"With the beginning of a full-scale war, the discussion - how we should invent our unique "Ukrainian bicycle" - has lost all meaning. In record time, less than 2 years, we submitted an application, received candidate status and political "good" for the start of negotiations on joining the EU. We have no other choice than to go through this path at an accelerated pace, in a maximum of 5 years." Opinion.
WSJ journalists highlighted a trend in global trade related to China's new export "expansion" and a new possible shock to the global economy.
In the late 1990s and early 2000s, the world economy experienced the first shock from China's increasing share in global trade. On the one hand, the prices of imported goods fell, which was good for consumers in developed countries, primarily with low and middle incomes, on the other hand, the production of such goods closed, the producers of which could not withstand competition and transferred them to countries with cheaper labor ( in particular, to the same China).
The economy is preparing for a shock: what is China doing here and what are the threats
Now the global economy is preparing for the second shock associated with Chinese imports, but this shock will be different. After the full lifting of covid restrictions in 2022, China is again trying to boost its exports to restart the economy, overcome a crisis in the property market and overcome weakened domestic consumer demand. The export of goods in 2023 increased by 31% compared to 2020.
As twenty years ago, it has a certain disinflationary effect around the world. In particular, in January 2024, the value of Chinese imports to the US decreased by 2.9% year-on-year, while the value of imports from the EU, Japan, and Mexico increased. This is partly due to deflation in China itself, fueled by falling producer prices. China is now exporting this deflation around the world.
In contrast to zero, Chinese exports now have a much larger share of manufactured goods, the foreign trade surplus for which ($1.7 trillion) is more than twice the total trade balance for all goods ($0.82 trillion in 2023 year). Experts agree that increasing exports of technology products such as electric vehicles, semiconductors, wind turbine parts, solar panels, rechargeable batteries, etc., where China has its own long value-added chains and competitive advantages, is one of the pillars of the country's new strategy for support of economic growth.
There is a "beautiful" case of strengthening the vise of Beijing's economic power on the example of Russia, which in recent years has become much more dependent on technological exports from China
However, in this segment, Beijing is increasingly competing with the technologically advanced countries of the West, which regard China as their main geopolitical and economic competitor and, unlike the zeros, are taking measures to protect their strategic industries. Hence anti-dumping investigations (as against Chinese electric cars, initiated in the EU), direct import bans (as against individual suppliers of solar panels and their components, telecommunications equipment in the USA) and many other non-tariff restrictions in addition to Trump's "tariff legacy".
The outcome of this trade battle for developed countries is yet to come. However, it is already obvious that as a result, part of the disinflation potential from Chinese imports may flow to countries with a lower level of trade protection and a lower level of income. This is good for consumers there, but the industry in these countries will find itself in an even greater "clamp" of the economic power of China (as it was at the beginning of the zero in the West), which maintains a dominant position both in the supply of cheap consumer goods and has taken a leading position in the export of advanced technological products.
I would like to add that the trends highlighted by the WSJ are not new. According to their development, in particular, the transfer of production from China by developed countries and more aggressive, including at the expense of state subsidies, investments in education and science, entering the markets of technological products of Chinese manufacturers, we have been observing for at least the last 5-7 years. On the other hand, there is a "beautiful" case of strengthening the vise of Beijing's economic power on the example of Russia, which in recent years has become much more dependent on technological exports from China. Of course, there are plenty of such examples in many Asian and African countries.
So, the world economy is already facing a second shock from trade with China, which was partially mitigated by covid-19 and the war in Ukraine. First, due to disruptions in supply chains, and then due to the formation of delayed demand for technological durable goods. But these imbalances were largely eliminated in 2023, which saw trade disputes escalate and merchandise exports from China slow (vs. 2022). In the next few years, these contradictions will only intensify.
Trade, farmers' protests in the EU and competition: what are the conclusions for Ukraine
He repeatedly repeated that the full-scale war finally and irreversibly removed the discussion about the ways of development of Ukraine and the structural transformation of the economy, now already post-war, including industry. Unfortunately, the story of this transformation over the past 30 years, especially in the manufacturing industry, has been more about losses than gains. This is a separate story, why it turned out that way.
But in this history, before the great war, there was still room for discussing the Ukrainian “unique path”, within the framework of which we could be considered as a transit state (although there were already significant restrictions in this regard after 2014), as a platform for the expansion of the same technological Chinese goods to the EU markets, taking advantage of the FTA with the EU (in fact, this did not happen, as evidenced by the extremely low level of FDI from China at the level of 140 million dollars at the end of 2021 and significant transit restrictions on our participation in the framework of the "New Silk Road" ).
With the beginning of a full-scale war, the discussion - how to invent our unique "Ukrainian bicycle" - lost all meaning
This, by the way, did not interfere with active mutual trade, where China remained the number 1 country in terms of turnover (15% in imports and almost 12% in exports in 2021). However, the structure of our trade with China, within the framework of which we mainly exported corn, sunflower oil and oilseeds, and imported finished products of the manufacturing industry, only cemented the raw material and oligarchic character of the Ukrainian economy, aimed at the extraction and export of natural rent.
With the beginning of a full-scale war, the discussion - how we should invent our unique "Ukrainian bicycle" - lost all meaning. In record time, less than 2 years, we submitted an application, received candidate status and political "good" for the start of negotiations on joining the EU.
We have no other choice than to go through this path at an accelerated pace, in a maximum of 5 years, becoming a full member of the EU. This is no longer a dream, but a matter of time. And there is also the question of survival, and this in itself is a strong motivating factor that no candidate country had.
The war makes its corrections, but it is definitely not an obstacle to strengthening the institutions that guarantee the rule of law. This, in turn, will make it possible to attract FDI after the war, to integrate into higher global chains of added value creation, and to find niches. Now, despite the war and the difficult situation with the neighbors in the EU, it is necessary to make the most of the benefits of the 4 freedoms and equalization, when the EU financially supports the candidate countries for accession. The Ukraine Facility program itself, which will continue to change and be filled with new content in 5 years, is a tool for such preparatory pre-admission work.
In this competitive struggle, we can find our niche by becoming, as a candidate country for joining the EU, one of the countries to move production "closer to the borders" of the EU
You ask, why is China here? And to the fact that the competition between the EU and China in the production, first of all, of medium and high-tech goods will intensify in the next 5 years. This will inevitably strengthen the already mentioned tendencies towards the transfer of production by Western countries from China home to friendlier countries (friend-shoring) and/or "closer to home" (near-shoring). The main direction for friend-shoring in the near future will be India and Vietnam, for which there is already a competition between Western countries and China, which, under the influence of rising labor costs, is also trying to transfer production beyond its borders. However, we have to do our part - in this competitive struggle, we can find our niche, becoming, as a candidate country for joining the EU, one of the countries to move production "closer to the borders" of the EU.
For this, it is necessary to strengthen industrial ties with the core of the EU (Germany - France) and Great Britain , where the leadership due to geographical proximity, much stronger economic ties and membership in the EU will be for Germany. Easier said than done, of course. But Ukraine is not unique in this respect. Poland, the Czech Republic and Slovakia went through the same path of industrial transformation, first of all, under the influence of German capital. For example, the latter found its niche in the automobile industry.
Our neighbors are EU countries, businesses in which look to the future, understand all these risks of strengthening Ukraine after the war like no one else. Hence the certain "hysteria" and "charging" of protest potential of various political persuasions, which we are currently observing, with the aim of inhibiting trade, and therefore the economic integration of Ukraine into the EU. I agree with many experts that attempts to "break through" the EU with "agriculture", which accounts for 60% of our exports, only intensify this protest. This is definitely a bad story from all sides, both for us and for the EU. I will just remind you that there is not a single country in the EU with a share of agriculture in the structure of added value of more than 5% (5% is the level of Bulgaria and Romania, which have the lowest per capita income in the EU), and in Ukraine it is 12 .7% in 2021 and 9.3% in 2022 (according to UN statistics).
At the same time, if we find and develop our unique niches in exports to the EU (for example, in green energy, metallurgy, chemistry, mechanical engineering), involving European, first of all, German capital in industrial restructuring, and gradually shift the emphasis in foreign trade, then this resistance will be less. Yes, these are medium- and long-term structural changes, but they are inevitable if we integrate into the EU.
Our experience in the military industry can give impetus to the development of many related branches of mechanical engineering, services with high added value.
The intensification of the EU's competitive struggle with China can be useful to us on this path of structural transformation of the economy and restructuring of industry. But an even better reason, which you don't need to look for, is the strengthening of industrial cooperation within the Military Industry. This is our "reinforced concrete" unique niche for production specialization and export after the war, because the global demand for weapons and military equipment is predicted to grow. Taking into account the accumulated practical experience during the war, as with the same surface drones that have already become a game-changer in this war, changing the schedule in the Black Sea, this niche will definitely not be taken away from us. It is able to give impetus to the development of many related branches of mechanical engineering, services with high added value (engineering, design, design, etc.), science and education.
