Can Sanctions on Russia Work Without China?

Originally published at Project-Syndicate | March 9, 2022

As the conflict in Ukraine escalates, the growing calls to tighten the economic blockade against Russia are perhaps understandable. But China is likely to resist them, and further sanctions – especially in the energy sector – will not hurt Russia alone.

NEW YORK – Now that the Western powers have imposed sweeping economic and financial sanctions on Russia following its invasion of Ukraine, many are asking whether China’s non-participation will undermine their effectiveness. One should also ask whether the rich countries can do more for the poor people in many developing countries who are the collateral damage of the war and the sanctions.

Based on data from 2019 (the last full year before the pandemic), China is Russia’s largest trading partner, accounting for about 14% of Russia’s exports and 19% of its imports. This seems to suggest that whether China participates in the sanctions could make a big difference. But two additional considerations qualify this conclusion significantly.

First, more than 60% of Russian exports to China are crude oil and refined petroleum, which – at least for now – are exempt from the European Union’s sanctions. So, a decision by China to join the sanctions regime would block less than 40% of Russia’s exports to the country, or less than 6% of total Russian exports.

Second, Russia’s trade with Europe as a whole is many times bigger than its trade with China. For example, Russia’s combined (pre-sanctions) exports to the Netherlands and Germany alone exceeded its exports to China. That, too, suggests one should not overestimate China’s potential contribution to the overall effectiveness of the sanctions regime.

Russia cannot easily divert its European exports to China. Its main exports, oil and gas, would face constraints in terms of both pipeline capacity and Chinese refining capacity. The ruble’s sharp depreciation could help to promote Russian non-energy exports to China, but China’s much stronger manufacturing base limits its need for such imports.

Advocates of even stricter sanctions also need to consider possible secondary economic consequences. If the West decided to target Russia’s energy sector, and China replaced its energy imports from Russia with imports from the Middle East or other regions, gas and electricity prices in the United States, Europe, and elsewhere would likely spike further.

While China may well decline to participate in Western sanctions against Russia for geopolitical reasons, economic considerations may also play an important role. As its pre-pandemic trade with Russia was three times bigger than that between the US and Russia and nearly seven times larger as that between the United Kingdom and Russia, the economic costs of comprehensive sanctions, including on energy, would be substantially higher for China (and Germany) than for either the US or the UK. These additional costs could jeopardize the Chinese government’s GDP growth target (about 5.5% in 2022) at a time when domestic demographic forces, tighter regulations, and geopolitical tensions with the West are already putting tremendous downward pressure on growth.

One way to encourage China to participate in the sanctions (and to persuade other countries such as Germany to stop importing Russian energy) is for the US to offer partial financial compensation to countries that would bear a disproportionate share of the resulting economic burden. But that does not seem politically feasible in America.

Another potential small nudge for China would be a United Nations General Assembly resolution explicitly calling for full-fledged economic sanctions against Russia. The General Assembly has adopted such resolutions in the past, and permanent members of the UN Security Council (including Russia and China) cannot veto them. In this regard, the recent US-drafted General Assembly resolution condemning the Russian invasion missed an opportunity by not including a recommendation that member countries impose economic sanctions on Russia. That would have placed the current Western sanctions under a UN banner.

True, large countries can still ignore UN resolutions. For example, every year, the General Assembly votes, often overwhelmingly, to demand that the US end its economic embargo against Cuba. The US ignores these votes, and no one else can do anything to change the situation.

Perhaps such UN resolutions are what led the US not to refer to economic sanctions in its recent resolution regarding Russia’s invasion of Ukraine. But other countries such as Canada or Australia could do so. Given China’s insistence that it supports a UN-centered world order, rather than a US-centered one, this could play at least some role in influencing ordinary Chinese.

The distributional consequences of full-blown sanctions could be significant, too. A maximum-pressure economic blockade that leads to regime change in Russia or otherwise stops the war in Ukraine is one thing. Sanctions that fail to achieve these objectives and yet destroy the livelihoods of ordinary Russians, many of whom oppose the war, are another thing entirely. Low-income Russians are likely less able to manage the burden of the sanctions than the oligarchs. By pushing up gas and utility costs, and the prices of other commodities, the sanctions would also impose hardship on people in many other developing countries who have yet to fully recover from the pandemic-induced income losses.

As the heartbreaking scenes in Ukraine continue to unfold, the growing calls to tighten the economic blockade against Russia are understandable. China’s non-participation will not make a huge difference in the end. But the adverse distributional consequences of both the war and the sanctions for poor people in developing countries are real. Rich countries should consider providing financial help to those people in developing countries who have less means to cope with the additional hardship.

Shang-Jin Wei: former chief economist at the Asian Development Bank, is Professor of Finance and Economics at Columbia Business School and Columbia University’s School of International and Public Affairs. 

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