Average monthly cargo tonnage for Port of Odesa
Jan.-Dec. 2021: 1.9 million tons
March-April 2022: 0 tons
From the Commerce Department’s Monday announcement, lifting Trump-era tariffs on Ukrainian steel:
“[T]he United States of America will be temporarily suspending 232* tariffs on Ukrainian steel for one year. Ukraine’s steel industry is uniquely important to the country’s economic strength, employing 1 in 13 Ukrainians with good-paying jobs. … Many of Ukraine’s steel mills have continued to pay, feed, and even shelter their employees over the course of fighting. Despite nearby fighting, some Ukrainian mills have even started producing again. Creating export opportunities for these mills is essential to their ability to continue employing their workers and maintaining one of Ukraine’s most important industries.
A look at the role of trade in Ukraine’s pre-war economy suggests that the Commerce Department’s hope to support Ukrainian exports (and the April decisions by the U.K. and European Union to lift all tariffs on Ukrainian goods) is well-founded. But it is probably incomplete, and the western governments need to be thinking about logistics as well.
By way of introduction, in October 2021, the International Monetary Fund’s semiannual “World Economic Outlook” projected a modest 3.5% growth rate for Ukraine. The April 2022 WEO made no guesses at any of these figures, except for a -35% drop in GDP. Such a contraction is one of the worst ever recorded: Compare, for example, the -10.5% decline in Greek GDP in 2011, and the -7.6% and -13.1% declines for Thailand and Indonesia in 1998, rightly remembered in these countries as national tragedies.
Export losses will likely account for a large part of this contraction. According to the World Trade Organization, exports accounted for 44% of Ukraine’s pre-invasion GDP. ($49 billion in goods exports + $15 billion in services exports, in a $152 billion economy.) This makes Ukraine, though a relatively small economy, roughly as export-reliant as Germany, Korea, or Mexico. The main products were $10 billion in iron and steel, $8.5 billion in corn and wheat, and $5 billion in sunflower oil, and the its main pre-war customers were the EU at 35% of all Ukrainian exports, followed by China at 15%, then Russia and Turkey at about 5% each.
About 75% of Ukraine’s exports gets to buyers through ten Black Sea ports; Odesa, the largest, handled 22.5 million tons of wheat, corn, iron, and other cargo last year. The vast majority of this trade is now blocked, even for grains already harvested or mills still producing metal. Deputy Infrastructure Minister Yurii Vaskov, speaking last week, reports that all ten are closed, either by Russian naval blockade (Odesa) or military occupation (Mariupol, Kherson), while the International Maritime Organization knows of 84 civilian cargo ships trapped in Ukrainian ports. The effects are showing up in U.S. trade data, which already show U.S. imports of Ukrainian steel down by about two-thirds, from 20,700 tons in January to 12,900 tons in February and 6,800 tons in March.
With this in the background, tariffs are always a consideration but not the primary issue. President Zelensky’s appeal yesterday for help in reopening the ports highlights the core problem; in the meantime, Ukraine’s government is trying to channel as many of its exports as possible through smaller Danube River ports, along with railways connecting to Poland, Slovakia, Hungary, and Romania. By Vaskov’s analysis, this accommodated 3.5 million tons of cargo in April — about a quarter of last year’s 12.5 million tons per month — and may be able to manage 5 million tons a month by fall. With this in the background, the tariff relief programs offered by the Biden Administration, the U.K., and the EU are useful as both practical and easy policy steps and as moral support, but need a complementary plan to help Ukraine find ways to move the actual metal and grain to their buyers.
* “232” referring to “Section 232” of U.S. trade law.
The WTO’s snapshot of Ukraine’s trade profile, 2021.
Vaskov of the Infrastructure Ministry on efforts to shift from Black Sea maritime export to rail and river.
U.S. Department of Agriculture on Ukraine’s role in world agriculture (No. 1 in sunflower oil production and exports, No. 4 for wheat exports, No. 5 for corn exports).
The International Maritime Organization’s latest update on cargo ships trapped in Black Sea ports: https://www.imo.org/en/
Ukraine is a principal supplier of grains to Egypt, Indonesia, Bangladesh, Turkey, and other mid- and low-income countries. The UN World Food Program fears 76 million people will begin to go hungry if grain exports do not resume.
And a first-hand late April National Public Radio report from the Odesa Port.
Tariff announcements
The United Kingdom government announces removal of tariffs on Ukrainian goods.
The EU joins.
And Commerce Secretary Gina Raimondo this past Monday announces a year-long suspension of Trump-era steel tariffs.
And GDP figures in context
What does Ukraine’s wartime contraction of -35% mean? Some other points of comparison, drawn from the International Monetary Fund’s World Economic Outlook database (which covers the years 1980-2022):
1932: Great Depression contraction of -12.9% in the United States
1998: Great Recession contractions of -13.1% in Indonesia and -7.6% in Thailand;
2011: Greece’s -10.5% contraction in debt crisis;
2011: Libya’s -67% contraction in government collapse and conflict. This appears to be the sharpest contraction in the database.
2015: Yemen’s -28% drop as civil war spreads country-wide;
2019: Venezuela’s -35% contraction 2019, as state oil company PDVESA defaults on bond obligations.
2021: Myanmar’s -17% drop after February coup d’etat
The current (April 2022) WEO database.
… and for comparison, the October 2021 edition.
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
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