The economic war between the blocs is gaining momentum in support of Ukraine

The effect of the divisions caused by the war in Ukraine has become visible in trade data, as geopolitical blocs have done significantly less business with each other since the start of 2022. A World Trade Organization report found that both trade between and within the blocs had been affected by the sanctions, and blockades following the Russian invasion had hampered trade flows.

Taking January 2022 as the starting point for calculating the index, the World Trade Report 2023 shows that global trade between geopolitical blocs, such as Western Bloc countries in America and Europe and Eastern Bloc countries such as China, Russia and Saudi Arabia, has declined up more than 10 percent from the beginning to the end of last year. At the time of the invasion at the end of February 2022, intra-block trading was almost 109 pips, and as of December it had fallen back to 100 pips.

Western bloc countries shunning Russian oil since the start of the war in Ukraine have undoubtedly contributed to this effect. As the price of raw materials rose, India and China increased their purchases, while Russia sought to get rid of its sanctions-related excess inventories, changing the structure of global trade in the process. Trade tensions between the U.S. and China began to reverse these trends even earlier as the United States sought to increase trade with other partners, according to the report.

Diversification is one of the arguments for supporting "close" countries or, more appropriately in this sense, "supporting friends", which describes purchasing and trading with countries that are considered to belong to the same geopolitical entity. According to the WTO authors, concentrated global production - potentially outside the geopolitical blocs of some countries - carries inherent risks in crisis situations, despite the fact that it has the advantage of economies of scale, namely lower prices. While diversification of supply sources can be viewed as a positive given the current global turmoil and helps fill trade gaps, the progress bloc mentality is sure to harm trade and global economic progress in the long term. The next WTO report. Earlier this year warned of the costs of moving away from multilateral trade. These costs are estimated to represent 8.7 percent of real income globally and reach 11.3 percent in least developed countries.