Russian Businesses Under Scrutiny: Central Bank Evaluates Business Impact of Tariff Wars
Sparking Controversy: The Potential Consequences of Trade Wars for Russia's Economy, as Seen Through the Lens of China's Yuan
As the standoff between nations escalates, predictions abound about the potential repercussions for Russia's economy, particularly in regards to the Chinese currency. Kirill Tremasov, speaking at a conference, speculated that a weakening of the yuan could cause Russian goods to become less competitive on domestic markets, potentially posing risks for domestic producers.
However, Tremasov also acknowledged that Russia primarily exports raw materials to China, which are insensitive to the yuan's course. Yet, a slowdown in the global economy due to trade wars could decrease demand for raw materials, reducing Russia's export revenues and putting pressure on the national currency, potentially leading to inflationary risks and necessitating a tighter monetary policy.
The head of the Central Bank, Elvira Nabiullina, has outlined the cooling of the global economy due to trade wars as a main risk for Russia's economy. She warned that the constant uncertainty caused by such decisions complicates investment planning and that further oil price declines are likely if additional risks from tariffs are realized. However, she also emphasized that the direct impact of trade wars on Russia is minimal.
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- #Central Bank of Russia
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A Closer Look at the Yuan and Its Impact
The yuan's expanding role in Russia-China trade has both advantages and disadvantages. After Western sanctions, nearly 90% of bilateral transactions shifted to rubles and yuan, decreasing reliance on dollars and euros. However, the threat of US secondary sanctions on Chinese banks has slowed trade growth, with Chinese exports to Russia declining marginally in early 2024. While yuan adoption offers some protection against immediate liquidity crises, it also increases Russia's exposure to Chinese monetary policy, limiting financial sovereignty.
The Domestic Front- The energy sector faces the risk of oil price crashes, threatening Russia's budget.- Trade wars could potentially accelerate Chinese demand for Russian commodities, particularly if China redirects exports from the US to Russia. However, this shift to commodity-focused trade with China has strained Russia's industrial base and reduced its competitiveness in higher-value sectors.- Manufacturers face increased competition from discounted Chinese goods.
The Ruble: A Ticking Time Bomb?The oil price-ruble correlation remains critical. With Brent crude at $63 and Urals near $50, Russia faces a risk of ruble devaluation, as oil revenues fund nearly 30% of its budget. A weaker ruble could spike inflation, eroding consumer purchasing power. While yuan-ruble settlements provide short-term stability, they do little to address structural vulnerabilities like sanctions-induced capital flight and restricted access to global financial markets.
Competing Risks and Opportunities| Factor | Risks | Opportunities ||-----------------------|-----------------------------------------------------------------------|-------------------------------------------------------------------------------|| Yuan adoption | Dependency on China; exposure to secondary sanctions | Reduced dollar reliance; stabilized bilateral trade || Producers | Commodity price volatility; budget shortfalls | Increased Chinese demand for energy/commodities || Ruble stability | Devaluation risks from oil crashes; inflation | Short-term transactional ease with China |
In conclusion, while trade wars and sanctions evasion through yuan use offer temporary relief, they deepen structural economic imbalances, leaving Russia increasingly vulnerable to external shocks. Avoid getting burnt in this trade war heat!
- Kirill Tremasov, during a conference, suggested that a weakening of the yuan could make Russian goods less competitive on domestic markets, potentially posing risks for domestic producers.
- Despite Russia primarily exporting raw materials to China, which are insensitive to the yuan's course, a slowdown in the global economy due to trade wars could decrease demand for raw materials, reducing Russia's export revenues and putting pressure on the national currency, potentially leading to inflational risks and necessitating a tighter monetary policy.
- The head of the Central Bank, Elvira Nabiullina, highlighted the cooling of the global economy due to trade wars as a main risk for Russia's economy, stating that constant uncertainty caused by such decisions complicates investment planning and that further oil price declines are likely if additional risks from tariffs are realized.
- The yuan's expanding role in Russia-China trade has both advantages and disadvantages. While yuan adoption offers some protection against immediate liquidity crises, it also increases Russia's exposure to Chinese monetary policy, limiting financial sovereignty.
