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Aleksandr Shokhin

President of the Russian Union of Industrialists and Entrepreneurs

We have to re-evaluate the picture of the world that has appeared in the last five years, which implies that Russia’s interactions with Europe are associated with substantive restrictions, writes Alexander Shokhin, President of the Russian Union of Industrialists and Entrepreneurs, for valdaiclub.com. Because of them, we are much more vulnerable in the face of a global crisis than we could be. If we cannot influence the termination of trade wars, do we not have to prepare for difficult times by eliminating the “weak points” and excessive restrictions?

We have to re-evaluate the picture of the world that has appeared in the last five years, which implies that Russia’s interactions with Europe are associated with substantive restrictions, writes Alexander Shokhin, President of the Russian Union of Industrialists and Entrepreneurs, for valdaiclub.com. Because of them, we are much more vulnerable in the face of a global crisis than we could be. If we cannot influence the termination of trade wars, do we not have to prepare for difficult times by eliminating the “weak points” and excessive restrictions?

In today’s context of global interdependence between all countries, there is no single one that is not affected by the unfolding economic war for the redistribution of influence across the entire international system. More often during the course of time, the participants of this war make decisions within the paradigm of the “zero-sum game”: if we cannot solve our problems on our own, we have to force others to solve them, making them incapable of “getting ahead”.

The key elements of the conflict unfolding before our eyes are trade wars and economic sanctions, which are aimed at changing the policy of a country or a group of countries. However, if trade wars pursue economic goals through maximizing the benefits of national producers, sanctions most often reflect foreign policy goals.

The famous scholar Daniel Drezner formulated what he called a “sanctions paradox”. According to this principle, economic restrictions are much more efficient when applied to friendly countries than to countries, which have difficult or hostile relations with the country issuing sanctions. This efficiency is directly related to the degree of economic cooperation, so the friendly countries are more likely to develop this.

If we impose this scheme on today’s situation in the Russia-EU-US triangle, it turns out that Russian-European relations suffer the most. At the same time, the United States, without any significant losses, is actively “pushing” its European partners to achieve their own goals, be it energy supplies to Europe or the Iranian nuclear programme. According to the current paradigm, the chances Europeans have to protect their interests are rarely supported by any substantive achievements. The cost of following in the wake of American policy is very serious, though.

On the other hand, the United States risks “overstraining” and plunging the entire global economy into recession due to the escalation of the trade conflict with China, which seriously affects the world GDP’s growth rates and market stability. With the further strengthening of the Sino-American trade war, in China alone, 5.5 million jobs will be threatened.

What makes the situation even more complicated is the fact that many countries, both developing and developed, achieve economic growth by increasing debt. According to UNCTAD research, as of the end of last year, global debt made up an astronomical 247 trillion dollars, which is 50% higher than before the 2008 crisis and 25 trillion dollars more than at the beginning of 2017.

Another important indicator of the poor state of the world economy is the fall in investment. According to UNCTAD, in 2018, it had amounted to 1.2 trillion dollars, which is 19% less than in 2017 (1.47 trillion). International foreign direct investments (FDI) fell to their lowest level since the global crisis.

A further decline in investment and a fall in growth rates could cause delays or the suspension of debt and the spread of the worldwide crisis at the speed of a forest fire. Today’s situation is so uneasy that a new global crisis could be triggered by much smaller problems than global trade wars.

In this regard, we have to re-evaluate the picture of the world that has appeared in the last five years, which implies that our interactions with Europe are associated with substantive restrictions. Because of them, we are much more vulnerable in the face of a global crisis than we could be. If we cannot influence the termination of trade wars, do we not have to prepare for difficult times by eliminating the “weak points” and excessive restrictions?

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.

Source: Valdai

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