Ukraine conflict may hit China's exports

Unless the conflict in Ukraine and the sanctions on Russia end within a short term, Europe might fall into recession, which will put more pressure on the global economy.

In February, before the conflict broke out, the consumer price indexes in European countries were already on the rise. In Germany, the CPI rose 5.1 compared with February 2021, in the United Kingdom it was up 6.2 percent, while in France it rose by 3.6 percent. After the conflict broke out and sanctions were imposed against Russia, their CPIs have soared even higher.

That's especially bad news for ordinary Europeans because their tax rate is rather high and the ordinary people's income after tax is barely enough for daily consumption. Worse, many European governments were already subsidizing local people and are no longer able to raise subsidies any more. If the high inflation continues, there might be social crises emerging.

In terms of energy, Europe is highly dependent upon Russia. Many EU members are trying to find alternatives to Russian oil and gas, but the other suppliers are reluctant to increase their production because they fear once the sanctions are canceled in the future they might face a production surplus.

The United States and the European Union are discussing about the former ensuring energy supplies to the latter in the coming two years, but no one dares to increase production by too high a percentage within a short period.

With energy prices rising, transportation costs are rising, too, which in turn is pushing up inflation.

Both Ukraine and Russia are also major grain exporters. The cut in production of the former and the ban on exports of the latter are also pushing up food prices in Europe. According to reports, in many EU countries the prices of bread, flour, oil, milk, water and meat have all risen by 30 percent.

The situation is much better for China because it has ample supplies of grains. However, the possible global recession might deal a blow to Chinese exports, which is why China needs to continue to promote domestic circulation.