Trade update: The Russian invasion of Ukraine and its impact on the global economy
It’s been over a year since Russian tanks invaded their neighbour, Ukraine, on February 24th 2022. The invasion was completely unjustifiable. There was no provocation or aggression by Ukraine against Russia of any sort.
This war is total madness, and to attempt to understand it requires some historical perspective. The collapse of the Soviet Union in 1991 started a movement of liberation and democratization on the West side, with the Estonia, Latvia and Lituania, Poland, Romania, Czechia, Slovakia and Hungary becoming democratic countries and eventually joining the European Union and NATO.
On the East side, the former Soviet republics of Azerbaijan, Kazakhstan, Kyrgyzstan, Uzbekistan, etc. also became independent, but stayed in the Russian sphere of influence, and remained despotic regimes.
Ukraine stayed in between until the Maidan revolution of 2013, which led to a pluralistic political system, with protection of basic human rights and liberties. In short, Ukraine became a democracy, very much like Canada, in contrast with the authoritarian regime in Russia. The invasion of Ukraine is nothing less than a Russian attempt to re-create the Soviet Union, a sort of colonization of its former republics.
A world divided
Western countries did well to support Ukraine and to impose sanctions on Russia. Referring to Western sanctions is actually the wrong word. We should call them democratic sanctions instead, since democratic countries in the East, like Japan, Singapore and South Korea support them fully.
We now have a world split in two, with democratic countries around the world fully supporting Ukraine, and authoritarian regimes like China, most African, Middle Eastern and South East Asian countries supporting Russia, directly or indirectly. Brazil supported Russia under its former president Jair Bolsonaro. However, under its new president, Luiz Inácio Lula da Silva, who took office in January 2023, it voted with democratic countries at the last United Nations vote in February.
India is an oddity. In principle, it’s a democratic country, but it supports Russia. Their bilateral trade is booming, with Indian imports from Russia having quintupled in a year. For example, India imports huge quantities of Russian crude oil, some of which is re-exported after being refined into diesel, gasoline or jet fuel.
The cost of war
The costs of the war are staggering in human losses (although we lack precise figures), destruction and human misery in Ukraine. But the whole world is affected, with higher energy costs, disruptions in commodities and shortages affecting many industries. The ongoing war and its consequences are the main factor driving inflation, destabilizing post-pandemic economic recovery.
Also, its effect on the availability and price of food is much worse in developing countries. In Ukraine itself, according to UN estimates, at least 12 million people have fled their homes, with more than eight million (representing about 20 percent of the population) having fled to neighbouring countries, Czechia, Germany, Poland, Romania, and Slovakia. Compounding matters, there was a steep reduction in the Ukrainian grain harvest last year and this year’s crop could be down by another 15 percent.
Why does this matter to us? It’s not simply a matter of principles like peaceful relations between countries, fairness and basic freedoms for all.
Because Canada is a trading nation and international trade accounts for over 60 percent of our gross domestic product. We therefore depend on a stable, rules-based international system to prosper.
Breaking world order
The ongoing Russian invasion and its direct or indirect support from many countries, actually breaks world order. There were good examples of that early on. Russia literally stole over 400 passenger planes which were owned by western leasing companies, by passing a law to confiscate them and switch them to Russian registry. Russia also passed a law forbidding Russian companies to make royalty payments to Western countries.
So, just imagine a Canadian company leasing equipment to a foreign customer or entering into a licencing agreement with a foreign company, which could become worthless at the whim of that country’s despotic ruler. That’s not the kind of global business world we want to live in. That was confirmed by our finance minister, who when visiting Washington a few months ago, spoke about the importance of friend-shoring.
As we continue to hear the sad news from Ukraine, the continuous bombing of civilians and civilian infrastructure, let’s not become indifferent. Or worse, let’s not indirectly side with Russia, like former US president Donald Trump, who recently said the Russian invasion of Ukraine was just a “territorial dispute” and does not threaten our vital interests.
It’s actually the opposite, and the International Criminal Court in The Hague has recognized this, by issuing an arrest warrant for war crimes against Vladimir Putin on March 19, 2023. It may not be enforceable easily, but it has a huge symbolic value, and 123 countries can apply it.
We must foster trade with countries that support democracy and the rule of law, and avoid granting favourable trade terms to those countries that don’t. Canada must continue to work with its allies to provide Ukraine with maximum support. It’s in our interest.