Playing with fire: how attempts at sanctions pressure on China can threaten the US economy

Since July 28, the US Federal Reserve has raised its interest rate by 75 basis points, to the level of 2.25-2.5% per annum - the highest rate since 2019.

This decision was made by the Fed's Open Market Committee following a two-day meeting in Washington.

Since the beginning of 2022, the American regulator has already raised the rate for the fourth time, although before that it had kept it near zero for almost two years.

As explained in the leadership of the Fed, tightening monetary policy is necessary to curb too high inflation in the United States.

“Inflation growth over the past year has obviously exceeded expectations, and there may be more surprises ahead.

Therefore, we will need to respond quickly to incoming data and changing perspectives,” said Fed Chairman Jerome Powell.

According to him, in the future the Fed intends to continue to raise rates.

The Fed's actions should lead to an increase in interest on loans and bank deposits in the US, which will allow to cool economic activity in the country and thus contain further price increases.

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According to the US Department of Labor, in June the inflation rate in the US rose to 9.1% in annual terms.

The achieved growth rates of consumer prices for goods and services in the country became the highest since November 1981.

“The record acceleration of inflation in the United States is due to the rise in prices for food and energy, primarily gasoline and natural gas.

These are the economic consequences of increased geopolitical risks, seasonal factors and sanctions against Russia, ”Oksana Kholodenko, head of the analytics and promotion department at BCS World of Investments, explained to RT.

Recall that back in early March, the United States introduced a complete ban on the import of energy resources from Russia.

As the White House argued at the time, the United States could afford to take such a step thanks to the country's strong energy infrastructure.

However, some time later, American consumers were faced with a rush increase in fuel prices.

If at the end of winter a gallon of gasoline at gas stations in the United States cost an average of $3.6 (about 57 rubles per liter), now it is sold for $4.3 (68 rubles per liter), and in some states prices reach $5-5, 7 (80-90 rubles per liter), according to the materials of the American Automobile Association and the US Department of Energy.

At the same time, the head of the White House, Joe Biden, blames Russian President Vladimir Putin directly for raising prices.

The increase in the cost of fuel and food observed in the United States was repeatedly called by the head of the United States "Putin's tax."

Due to the increased shortage of energy resources in Washington, they decided to take oil from their strategic reserves.

Along with this, the United States, together with other G7 countries, proposed the creation of a so-called oil consumer cartel and a price ceiling for raw materials from Russia.

Although the United States itself no longer officially buys Russian oil, and European countries have also begun to reduce imports of raw materials from the Russian Federation, Moscow continues to receive very large profits from the sale of energy products.

This conclusion was made by experts of the International Monetary Fund.

Against the backdrop of Western sanctions, Russia began to actively redirect hydrocarbon exports to the south and east.

Under these conditions, the States announced the need to reduce Moscow's oil and gas revenues.

“We have instructed our teams to work on the details of price limits for Russian oil in order to reduce Putin’s income and not harm Americans and other people at gas stations ... We and the West will not provide insurance to Russian ships for transporting oil, so they will have huge problems with its delivery to customers, ”Biden said on June 30.

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However, the mechanism proposed by Washington can only be effective if all other buyers of Russian oil support the initiative, which is unlikely.

Mark Goykhman, chief analyst at TeleTrade Group of Companies, shared this opinion in a conversation with RT.

“The price ceiling is planned to be introduced by the end of the year, when the embargo on oil imports from the Russian Federation will finally work in the EU.

Naturally, Russia will continue to increase the supply of raw materials to other consumers, the main of which are India and China, and in this case the very meaning of the price ceiling and the Western embargo will be lost.

China is unlikely to accept a proposal to limit the price of Russian oil, especially at the suggestion of the United States,” Goikhman explained.

As Russian Deputy Prime Minister Alexander Novak noted earlier, such attempts to interfere in market mechanisms can only lead to an even greater rise in oil prices.

Thus, if the price ceiling discussed in the West is lower than Russia's production costs, Moscow will refuse to sell hydrocarbons to world markets.

According to Mark Goykhman, such a development of events would be unacceptable for China.

“The decrease in supplies from Russia will lead to the fact that China will increase energy costs.

This is extremely unpleasant, especially in the face of some slowdown in the Chinese economy due to the risks of a global recession and new waves of coronavirus,” the specialist explained.

Open Threats

According to the General Administration of Customs of China, in the first half of 2022, the volume of mutual trade between Russia and China increased by 27.2% compared to the same period in 2021 and amounted to almost $80.68 billion. The growth of the indicator is largely due to the increase in exports Russian hydrocarbons, experts say.

“Russian companies have seriously increased the supply of energy resources to China.

We are talking, for example, about the sale of liquefied natural gas from the Yamal LNG and Arctic LNG-2 fields.

In addition, the Power of Siberia pipeline is already almost completely filled with gas.

Along with this, the volume of oil supplies to China has greatly increased, ”Alexey Maslov, director of the Institute of Asian and African Countries at Moscow State University, told RT.

As follows from the materials of the Chinese customs, in May Moscow became the largest supplier of oil to China, ahead of Saudi Arabia, and now still holds the lead.

In turn, the daily pumping of gas to China through the Power of Siberia pipeline in July updated the historical record several times, as evidenced by Gazprom data.

Against the backdrop of expanding trade ties between Moscow and Beijing, the United States proposed imposing sanctions on China's purchase of Russian energy resources.

The bill was introduced by US Senator Marco Rubio.

In particular, the document provides for the introduction of restrictions for insurance or registration of tankers that transport oil or liquefied natural gas from Russia to China, writes Bloomberg.

“Any organizations, including Chinese state-owned companies, helping them (the Russian authorities. -

) in these efforts must face serious consequences,” Rubio said.

In response to the senator's initiative, the Chinese authorities protested and opposed the imposition of unilateral sanctions.

According to Chinese Foreign Ministry spokesman Zhao Lijian, the partnership between Moscow and Beijing is not influenced by external factors.

“China conducts normal trade and economic cooperation with Russia on the basis of mutual respect, equality and mutual benefit, it is not aimed against third parties and will not be subject to external interference,” the diplomat stressed.

With the United States and its partners trying to isolate Russia with sanctions, China's behavior only irritates the West, which could make Beijing the next target for restrictions.

This point of view was expressed by Russian Foreign Minister Sergey Lavrov the day before.

“I have no doubt that, if necessary, Western countries will not hesitate to do the same with any other country that in one way or another will “irritate” them.

Mentioned China as the next target (of the West. -

).

This is an interesting example of how Americans treat fair competition in practice,” the minister said.

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As Natalya Milchakova, a leading analyst at Freedom Finance Global, suggested in a conversation with RT, Washington could use its actions to put pressure on China to convince the Asian republic to join the introduction of a price ceiling for Russian oil.

However, Beijing is already buying raw materials from Moscow at a discount.

Moreover, China is still the largest trading partner for the United States, so such pressure attempts may negatively affect the States themselves, the specialist believes.

“The bill on sanctions against China will probably not pass a vote even within the Senate.

Everyone remembers well 2019, when, under President Trump, the United States unleashed a trade war with China, which later, coupled with the COVID-19 pandemic, greatly influenced the slowdown of the American economy,” Natalia Milchakova explained.

Moreover, according to the expert, today the United States is limited in its ability to put pressure on China.

At the same time, Beijing itself now has much more likely levers of influence on Washington, Milchakova believes.

For example, after the West froze Russia's $300 billion in foreign exchange reserves, China began withdrawing its own money from US government bonds.

According to the latest estimates from the US Treasury Department, in May, Beijing reduced investments in US public debt to $980.8 billion, the lowest level in the last 12 years.

“In addition to selling part of the US government bond package, China can speed up the process of launching the digital yuan as a full-fledged payment unit and refuse to settle in dollars with a number of US counterparties.

At the same time, China, together with Russia, can promote an initiative in the BRICS group to completely abandon mutual settlements in the American currency, and the dollar may face a collapse, ”Milchakova suggested.

In her opinion, in this case, all attempts by the Fed to fight inflation by raising rates will be in vain.

Moreover, US consumer price growth could accelerate further as the international community's confidence in the dollar declines.

With such a development of events, economic growth in the United States, at best, will go to zero, the expert added.