Also, it involves mountains of cheese.
Donald Trump might want to take notes. He believes we can restore the fortunes of blue-collar America by threatening tough tariffs on China and Mexico — but that risks igniting a trade war that will send us all into a recession.
Trump could learn a lot from Vladimir Putin’s Epic Embargo of Western Noms. For the past two years, Russia has refused to import meat, dairy, or produce from Western countries. Viral videos and photos document Russian inspectors destroying heaps of yummy contraband — Spanish calamari, Turkish peaches, French Camembert. One Dalíesque clip shows a bulldozer that has been marshalled to pulverize three, frozen Hungarian geese.
The chain of events that led to these acts of yum destruction began in 2014, when the world was rattled by two connected episodes of violence. First, there was the Russian invasion of Ukraine and annexation of Crimea. Second, there was the crash of MH17, a Malaysia Airlines flight carrying 298 people who were all killed when their plane was intercepted over Ukraine by a missile that, Dutch investigators said Wednesday, came from Russia.
Instead of responding with military action, which risked more political instability, the international community decided to impose economic punishments on Russia. Among other things, Western countries agreed not sell Russia any more oil and gas equipment, and not to do business with some of Russia’s state-owned energy and defense companies. These sorts of targeted sanctions are a common diplomatic tool designed to chastise a country without wrecking its entire economy.
Putin’s response was to strike back at the West with a massive embargo, which escalated the dispute into a full-fledged trade war.
Unlike North Korea or Cuba, Russia is a cornerstone of the international economy. In particular, it’s a huge importer of food — it used to be the European Union’s biggest customer after the United States. In 2013, about a third of the EU’s cheese exports and a quarter of its beef exports went to Russia. By refusing to allow Russian citizens to import many kinds of food from Western countries, Putin hoped to inflict damage on the EU’s hefty agricultural sector.
It hasn’t worked out all that well.
Trade wars are nasty affairs involving much mutual suffering. Unlike physical wars, they rarely end in decisive victories. Instead, they more closely resemble international breath-holding contests.
Trump says that he can solve America’s economic problems, in large part, by tearing up our very-bad, no-good trade deals. He believes he can strongarm nations like China and Mexico by threatening to slap withering taxes on the goods they sell us. But analysts have repeatedly warned that such tactics will ignite a trade war that will plunge the nation into a recession and cost us millions of jobs.
In Russia, Putin’s embargo caused the cost of food to shoot up. The currency devalued further, and Russia promptly entered a recession. As one of the world’s top crude producers, Russia was already hurting from the low global oil prices; Putin’s food embargo further increased the pain by cutting his own people off from a cheap source of food — Europe.
The only bright spot here, obviously, is the Russian agricultural sector, which benefited from the high food prices. While the rest of the Russian economy shrank, the agricultural industry grew by three percent, according to the state-owned news agency Sputnik.
Europe and the United States have experienced the mirror-image problem. As meat and produce prices were soaring in Russia, the corresponding oversupply in Europe caused food prices to plunge. In some cases, governments had to step in to help keep farmers afloat. Also, many countries were able to shift their food exports elsewhere, selling more to partners in Asia and Africa.
Because Western countries were ganging up on Russia, the economic losses were spread out more. The United States was minimally affected because it wasn’t sending that much food to Russia in the first place. In 2013, U.S. exports were only about $1.2 billion, which represents less than one percent of total agricultural exports that year.
There has been some indirect damage, though. You may have heard about the American cheese glut — according to the Department of Agriculture, the nation’s cheese surplus is at a 30-year high. This is because the American dairy industry has been expanding in recent years, spurred on by record-high milk prices a few years ago.
Most of that additional milk and cheese was destined for export, but now it’s become a lot harder to sell cheese overseas. Mainly, the strong dollar is making American goods more expensive for foreigners. But the Russian embargo also means there are a lot more European, Australian, and New Zealand dairy on the international market competing for buyers.
It’s unclear how any of this will play out. Though the food embargo was supposed to be temporary, Russia recently extended it through the end of 2017.
All of this serves to illustrate two points.
First, trade wars are miserable. If Donald Trump provokes China and Mexico with tariffs, those countries almost certainly will retaliate with measures of their own. The result will be an international game of chicken, to see whose economy can endure the most pain. In the meantime, China and Mexico would start developing new trading partners; they might even discover that they don’t need our business much as we need theirs.
Second, there are always national security dimensions to our trade deals. Trump talks about trade diplomacy as if they were like any other business negotiation. But unlike in the hotel business, the counterparties to our trade deals often have long-range missiles and nuclear submarines.
Source: WashingtonPost
Link: https://www.washingtonpost.com/news/wonk/wp/2016/09/28/russia-is-bulldozing-cheese-and-donald-trump-needs-to-pay-attention/