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Publication | 2022

The Impact of the War in Ukraine on Global Trade and Investment

This report identifies five direct trade and investment channels through which countries will be affected by the war in Ukraine. These encompass disruptions to:

  1. commodity markets (especially food and energy),

  2. logistic networks,

  3. supply chains,

  4. foreign direct investment,

  5. specific sectors.

From a development perspective, it is crucial to understand how these various factors play out and how they affect individual economies.

Trade in food and energy are feeling the most immediate impact of the war. Russia and Ukraine rank among the top seven global producers and exporters of wheat, corn, barley, sunflower seeds, and sunflower oil. Russia is also a major supplier of fossil fuels, such as crude oil and natural gas, in addition to fertilizer and agricultural commodities.

Disruptions of these supplies are fueling a surge in prices, with negative consequences for global trade and welfare and asymmetric effects on exporting and importing countries. Exporters gain from higher commodity prices and increase production and shipments, replacing part of the decrease in exports from Ukraine and Russia. Importers are hurt twice: They both consume these commodities and use them as inputs to produce other goods and services for export.

A Computable General Equilibrium (CGE) model quantifies these effects on trade and welfare. Global income drops by 0.7 percent, with low-income countries losing 1 percent, driven by a contraction in global exports. Manufacturing exporters such as Vietnam, Thailand, and Mexico see a sharp decline, especially in energy intensive sectors. Net exporters of crops, such as Turkey, Brazil, and India, and of fossil fuels, such as Nigeria and countries in the Middle East, see a surge in their exports, attenuating the negative effects of the war.

Trade-policy interventions risk further destabilizing food markets. Ukraine and Russia together represent roughly a quarter of global wheat exports. For corn and fertilizers, their combined pre-war share was almost 15 percent. Disruptions to supplies of these key commodities are causing prices to surge. The price of wheat, for example, has jumped by more than 40 percent since the beginning of the war in late February (with futures prices rising by more than 60 percent).

Trade-policy interventions risk making a bad situation worse. Export restrictions further reduce global supply, while import liberalization measures and subsidies increase demand. Since the beginning of the war, 53 new trade policies (67 including subsidies) have been imposed or announced. Export restrictions such as outright bans or licensing requirements account for 31 new measures. Export restrictions alone have added seven percentage points to the price of wheat and risk igniting a tit-for-tat escalation that could trigger a food crisis. Higher food costs take the biggest toll on net importers—largely low and low-middle income countries in Sub-Saharan Africa (Botswana, Zimbabwe) and the Middle East (Algeria, Tunisia)—deepening world poverty.