including lithium-ion batteries), gallium and germanium,” notes Ekaterina Novikova.
The supply of rare earth metals to the West from China is already causing concern. Since August 1, China has restricted exports of gallium and germanium, key to chips, “for national security reasons.”
“The share of Chinese production in the world for germanium is 98%, and for gallium – 70%. To start its own production of these metals, the United States must invest about 20 billion dollars – this is a very large amount. And the process will drag on for decades “Beijing actually began depriving the United States of metals that are needed not only for semiconductor manufacturers, but also for the production of a whole range of weapons, electric cars and telecommunications equipment,” says Yevgeny Shatov, a partner at Capital Lab.
It is likely that after gallium and germanium the Chinese will tighten exports of neodymium, praseodymium and samarium. A chain reaction could occur and chip makers would have to stop production, the expert said.
Commercial diplomacy
Of course, there will be consequences for the Sino-Russian alliance. Because of the sanctions, Russia has already faced restrictions on the supply of a number of goods from Western countries. China was also attacked – the US is trying to completely block its access to chips produced by American companies, including through third countries.
“Almost all types of Chinese aircraft have components from the US and the EU. The introduction of strict restrictions could theoretically leave China without an air fleet, including a military one. High-tech industries require 42 types of minerals and for eight there is a strong dependence on imports from the US. At the same time for seven China is potentially able to organize supplies from other countries, but this, for example, is practically impossible for beryllium,” notes Shatov.
The Sino-Russian bloc may begin to experience shortages of cobalt, nickel, copper, palm oil, soybeans, printed circuit boards and various types of next-generation microcircuits, as their production is concentrated in a few countries of the US-European bloc.
However, as Antonina Levashenko emphasizes, such economic modeling does not take into account scenarios of division or non-division between the two blocs from the remaining countries and regions. The level of prices in each block for a particular product will depend on trade relations with non-affiliated producing countries. This is where trade diplomacy can produce unpredictable results, she explains.
Therefore, the model is rather hypothetical. Given the current level of technological development, trade turnover between the emerging blocs will continue in any case, albeit through indirect logistics routes, economists are confident. More sophisticated supply chains will make it possible to get everything you need. But of course, much more expensive.
Translation: V. Sergeev
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