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Blessed Are the Cheesemakers, But at What Cost?

Blessed Are the Cheesemakers, But at What Cost?

(Bloomberg) --

Russia is ahead of the curve on rising protectionism, but the results aren’t looking good.

With Trump’s efforts to put tariffs on Chinese imports spurring a trade war, debates are intensifying about whether barriers and tariffs can fix economic imbalances — and Russia’s strategy looks like an example of how limiting trade can backfire.

Russia banned imports of some foreign foods five years ago to protect Russian farmers from foreign competition and penalize the U.S. and Europe for sanctions imposed after Putin’s 2014 annexation of Crimea.

But the measures have hit consumers the hardest, resulting in a sharp rise in prices, an extra $6.9 billion a year spent on food, and limited benefit in terms of increased production. Prices for goods affected by the embargo like cheese and meat increased far more than the average for consumer goods, according to a study from Moscow’s New Economic School.

Farm production in Russia has grown since the Kremlin imposed the limits, with one cheesemaker saying the limits had resulted in a “gold rush” for the sector. But some of the biggest winners were areas not significantly affected by the restrictions, while others benefited from investments that predated them. In some sanctioned areas, growth rates were actually higher before the restrictions were imposed, according to KPMG.

Some imports have been substituted with goods from other countries — the Belorussian cheese sector is also booming — but plenty of food gets past the ban.

And so far, Russia’s so-called anti-sanctions haven’t forced the EU and U.S. to roll back their penalties.

Charting the Trade War

Blessed Are the Cheesemakers, But at What Cost?

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  • Steel bankruptcy | Bayou Steel filed for bankruptcy in the U.S. on Monday. The steelmaker was “particularly vulnerable” to tariffs because it uses imported scrap metal, Louisiana Governor John Bel Edwards said.
  • Dalio musings | Ray Dalio, the billionaire founder of the world’s biggest hedge fund, said preliminary discussions on limiting U.S. investments in China make him wonder if the Trump administration is “inching toward bigger moves.”
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Economic Analysis

  • China warning | A range of early indicators continued to point to a lack of momentum in China’s economy in September, as the U.S. imposed additional tariffs on about $110 billion of Chinese imports. 
  • U.S. downturn | Bloomberg Economics’ new U.S. recession probability indicator shows the chance of a downturn within the next 12 months is about 25% — that’s a warning sign, but not yet a panic signal. 

Coming Up

  • Oct. 3: Australia trade balance
  • Oct. 4: U.S. trade balance
  • Oct. 8: Japanese, South Korean, French trade balance
  • Oct. 10: German, U.K. trade balance
  • Oct. 10-11: U.S.-China talks in Washington

To contact the editor responsible for this story: Gregory White at gwhite64@bloomberg.net, Zoe SchneeweissFergal O'Brien

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