U.S. President Donald Trump’s trade conflicts may impact the Russian economy in ways that extend beyond declining oil prices and reduced budget income.
Should negotiations between the U.S. and China break down, Beijing might opt to devalue the yuan, which would enhance the competitiveness of Chinese products and pose a risk to Russia’s local manufacturers, as indicated by an advisor to the head of Russia’s Central Bank.
Kirill Tremasov stated, “If tensions escalate excessively between the two nations, it could lead to a depreciation of the Chinese currency. This would boost the competitive edge of Chinese goods in global markets, including in Russia. China holds a crucial position in Russia’s imports, which could endanger local producers, particularly if there is an influx of inexpensive Chinese products into the market.”
Tremasov pointed out that such a devaluation would have minimal impact on Russian exports to China, which mainly consist of raw materials less affected by currency shifts. However, imports could face significant consequences, adding to the existing challenges of the Russian economy.
China has become Russia’s leading trading partner since Western sanctions and the withdrawal of Western firms followed the invasion of Ukraine.
According to analysts from the Gaidar Institute, last year, China represented over a third (34.1%) of Russia’s total foreign trade, contributing nearly 40% of imports.
Most Chinese imports are made up of machinery and consumer goods. Experts noted that the volume of these imports is primarily influenced by the robust demand in Russia’s consumer and industrial sectors, which is currently outstripping supply. This disparity has contributed to rising inflation, despite the Central Bank’s key interest rate being set at 21%.
While Chinese brands have taken over the market share abandoned by European, American, and Japanese companies, they also compete directly with Russian businesses.
“The Chinese companies are targeting the most profitable segments of the market, making higher profits with fewer vehicles. We are being pushed into the lower-margin segments,” remarked Maxim Sokolov, president of AvtoVAZ, Russia’s largest automotive manufacturer.
MMI analysts have characterized the state of Russia’s automotive sector as “capitulating to China.”
Moreover, civilian industrial output has been declining due to elevated interest rates and a nationwide labor shortage. Production decreased in the first quarter and had fallen to a two-year low by March, according to the state-affiliated Center for Macroeconomic Analysis and Short-Term Forecasting (TsMAKP).
An influx of low-cost Chinese imports could exacerbate the difficulties faced by struggling domestic industries.
This issue is not limited to consumer goods. A survey conducted last year among small technology companies in various sectors indicated that the most significant threat to Russia’s technological advancement is its increasing dependency on imports, particularly from China—an opinion held by 54% of the respondents.
