Ukraine’s foreign trade: current status and prospects for development

Abstract

Ukraine has a chronic trade deficit. The results of foreign trade in goods and services differ: trade in services, with the exception of 2022–2024, has generated a positive net export balance; the foreign trade balance for goods has been consistently negative since 2006. This indicates that the causes of Ukraine’s negative trade balance in goods lie in systemic weaknesses in its economy, the negative impact of which has been exacerbated by the russian-Ukrainian war. The results of the analysis confirmed the assumption that the key causes of Ukraine’s chronic trade deficit in goods are the raw material-oriented nature of domestic exports and excessive imports of high-tech goods. Instead, the systemic cause of the excessive share of raw materials in the structure of domestic merchandise exports and the Ukrainian economy’s dependence on imports of high-tech industrial goods is the decline of domestic industry. First and foremost, sectors such as the chemical industry, mechanical engineering, and vehicle manufacturing. Given the current shortcomings of industrial production, the development of the manufacturing sector and an import substitution policy should become the key pillars of national industrial policy. Alongside traditional policy tools for actively stimulating targeted sectors of domestic production, the use of protective tariffs is essential: imposing duties on raw material exports and raising duties on imports of industrial products. The inevitable consequence of imposing protective tariffs will be increased tension in foreign economic relations. However, the ability to implement a complex, unpopular, and costly policy aimed at reviving domestic industrial production – on which, among other things, the state of Ukraine’s foreign trade depends – is a test of the Ukrainian nation’s agency that it must pass. In order to avoid remaining forever a poor, resource-rich appendage of developed countries. Keywords: foreign trade, net exports, trade balance, services, goods, raw materials, finished products, value added, terms of trade, industry, protective tariffs.