When Donald Trump and Vladimir Putin meet this Friday in Alaska, one of the topics of discussion is likely to be Western sanctions policy, an issue with implications that reach far beyond Ukraine. Trump has already imposed 25% duties on India over the country’s status as a major purchaser of Russian oil, and now the White House is threatening China with higher tariffs as well. If those measures are introduced, the blow will hit global trade as a whole and could trigger a worldwide economic crisis. If, however, Beijing stops buying raw materials from Moscow, Russia would lose both a key customer of its natural resources and a critical supplier of manufactured goods. In such an event, the resulting budget deficit would leave the Kremlin nothing but bad options for stabilizing its domestic economy.
Donald Trump is trying to push Russia to make peace with Ukraine. The 50 days he initially allotted for a ceasefire had already been cut to 10, and the deadline passed on August 8 without any notable change in the fighting on the ground. Trump had threatened to impose secondary tariffs of up to 100% on buyers of Russian energy if his conditions were not met. So far, however, he has only signed an executive order — “Addressing Threats to the United States by the Government of the Russian Federation” — that hits India with 25% duties. The president hinted that the measures could also soon be applied to China, the world’s top consumer of Russian oil.
China has not promised to wean itself off of Russian energy. As Foreign Ministry representative Guo Jiakun stated: “China will take such energy supply measures as are in our national interest. There are no winners in tariff wars. Coercion and pressure will not solve the problem. China will firmly defend its interests in terms of sovereignty, security, and development.”
The bill to raise tariffs on more than 20,000 imported goods was proposed in 1930 by two Republicans – Senator Reed Smoot and Congressman Willis Hawley. It was opposed by 1,028 prominent American economists, but President Herbert Hoover nevertheless signed it into law. It resulted in retaliatory measures by other countries, undermining trade and worsening the Great Depression.
The estimates were obtained by multiplying expenditures from the first half of the year by a coefficient of 2.3, and revenues by 2.15, minus 750 billion rubles. The coefficients were established based on 2024 data.
“There are no winners in tariff wars. Coercion and pressure will not solve the problem,” a Chinese representative cautioned
If Russia does not meet Trump’s conditions in Ukraine — and if the American president does not back down — then trade between the world’s two largest economies will decrease sharply. The large-scale tariff barriers Trump is threatening have not yet been introduced, but U.S. imports from China have already dropped by more than 40%: from $35 billion in May 2024 to just $20 billion in May 2025.
Only twice since 2007 has the flow of goods from China to the U.S. shrunk faster: in February 2009 and in March 2020, and both instances were tied to serious global crises. The 2008–2009 shock began with the risky mortgage bubble, while in 2020 Trump’s tariff war with China during his first term coincided with pandemic-related restrictions on international trade. In each of the previous cases, the shock proved to be brief: in spring 2009 the global economy passed the bottom of the downturn and began to recover; and in 2020, Trump rushed to hand out subsidies to American consumers, unintentionally boosting demand for Chinese goods.
Today, by contrast, the sharp drop in shipments from China to the U.S. is being caused solely by the imposition of artificial barriers. And this time, Trump’s tariff hikes risk unleashing a global recession.
Contrary to protectionists’ calculations — but in line with accepted economic theory — the drop in U.S. imports from China has also hit American exports to China. In May 2025, U.S. shipments to China totaled just $10.8 billion, down 18% year-on-year. The reason is not only Beijing’s retaliatory measures, but also the fact that Chinese companies, having lost part of their income from U.S. exports, can no longer afford to buy as many American goods as before.
If 100% tariffs are indeed imposed, the contraction will be much more severe. This would be, in many respects, a real deglobalization, with national economies turning inward. Even if trade between China and the U.S. continues through the mediation of the European Union, which still enjoys relatively free trade with both sides, overhead costs will rise and shipment volumes will shrink.
The bill to raise tariffs on more than 20,000 imported goods was proposed in 1930 by two Republicans – Senator Reed Smoot and Congressman Willis Hawley. It was opposed by 1,028 prominent American economists, but President Herbert Hoover nevertheless signed it into law. It resulted in retaliatory measures by other countries, undermining trade and worsening the Great Depression.
The estimates were obtained by multiplying expenditures from the first half of the year by a coefficient of 2.3, and revenues by 2.15, minus 750 billion rubles. The coefficients were established based on 2024 data.
U.S.–China trade has already been cut nearly in half over the past year
Becoming a middleman will not be easy. If aggressive tariff measures are implemented, it will not matter whether imported goods arrive directly from the producer country or by a roundabout route — once a loophole in the barrier is found, it will be plugged. For example, Trump could pressure Europe to close itself off as a possible transshipment point for Chinese goods, and he could even wall the U.S. itself off from Europe if the continent refuses to comply.
And there is another danger: as a rule, when one major country or customs union sharply raises import tariffs, other major players follow suit. Something similar happened to the global economy in the early 1930s, when the U.S. introduced the prohibitive Smoot–Hawley tariff in an effort to protect domestic producers from the crisis that began in 1929. Many countries responded with more or less symmetrical measures, and world trade volumes fell between three- to fourfold. Autarky became the norm, and in countries that depended on imported raw materials and food — such as Germany and Japan — politicians arguing that the necessary resources could be obtained only through the struggle for “living space” and “spheres of influence” rose to the top. This dynamic turned the economic crisis into the Great Depression — and the prelude to another world war.
A similar threat hangs over humanity today. To avoid a global trade war, someone will have to make concessions. Either Beijing will have to cut back substantially on its purchases of Russian oil, or else the U.S. will have to accept a status quo in which China continues to serve as Moscow’s economic lifeline.
What Russian oil means to China…
What happens if China yields to Trump’s pressure? In 2024, Russia sold more than $60 billion worth of crude oil to China. That accounted for 51% of all Russian oil exports and 20% of China’s oil imports. Russia has been China’s largest oil supplier for two years running. Saudi Arabia remains in second place (78.64 million tons, $47.86 billion), but it is losing market share to Malaysia, whose deliveries have risen by 28.4% (to 70.33 million tons, worth $38.3 billion).
Interestingly, China’s official oil import statistics contain no Iranian deliveries. Industry experts believe Malaysia is masking them, along with oil from Venezuela. In Malaysian waters, as a recent CBS News investigation revealed, Iranian oil bound for China is secretly transferred from ship to ship.
In the first six months of 2025, Russia cut its oil supplies to China by 10.8% — both in value and volume — to 49 million tons worth $25 billion, according to the General Administration of Customs. On the face of it, the partners depend on each other. But Europe’s dependence on Russian hydrocarbons in 2021 was heavier than China’s is today.
The bill to raise tariffs on more than 20,000 imported goods was proposed in 1930 by two Republicans – Senator Reed Smoot and Congressman Willis Hawley. It was opposed by 1,028 prominent American economists, but President Herbert Hoover nevertheless signed it into law. It resulted in retaliatory measures by other countries, undermining trade and worsening the Great Depression.
The estimates were obtained by multiplying expenditures from the first half of the year by a coefficient of 2.3, and revenues by 2.15, minus 750 billion rubles. The coefficients were established based on 2024 data.
Europe’s dependence on Russian hydrocarbons in 2021 ago was heavier than China’s is today
While the U.S. market is virtually irreplaceable as a buyer for a wide range of Chinese goods, China’s oil imports are fairly diversified, and in principle Beijing could manage to cope without Russian supplies.
…and what Chinese purchases mean to the Russian budget
If China yields to U.S. demands and stops importing Russian oil, other countries may follow suit. This alone would not immediately impact the Russian budget, as Moscow has officially eliminated export duties via a so-called “tax maneuver.” As a result, federal budget revenue from oil sales comes primarily from the mineral extraction tax (MET) — totaling roughly 75% of oil and gas income. This revenue stream would, of course, not drop to zero. Around 41–42% of Russian production is currently exported, and while the domestic market could pick up some of the slack in the event of a global embargo, demand there is limited. If Trump’s conditions are met, Russia’s federal budget would stand to lose at least 25% of its oil and gas revenue.
The bill to raise tariffs on more than 20,000 imported goods was proposed in 1930 by two Republicans – Senator Reed Smoot and Congressman Willis Hawley. It was opposed by 1,028 prominent American economists, but President Herbert Hoover nevertheless signed it into law. It resulted in retaliatory measures by other countries, undermining trade and worsening the Great Depression.
The estimates were obtained by multiplying expenditures from the first half of the year by a coefficient of 2.3, and revenues by 2.15, minus 750 billion rubles. The coefficients were established based on 2024 data.
If China complies with the U.S. demand, the Russian budget will lose at least 25% of its oil and gas revenue
Given that revenues of 8.3 trillion rubles ($104.5 billion) are planned for 2025, the shortfall resulting from the last few months of the year alone would still run close to one trillion rubles ($12.6 billion). In that case, total budget revenue would amount to 37 trillion rubles ($466.0 billion), while spending would reach 49 trillion — leaving Russia with a deficit of 12 trillion rubles ($151.1 billion).
Such a figure would be unprecedented. For comparison, Russia’s worst federal budget deficit to date came during the pandemic in 2020, at 4.1 trillion rubles (around $56 billion at the time). However, in the first seven months of 2025 alone, the deficit has already reached about 4.9 trillion ($61.7 billion). A record shortfall is almost inevitable — even if Russian-Chinese trade remains unaffected. The magnitude of that record depends on Washington’s capacity to get its way.
How is the deficit covered? The most obvious source is domestic borrowing, which accounts for more than half of financing. From January to July 2025, Russia’s domestic public debt rose from 23.1 trillion ($290.9 billion) to 25.6 trillion rubles ($322.4 billion). This debt consists almost entirely of federal loan bonds (OFZ) issued for long terms — usually for seven or twelve years. Their yields range from 13% to 15% per year (very low in real terms once inflation is taken into account).
Foreign debt in the first half of the year increased from $52.1 billion to $54.3 billion, a gain equivalent to around 200 billion rubles. There has also been no notable reduction in the National Wealth Fund (NWF): its total assets actually grew from 11.9 trillion ($149.8 billion) to 13 trillion rubles ($163.7 billion) over six months, while its liquid assets rose from 3.8 trillion ($47.86 billion) to 4.1 trillion ($51.6 billion).
The rest of the deficit has in effect been financed by drawing down government assets held at the Central Bank. According to the Central Bank Review, the Bank of Russia’s net claims on general government stood at minus 5 trillion rubles ($63.0 billion) as of July 1, 2025 – meaning, in simple terms, that the government had 5 trillion on deposit at the Central Bank. At the start of the year, this figure was 6.9 trillion ($86.9 billion). In other words, 1.9 trillion ($23.9 billion) has been “eaten up.”
The bill to raise tariffs on more than 20,000 imported goods was proposed in 1930 by two Republicans – Senator Reed Smoot and Congressman Willis Hawley. It was opposed by 1,028 prominent American economists, but President Herbert Hoover nevertheless signed it into law. It resulted in retaliatory measures by other countries, undermining trade and worsening the Great Depression.
The estimates were obtained by multiplying expenditures from the first half of the year by a coefficient of 2.3, and revenues by 2.15, minus 750 billion rubles. The coefficients were established based on 2024 data.
Russia has “eaten up” 1.9 trillion rubles ($23.9 billion)in six months
The drop in the state’s net claims on the Central Bank is in fact unprecedented: a fall of 72% since March 17, 2022. Such operations have an inflationary effect, as money flows from the Central Bank to the government and then into the economy.
Under the scenario described above, between July and December 2025 the Russian authorities will have to find 8.3 trillion rubles to fill the federal budget gap. Most likely, 5–5.5 trillion will be raised through OFZ issues, 2–2.5 trillion will be drawn from the Central Bank, and about 1 trillion from the NWF. This would leave domestic public debt at 30–31 trillion rubles by year’s end, and it would reduce the government’s net claims on the Central Bank to 2.5–3 trillion while leaving 3 trillion rubles in liquid NWF assets. (The proportions here are more important than the dollar values.)
All this risks triggering another surge in inflation, pushing up interest rates on government debt and reducing both the liquidity and the stability of the banking system. Households and the non-financial sector will find that bank funds are being diverted in an effort to finance the budget deficit. The economy’s parameters will shift toward a situation increasingly resembling the public debt pyramid of 1995–1998 — but with two significant differences. For one, the public debt burden will still be much lower than it was then. But two, there will be no inflow of foreign loans, which at that time provided very important support to the Russian budget. The Finance Ministry will still find the money to plug the hole, but it will come at the cost of higher inflation and rising interest rates, which will threaten the banking system’s stability.
Given the traditions of Putin’s fiscal policy, it can be assumed that the regime will not want to rely on creditors’ goodwill (like in the 1990s), but will instead prefer to raise taxes or cut civilian budget items. This would hurt the real sector’s performance and could trigger a visible recession — one that would most likely be reflected even in official statistics. Economically, such stagnation could drag on for quite some time without turning into a catastrophe, but can political and socio-psychological stability in Russia be maintained under these conditions?
Trump and Putin are set to meet in Alaska on August 15, meaning that within a few days, it should be clear whether the U.S. truly intends to carry out its threats against China. If Washington imposes dramatically higher tariffs, the global economy will face a shock comparable to that of the 1930s. Beijing clearly wants to avoid this potential future, but it also wants to avoid making unilateral concessions under pressure from Washington, and in any event, it is not prepared to make the kind of economic break from Moscow that Washington is demanding. The situation in the White House is the mirror opposite. And on the other side, Trump has grown accustomed to abandoning his more outlandish demands based on the flimsiest of pretexts.
From a pragmatic standpoint, the logical choice for China would be to preserve trade with America and give up Russian oil. But only if the dilemma truly comes to that. This would mean losing 17% of China’s oil imports — a serious blow but one that could be offset. For Russia, however, it would mean having to find a new destination not only for the 21% of its oil production that currently goes to China, but also for the remaining half of its exports, which would also likely be disrupted.
For the Russian federal budget, this translates into a quarterly loss of 500 billion rubles ($6.3 billion), worsening an already difficult fiscal situation. But the loss of export revenue would not be decisive — at least not officially. If the authorities choose not to raise taxes or cut spending, they will have to find 8 trillion rubles ($100.7 billion) before the year’s end. That amount is roughly equal to the value of the NWF’s liquid assets (4 trillion) and the government’s net claims on the Central Bank (5 trillion). Once those reserves are depleted, the only options left will be turning to creditors (who would certainly face sanctions pressure) or turning on the printing press.
The bill to raise tariffs on more than 20,000 imported goods was proposed in 1930 by two Republicans – Senator Reed Smoot and Congressman Willis Hawley. It was opposed by 1,028 prominent American economists, but President Herbert Hoover nevertheless signed it into law. It resulted in retaliatory measures by other countries, undermining trade and worsening the Great Depression.
The estimates were obtained by multiplying expenditures from the first half of the year by a coefficient of 2.3, and revenues by 2.15, minus 750 billion rubles. The coefficients were established based on 2024 data.