How the Chinese Coronavirus Can Hit Ukraine’s Economy and Why Trump Is Happy

Trump is a unique president. He behaves like an elephant in a china shop and at the same time somehow miraculously manages to break exclusively other people’s plates.

The “Russian trail” scandals and the impeachment attempt led to Gallup giving 49% of support for Trump, an absolute high in his entire political career. Sanctions and not only butting heads with China for who will be great again on the planet led to nothing, and here (God bless America) the outbreak of the coronavirus itself does what politicians failed to do – hits China’s economy and ricochet almost all over the world. The Americans themselves were surprised – nothing special was done, but everything worked out. US Commerce Secretary Wilbur Ross even publicly made what seemed like an obscene statement: “Coronavirus will ‘help’ bring jobs back to the U.S. from China.”

I.e., what the Trumpists have long dreamed of is starting to come true. Of course, not in terms of returning production to the United States (for this one coronavirus is not enough), but in terms of destruction around the world for sure. The virus itself has not yet brought disaster for mankind and is not likely to bring one, but the fear associated with it (and with the work of the media, of course) of buying Chinese goods is serious. Let’s start with the fact that on February 3rd shares of Chinese companies immediately dropped by $420 billion. China’s largest mechanical engineering and processing centers are under quarantine and will not operate until at least February 10th. And this has a serious impact on Ukraine.

The Ministry of Finance of Ukraine shows that imports exceed exports by 8% of GDP and the situation is only deteriorating as imports grow faster than exports. What is interesting is that the main trading partner of Ukraine in terms of volume was China, not the European Union, for which there were high hopes among those who organised the state coup in 2014. First of all, either raw materials or products with a low level of processing are exported to China – iron ore (more than 33% in the structure of exports), cereals (more than 23%), sunflower oil (21%), as well as food industry waste (6%), which together accounts for more than 80% of all Ukrainian exports to China. Metallurgical products are also of high importance. However, metal quotations fell due to the downtime of Chinese plants. The same applies to steel products, iron ore and coal, i.e. the basis of Ukrainian exports.

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The share of Chinese goods in Ukraine’s imports has already exceeded 30%. It’s just that China sells not raw materials, but high-tech products – the first places are occupied by oil products (more than 22%) machinery and equipment (about 20%), chemical industry (13%), and various transport (8%).

Problems can start with electronics. The top 5 best-selling smartphones in Ukraine include 4 Chinese brands – Xiaomi, Huawei, Meizu, and Honor. And Samsung, which is not Chinese, but its production plants are in China and their work is suspended just like those of Huawei, Honor, Xiaomi, Vivo, Realme, ZTE, and Lenovo. By the way, there is also Apple, the lion’s share of the products of which is also manufactured in China. Only as usual it’s not the sellers who will lose from this, but people, because if supplies are not resumed in the near future, prices will surely take off and everything that stayed for a long time in the storages will be exploited. But in the sphere of implementation of automation and robotics systems there are no longer enough components.

Some Ukrainian experts argue that the share of Chinese clothing and footwear in the market of Ukraine is insignificant, so the consequences of coronavirus on this segment will not be particularly affected. But there’s one nuance here. In stores maybe the share is insignificant, but what about postal orders with the same AliExpress? Director of “Novoy Pochta” Yury Benevitsky claims that the number of international shipments in the last year increased by 26% and almost 68% of them are parcels from China, where most often there are clothes, shoes, electronics and children’s goods. Clearly, the market will not be empty and speculators will not lose. Simply all these products will become more expensive for the population if it is impossible to order them in China.

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Cargo traffic to China has almost doubled because not everyone wants to be engaged in it. In addition to the high price, accordingly, there was a lack of available places.

Perhaps the only advantage for Ukraine is that the suspension of Chinese production has led to an excess of oil on the market and a fall in its price. And so not too high prices for Brent and WTI brands fell by more than 20%. However, OPEC is going to reduce production to prevent a further fall.

Of course, American, European, Japanese, and South Korean companies also had problems. The factories of Samsung and Johnson & Johnson, more than a half of Starbucks coffee shops, a considerable number of Adidas and IKEA shops in China, all offices of Google and Facebook, the factories of Tesla, Ford, Peugeot, Toyota, and Honda, and the Walt Disney amusement park temporarily closed. Almost all Apple products are manufactured by China’s Foxconn and Pegatron Corp in Zhengzhou and near Shanghai. The company believes that the risk of supply disruption is not zero. Hyundai factories in South Korea also stopped to work. They can’t work without Chinese wiring braids. For similar reasons, the production of Kia cars is declining. American farmers are suffering again. They were very unhappy with the trade wars because they lost a lot because of the inability to supply China with agricultural products and were very pleased with the new US-China agreement for $200 billion. But it wasn’t the case. The prices of soybean, rapes, maize, etc., have significantly fallen, and no one knows how long they will last at this level. But all these temporary troubles can be survived, especially if the situation is properly used by media.

In general, if China overcomes the coronavirus-induced economic crisis sometime before early spring, everyone will get away with a light scare. If not, everything will start to be noticeably lacking everywhere. Naturally, China has already developed an anti-crisis program. It includes tax incentives for the purchase of equipment for manufacturers, the abolition of VAT, and a number of contributions for transport companies, the reduction of the credit rate below 1.6%, etc. And this is all necessary, but still a burden on the budget. In any case, it is already clear that China’s GDP will spread strongly in February and there will be no 6%. There are forecasts of 2% growth in general according to the results of the first quarter of 2020.

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In fact, the correlation of GDP growth is prescribed by China in terms of overcoming the crisis. This is a remarkable campaign bonus for Trump, and for his conservative voters – a reason to remember God, who blesses America and left atheistic China, which in its pride thought that it could build its own tower, higher than the “City on the Hill”. Now it’s clear who the chosen one is.

It could be assumed that such a situation would trigger a new round of the American capitalists’ fight against each other (military-industrial complex with multinational corporations) over where to put the production transferred to China at the time – back to the United States or to Mexico, Ethiopia, Sri Lanka, and other countries of peripheral capitalism with an open economy and free labour force. But it will not be a fight to choose a place to transfer industrial capacity, because there are no real options for returning them to America, but a fight for an electorate that is pleased to hear about being “great again” ahead of the presidential election. As long as this works, it can be used, especially when fate sends a “gift” in the form of the Chinese coronavirus.

Indeed, Trump is a lucky man. But Ukraine, which is totally dependent on imports of everything and does not have such a reserve of financial security like the United States does, has nothing to be particularly happy about. And even more so after the failure of the impeachment of Trump, who concerning this has a couple of questions for Ukraine.

Pavel Volkov

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