The rules have changed: protectionism is a new normal

Over the first four months of this year, Ukraine lost $0.5 billion in exports of ferrous metals. Export sales in monetary terms thinned out by 15% A cut in prices is not the only reason for this situation. In actual fact, the market situation is worse than a year before. Prices for flat products in January–April fell by an average of 6–7% y-o-y, rebar — by 10%, semi-finished products — by 10–12%. But there is also a decrease in physical volumes of 300 thousand tons, or 5.4%. Here we see an interesting trend: exports of semi-finished products grew by about 7.5%, while exports of rolled products declined by almost 16%. This is one of the consequences of the growing global protectionism.

The use of various protectionism measures sharply increased in 2018–2019. At the same time, developed economies set trends in this area. The very word ‘protectionism’ is abusive among economists, although these tools are being used more and more intensively every year. And this is not a passing ‘fashion’, where some things are suitable today, and tomorrow brings something totally different. We are talking about evolutionary development of these ideas that have been maturing for many years.

The development of protectionism is a logical consequence of global processes in society and in economy:

1. The growing popularity of nationalist sentiments, the greater influence of the right-wing forces on both political and economic processes. This impedes globalization and trade openness.
2. The world has reached the peak of globalization, there is no room for development, openness has ceased to be economically viable, thus the reverse compression process has begun.
3. The WTO crisis was caused by the weak discipline of compliance with the terms of agreements by some countries, the suspension of the Appellate Body, conflicting views of key stakeholders on the reform of the organization.
4. The approaches to industrial policy have changed amid pressure on employment due to technological shifts and the expansion of Asian countries.

That is why in the coming years we should not expect the abolition or mitigation of protectionist measures. On the contrary, their enhancement is more likely.

What does this mean for Ukraine? If we analyze the structure of Ukraine’s metals exports, we can see that any changes that have occurred in the past five years are caused only by the introduction of various restrictive measures against domestic products. 36 such measures were imposed in 13 countries. To put things simply, we were just driven away from the CIS. Then they forced us out from the U.S. and the EU to the MENA countries. Now our presence in the MENA region is at stake. We have nowhere to run anymore.

This is how it looks in figures:

• Exports of long products to Egypt fell from 600 thousand tons in 2016 to zero in 2018, as an anti-dumping duty was applied to rebar. We began to increase exports of semi-finished products, billets in particular.
• Egypt then imposed a protective import duty on billets last fall. In 2020, we will lose about a million tons of steel in this direction.
• Supplies to the EU are limited by quotas since 2018. An important milestone in the history of trade with the EU was the introduction of anti-dumping import duties on flat hot-rolled products in the amount of €60.5 per ton. Exports of hot-rolled coil to the EU fell from 1.9 million tons in 2016 to 1.1 million tons in 2018. Under unfavorable market conditions, the duty dramatically reduces the competitiveness of Ukraine-made products.
• In 2019, Russia made a political decision to ban imports of pipes from Ukraine. Since H2 2019, shipments of pipes to Russia have stopped completely. Russia has long been one of the main markets for Ukrainian pipes. In 2016, exports amounted to 160 thousand tons. Yet domestic companies were able to reorient sales. Seamless pipes went to the U.S., hollow sections to the EU. Now these markets are closed as well.
• We lost the U.S. pipe market. Pipe shipments to the U.S. in 2019 grew by 18%, but the main growth came in the first half of the year. In July, the U.S. canceled the minimum price agreement with Interpipe, and returned the 7.47% anti-dumping duty. Exports halted. As soon as the Americans see an increase in imports, they immediately tighten the screws.

The whole world bristled and closed. And the economic crisis due to COVID-19 only strengthens protectionist sentiment:

• In the EU, revision of the conditions for the protective quotas system was initiated, in which framework a 75% reduction in the size of quotas is being discussed. Ukraine may lose 1.2–1.3 million tons of exports. But what’s even more important is that a new wave of protectionism is likely, comparable to the introduction of duties in the U.S.
• Launch of a new safeguard investigation in Egypt is being discussed, this time with the view to introduction of a 15% duty on flats. Ukraine may lose 150 thousand tons of production and sales.
• The EU initiated an anti-dumping investigation against Turkish hot-rolled coil. Mirror measures are expected from Turkey. Both markets are important for Ukraine, therefore, any destructive consequences for them can affect Ukraine.

The rules have changed. Protectionism is a new norm. You may deny or ignore it. Or proudly raise your nose and claim it’s ‘no good’. You can poke your finger at our trading partners, trying to prove to someone that is unfair. Though, this will change nothing. You need to adapt, learn to live with it, neutralize the consequences, if possible benefit, since this phenomenon will not disappear in the near future.

Initially published on Liga