Ineffectual

Everyone knew that economic sanctions cut both ways.

When the western alliance imposed economic sanctions on Russia for its invasion of Ukraine, the hope was that these sanctions would choke revenues that fund Putin’s war machine. Today, however, it seems the West is bleeding far more profusely than Russia is.

Russia’s oil exports to Europe slightly declined by volume due to the sanctions. But, because oil prices rose massively, the aggressor country is actually making substantially more revenues from its energy exports.

Through 2021, Russia earned about $15 billion a month from exporting oil to Europe. Last month, Russia earned $20 billion even as she sold lesser oil.

Putin’s government might technically go into default due to a shortage of foreign exchange to service its debts. But Russia is not about to go bankrupt anytime soon.

Seeing that Russia is making more money from oil today, the G-7 leaders who met last weekend decided to ban imports of Russian gold. After its energy exports, gold is the second largest Russian export. With its sprawling landmass, Russia benefits from an incredible abundance of raw materials to sell to the rest of the world.

Over the last two months, Russia defied the sanctions imposed by the West by selling oil directly to China and India at deep discounts. The two most populous countries on earth have been able to avert sharp spikes in inflation because of this.

Meanwhile, the US reported its May inflation rate at 8.6 percent. The UK reported hers at 9.1 percent. The higher inflation regime is causing unrest across the globe.

In last week’s French parliamentary elections, held in a summer of discontent over the economic situation, Macron’s centrist party lost the absolute majority in the National Assembly. Agitators from the hard right and the extreme left gained seats.

As the major industrial economies try to push back inflation by raising interest rates, prospects for a recession grow by the day. This will heighten unrest.

In the US, with inflation as the headline issue, the Democrats could lose both houses of Congress to the conservative Republicans next November. This will further polarize the culture wars, such as that waged over the issue of abortion.

Reports from the battlefront in Ukraine indicate the Russians are pouring in more men and material to take control of more cities. The invasion might not have gone the way Putin expected, but there is little chance the war will end soon. Putin seems to be betting that he could break the western alliance earlier than the sanctions could hamper his ambitions.

Russia has reduced natural gas flowing through the pipeline to Europe. It is now imminent there will be serious energy shortages by the time the cold months come.

The western alliance should look for more effective ways to blunt Putin’s expansionist designs.

Economic warfare

The survival of the Philippine cement industry hangs by a thread as it awaits the judgment of the Tariff Commission.

Domestic cement producers have petitioned the Tariff Commission to extend safeguard measures applied in 2019 to stem the dumping of imported cement. Presently, about 91 percent of imported cement flowing into our market originates from Vietnam.

The domestic producers are asking for time to build a robust and competitive domestic industry. Currently, there are about 10 domestic players in the industry. Cement manufacturers argue that their survival is essential to the country’s economic security.

Domestic producers have presented data to show that local cement prices have been stable the past few years. Local cement prices increased at a much slower pace than all the other commodities in the Construction Materials Wholesale Price Index. The increases are far below energy cost increases over the recent period.

On this basis, the domestic producers are arguing that their industry sector has been absorbing much of the cost factor increases. This might narrow their margins but they have kept prices affordable for domestic consumers.

They need some more time to make their processes more efficient and attract additional capital to achieve that. An extension of the safeguard measures will enable the domestic industry to complete modernization.

Domestic producers submitted studies showing that whatever price increases in local cement products accrued, they had only minimal effects on overall construction costs. A study undertaken by BKAsiaPacific Inc. shows cement costs account for less than five percent of total costs for a typical two-storey housing unit with basic finishes.

The country is abundant in limestone, a key ingredient in manufacturing cement. Since energy accounts for about 70 percent of the price of cement, our energy price regime is the main factor in losing competitiveness. The disadvantage will have to be overcome through more efficient manufacturing and delivery processes.

Domestic cement manufacturing contributes billions in taxes and employs thousands of Filipinos. The industry has been active in fulfilling its corporate social responsibilities such as extending assistance during calamities, poverty alleviation programs, reforestation and increased use of renewable energy. All of these, the industry agues, help in building the national economy.

On the other hand, importers of cement products contribute little taxes and employ only a few. If dumping of foreign cement products continues unabated, a vital industrial sector could be obliterated. This will add to the unemployment and poverty levels.

Domestic producers are hoping the Tariff Commission will take a larger and longer view of the issues surrounding the dumping of foreign cement on our market. This more comprehensive assessment will justify continuing the safeguard measures.