The Arrogant Error Of Sanctions

In “The West” (EU, USA, UK, Canada, Australia, etc.) we no longer have “Representatives”. We do not live in “Democracies” nor “Republics”. We have a “Rules Based Order” and that means we have “Rulers”.

Simply look around, and you see this everywhere. New Rules every month on what we can do, say, eat, where we can go, what we can buy. The source of these Rules is often opaque, and seems to lead back to a small cabal of the incredibly rich and powerful of The West. It detours through what are nominally governments along the way, with side branches through “NGO”s and a river of it runs through the UN, then on back to the source high in the mountainous egos of The Rich & Powerful.

But there’s a problem with this “Top Down Rules Based Order”. The same problem it has always had. It is a data flow problem mixed with an ego problem. First off, a small group just does not have the bandwidth to take in all the needed data to be able to make all the needed decisions. By Necessity, the decisions made about “the rules” will be based on those that are “Simple. Obvious. And Wrong.”

One of the greatest strengths of markets is that decision making is at the lowest level. One customer at one shop. In a top down world, you end up with ONE hotdog and ONE bun with 3 standard condiments at all Hot Dog Carts. Why? Because that’s what the 10 seconds of mindshare you might get “at the top” will choose. In a Free & Fair Market; the Cart Owner near the Synagogue will know to stock Kosher Dogs and nothing with pork in it. The one near the Polish Catholic Quarter will have “Polish Dogs” and sauerkraut to top it. And the guy in San Francisco will have “Vegan Sausages” along with dairy free “ice cream”. Because that is what will sell better in each little niche.

Then the other great failing is that people who are “Rich & Powerful” tend to think they are smart and knowledgeable about everything, when they simply can not be. This hubris and arrogance is nurtured by all the people below them who are suckups. Always being told how smart and good you are has a way of increasing your dumbness and results in evil decisions. Eventually the emotionally volatile folks start making emotionally satisfying decisions to them that are hurtful to everyone else (sometimes even hurtful to their own interests, but they often are too busy to notice it). See, being flooded with way too much information also saturates their ability to evaluate based on information, so the “easy answer” is the simple, obvious, emotionally satisfying, and wrong answer. And another petty tyrant is born.

A really good example of this is the unending string of “Sanctions” being tossed at Russia. The fundamental truth is that during about 23 years of market driven growth of commerce between post-Communist post-USSR Russia and the rest of The West, a very large number of mutually beneficial agreements to trade were made.

These were made under generally open market conditions, so, by definition, they had to benefit BOTH parties to get done. That’s a whole lot of benefit to The West out of mutually beneficial trade. By Definition: Shutting off that trade will hurt both Russia and The West, the only question is how much.

At this point, hubris & arrogance become lethal. Then there’s a certain stupidity factor that comes into it too. You see, our Rulers are unable to get-it that nothing we do or sell is really very special anymore. The related concepts of “fungible” and “commodity” are missing from their decision making. They think “commodities” are cheap and weak goods. They think “we are masters of the universe and everyone MUST BUY our stuff, it is unique and superior”. When it comes to “sanctions” that is “exactly wrong”.

Something that is “fungible” means any one item is indistinguishable (or nearly so) from any other of the type. Most “commodities” are also “fungible” in that commodities are typically fairly plain things of reasonably constant nature, so highly competitive markets keeping prices rather low.

So their “reasoning” is that “The Others must buy our unique goods and stopping the flow of them will hurt The Others” along with “but WE can buy their commodities anywhere.” And that is “exactly wrong” these days. Especially with regards to Russia and The BRICS+.

Selling a commodity (like oil) means that the whole world is in the market for your product. Selling FORD Rivian trucks has only a few thousand people in the whole world who will want to buy one. Furthermore, IF you shut off Russian Gas, Oil, and Minerals to Germany, then Germany has to find another cheap source of those AND get them transported to Germany. That will raise costs to Germany A LOT as Russia is the low cost provider with the cheapest supply lines (direct rail & pipelines). Cutting off sales of BMW & Mercedes cars into Russia hurts a few thousand Rich Russians, but they can buy a luxury car from all sorts of other suppliers. And the VW buyers can buy Chinese cars instead at lower costs anyway.

So who gets hurt the most by that sanction? Who had the most loss? Not the Russian commodity seller, as his price was set globally anyway and his product is fungible in global markets. Natural Resource hungry China can take all he will sell and pay in gold if desired. Or in a lot more lower cost Chinese cars… Where will Germany sell all the BMW & Mercedes & VW cars? Where are they not already selling all they can sell? Where will they get equally low price gas & metals to make those cars? The answer is nowhere.

This same scenario will play out in every single sector. Precisely because Russia was mostly selling commodity goods with high fungibility.

But wait, there’s more…

The “simple obvious hateful and wrong” decision process also ignores the fact that when you “Toss Rocks” at someone, they will tend to hurt you back. “When two tigers fight, one of them dies and the other is seriously wounded”. (Old Karate saying via Sensai in Shotokan). The only question is which one will die… The arrogant bet it would be Russia, but it will not be.

Commodity markets are rougher, tougher, and more durable than fancy goods. There’s always a buyer, and not a lot of expensive marketing and brand promotion goes into it. High end manufactures have a LOT of expensive inputs, precise requirements, expensive marketing, and the kicker: Highly Elastic Demand. I can go a decade without buying another Mercedes ( I already have a couple of classics) but I can’t get through winter without gas, Diesel, heat, paper goods, wheat, etc. When things go bad, it is the “staples” (i.e. commodities) that still sell. It is the high end, luxury, and “choice” items that suddenly stop selling.

Now all this is obvious to those of us who live near the bottom of the financial heap. We know how to make our own bread if $4 / loaf is just nuts (and it is…) and we know how to put thicker oil in the old car to get it through a couple of more years of commuting to work. But to those “on the top”, they just know that nobody can go without a New Luxury Car every year! Just look at all their friends! So they just don’t get it. And they didn’t get it that punching at Russia would get them counter-punched.

The EU / USA sanctioned things like cars & tractors? Russia says “OK, just hand over the factory on your way out”…

https://www.rt.com/news/589726-south-korea-tightens-russia-export-restrictions/

26 Dec, 2023 21:54
World News
US ally tightens export restrictions against Russia

South Korea has added nearly 700 items to a list of products banned because of the Ukraine crisis

[Photo: Hyundai excavators sit idle at a South Korean shipyard. © Getty Images / Chung Sung-jun ]

South Korea has stepped up its role in the US-led campaign to punish Russia over the Ukraine conflict by expanding its export restrictions against Moscow and Belarus.

Nearly 700 items have been added to a list of products that are banned for export to Russia or Belarus, the South Korean Ministry of Trade, Industry and Energy (MOTIE) announced on Tuesday. The move expanded Seoul’s list of restricted items to 1,159, effective in early 2024, though waivers can be considered by the government in “exceptional” cases.

Newly banned exports will include excavators, rechargeable batteries, aircraft components, certain machine tools and passenger cars with engine displacements exceeding 2,000 cubic centimeters. Such products aren’t classified as “strategic” under South Korean trade regulations, but they’re being added to the restrictions against Russia and Belarus because of their potential use for military purposes.

Now the first thing to ask yourself here is just: “Do you think Russia knows how to make tractors and cars?” And the answer being “Uh, yeah” tells you that AT MOST this means Russia can conserve their Foreign Exchange Currencies and that employment inside Russia will increase with improved wages. All good for Russia.

The second thing to ask yourself is: “Do others inside BRICS+ make tractors and cars and such?” Well, how about CHINA. HUGE win for China & BRICS+ in general. Forcing them into a better working relationship, advancing their integration, and improving their trade. All good for BRICS+.

MOTIE initially banned 57 items for export to Russia and Belarus after the Ukraine conflict began in February 2022, then expanded the list last April by adding some industrial and construction equipment, as well as steel and chemical products.

South Korea is a close US ally but has stopped short of sending weapons directly to Ukraine, instead limiting its support to humanitarian and non-lethal aid. Seoul reportedly reached a confidential arrangement earlier this year to export artillery shells to the US for transfer by Washington to Ukraine. Russia designated South Korea as an “unfriendly” state in March 2022, after Seoul joined in the US-led sanctions against Moscow.

Russia has strengthened ties with Pyongyang this year, forging what North Korean Foreign Minister Choe Son-hui called “invincible relations of comrades-in-arms.”

So now you have China and North Korea getting the benefit of Russian raw materials, technical assistance, trade, and energy supplies.

Then the counterpunch:

https://www.rt.com/business/589374-hyundai-sells-russia-plant/

20 Dec, 2023 13:31
Business News
Korean car giant sells huge factory for $77

Hyundai’s exit from Russia will reportedly cost the company over $200 million
South Korean auto giant Hyundai has announced plans to sell its plant in Russia as the carmaker completes its exit from the country. The facility will reportedly be sold for a nominal fee of just 7,000 rubles ($77.20).

The factory near St. Petersburg suspended operations in March 2022 after the manufacturer announced its intention to withdraw from the country, following the launch of Moscow’s military campaign in Ukraine.

According to a Hyundai press release, the firm is making final arrangements with Russia’s Art-Finance on a deal to offload its entire stake in Hyundai Motor Manufacturing Rus.

The company has also pledged to support Hyundai vehicle owners in Russia, and to continue to provide after-sales services and other customer care.

The nominal sale price for the plant was confirmed by a company official to Reuters.

According to a regulatory filing seen by the agency, Hyundai will incur a loss of 287 billion won ($220 million) due to the sale of the plant.

READ MORE: Siemens reveals huge Russian exit losses

The company is reportedly seeking to transfer its St. Petersburg assets to Art-Finance and include a buyback option. It is aiming to complete the deal by the end of the month.

The official told Reuters that Hyundai will be paid 10,000 rubles ($110) in total for the sale of all its Russian assets.

Hyundai and its affiliate Kia, which were once among the three best-selling car brands in Russia, joined a mass withdrawal of international corporate giants amid Western pressure and Ukraine-related sanctions on Moscow.

In response, the Russian government has forced departing businesses to sell their assets for a nominal fee, although buyback options could allow them to return.

In May, German carmaker Volkswagen sold shares in its Russian assets to Art-Finance, which is supported by the Avilon autodealer group.

As major global automakers pulled out, Chinese brands moved in to replace them. Russia is now China’s biggest car export market, Beijing’s ambassador to Moscow, Zhang Hanhui, told RIA Novosti on Tuesday.

So thanks to “sanctions” Hyundai is out $200,000,000 and Russia gains a nice relatively new car factory. China is selling cars like crazy too.

So who loses here?

Russian Citizens get cheaper cars from China, or made in Russia (and maybe a job too).

Russia gets essentially “Free” factories.

China gets thriving new markets and access to needed minerals and energy. Along with lots of wheat, wood, etc.

Hyundai is out $200,000.000 AND loses a huge market where they were a big player.

Germany loses access to necessary metals, minerals, cheap fuel, and a market along with losing some factories.

The stupid, it burns.

But hey, Ursula Van Der Crazy can feed her inner hatred with the false belief that she is hurting Russia. Biden can revel in his Drive By Smugging that the USA is depriving Russia of Absolutely Essential Things only America (used to) make.

It is only the German workers out of work, and the American Middle Class looking at bread & eggs that are over double a few years ago… (Chicken that was 89 ¢ / lb a couple of years ago in California was $2.49 / lb last I looked…) But hey, who cares about that… /snark;

Not our Rulers…