Russia's Counter-Sanctions And Move To Autarky: Biggest Threat To Global Trade Since 1970s Oil Embargoes

By  at the Telegraph

Vladimir Putin is digging in for a prolonged siege and a possibly permanent reversal of trade ties with the West. There can be no other way of interpreting the decision to ban many food imports from countries that have imposed sanctions, and the parallel threat to stop car imports and flights by Western airlines over Russian airspace.

Collectively, these moves would represent the most profound breakdown in global trade since the oil embargoes of the 1970s. Never mind the geo-political risks implicit in what's going on, these wider threats to globalisation are being almost wholly ignored by financial markets, where misplaced complacency continues to be the order of the day.

There's still time for Mr Putin to retreat from the brink, but he has shown few signs of it so far, repeatedly calling the West's bluff in his piecemeal annexation of Ukraine. The cosy assumption that reason will prevail has already been repeatedly shattered. Why would Mr Putin back off now?

Banning food imports obviously amounts to a steep escalation in this tit for tat exchange with the West, but in fact Russia has been moving into ever more protectionist mode for some time now in apparent preparation for a breakdown in relations. Professor Simon Evenett of the University of St Gallen, Switzerland, says that so far this year, Russia has implemented 38 measures that directly harm trading partners, or nearly one in five of all such protectionist measures tracked globally by his Global Trade Alert.

"Recent Russian actions follow a profound expansion of industrial policy since the global economic crisis began" says Professor Evenett. "Those policies have seen extensive resort to subsidisation, tariff increases, and a wide range of non-tariff barriers. In fact, crisis-era Russian trade policy amounts to the import substitution policies of yesteryear cushioned by a raft of subsidies. Today, the Russian government is reported to be considering introducing protectionist measures in the automobile, shipbuilding, and aircraft production sectors, suggesting that the current foreign policy spate may be used to further nationalistic commercial ends".

Goodbye globalisation, hello another era of growing geo-political and protectionist tension. We can but hope not, but it's not looking good, not good at all.

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