The crisis in Ukraine: Implications of the war for global trade and development

Why the report matters

Russia and Ukraine are critical suppliers of essential resources in global supply chains. Russia’s invasion has crippled Ukraine’s economy and retaliatory sanctions have closed transport corridors. Already-stressed global supply chains are adversely impacting global GDP and trade growth. Supplies of key foodstuffs and energy resources are at risk. The gravity of the situation threatens to further reduce supplies and increase prices in the developing world, causing food and energy insecurity.

By providing this analysis, the WTO is helping economies brace for challenges to come. The report also identifies the products at highest risk from high prices and disruption, and the opportunities to work with other economies in finding substitute sources (Table 1, p. 12).

What’s in the report

The report contains two key sections:

• An assessment of the trade and economic effects of the war by trading partner, region, and product, as well as of the economic impact of sanctions on Russia. This section provides useful baseline information that policymakers and analysts can refer to in their own work.
• A five-scenario analysis of the projected income and trade effects of the war. This section provides estimates of the war’s potential impact on the global economy and those who are most vulnerable. The estimates enable policymakers to prepare for and mitigate severe outcomes.

In addition, the report addresses the role of the multilateral system in alleviating the war’s economic impact, and recommendations for governments around the world.

2. 2022 global trade growth may be half of initial projections, down from 4.7 percent projected in October 2021 to 2.4 to 3 percent projected in April 2022. Longer term impacts could also be large and consequential.
3. European economies will bear the brunt of the crisis, as they compose the largest export markets for Russian and Ukrainian goods. (Figures 1 and 2, p. 5; Figure 5, pp. 10-11).
4. Ukraine will lose the most in terms of GDP, while Russia will most feel the impact of sanctions; developing economies will bear negative indirect effects (Figure 7, p. 19; Figures 9-11, p. 21).

1. Higher prices for food and energy will reduce real incomes and depress global import demand, in particular affecting food security in poor regions. Export restrictions will exacerbate this trend. (pp. 6-8; Figure 10, p. 21).
2. Russia and Ukraine provide key manufacturing inputs like steel, iron, palladium, rhodium, and neon and krypton gases; in some cases large shares for key manufacturing countries. Disruptions in these supplies may have an impact on automotive and semiconductor production, among other industries. (Figure 4, p. 9; Figure 5, pp. 10-11).
3. Russia and Ukraine are the world’s major suppliers for rhodium and crude sunflower oil. In the short run, the war’s disruptions are likely to cause major bottlenecks in supply chains that rely on these inputs.

1. The war and the breakup of longstanding economic relations may lead more economies to “decouple” based on geopolitical considerations, which could reduce global GDP in the long run by about 5 percent, and result in less competition and innovation in the long run. (Figure 11, p. 21).

Extracted from : The Crisis in Ukraine: Implications of the war for global trade and development by WTO Secretariat

1. The WTO plays a key role in maintaining trade flows during times of crisis, due to its ability to monitor and provide transparency over trade restrictions.
2. Multilateral institutions like the WTO can help to mitigate the negative effects of the crisis and rebuild the post-war global economy, by providing a forum where countries can convene, build trust, and negotiate. They can assist in ensuring transparency, cooperation, and coordination globally.
3. Globalized supply chains provide a form of resiliency. Governments should avoid restricting trade, especially by adopting export restrictions and choosing to concentrate and source production domestically.