Potential Impacts of the War in Ukraine on the Fourth District

This District Data Brief examines the trade connections between Ukraine and Russia and the Fourth Federal Reserve District, which includes Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia. It appears that supplies to the District will be substantially reduced for several items that Ukraine and Russia export, such as primary metals and fertilizer. We should expect prices to rise for these goods, as they have already for petroleum. However, there are generally alternate global suppliers for many of the goods sold by Ukraine and Russia, so Fourth District firms will probably not be forced to halt production because of lack of materials.

Some industries in the District, including coal mining and corn and soybean farming, could experience increased demand because the trade partners of Ukraine and Russia will need to replace these countries’ exports. However, the estimates detailed below suggest the net increase in demand would be less than one tenth of a percent of the District’s gross domestic product (GDP).

At the time this brief was prepared, the Russia–Ukraine war does not appear to be de-escalating. For the analysis, I assume that Ukraine will not be able to export goods for the remainder of 2022 and that sanctions on Russia will be left in place or increased.¹

Goods the United States imports from Ukraine and Russia

Most of the goods that the United States imports directly from Ukraine and Russia are raw materials and intermediate goods (see Table 1). There are no items for which the United States relies on Ukraine and Russia for the majority of its imported supply. The United States also produces some of these goods for domestic consumption, including iron and oil. The availability of domestic supplies ensures that the loss of 30 percent of the imported supply of a specific commodity, for example, does not force a full 30 percent decline in consumption of that commodity.

Notes: Values are inflation adjusted to 2022 dollars before averaging. The sum of the individual country values may not match the combined values because of rounding.
Sources: DESA/UNSD, United Nations Comtrade database via World Bank World Integrated Trade Solutions.

Goods Ukraine and Russia supply to world markets

Countries that normally buy Ukrainian and Russian commodities will likely direct their purchases to the same remaining trading partners that normally sell goods to the United States. This shift will affect the quantities and prices available to District firms. Table 2 lists the top 20 commodities in terms of Ukrainian and Russian supply of global exports along with the share of those global exports that typically head to the United States. Metals, fertilizers, and fossil fuels are prominent on the list.

Note: The sum of the individual country values may not match the combined values because of rounding.
Sources: DESA/UNSD, United Nations Comtrade database via World Bank World Integrated Trade Solutions.

Considering the shares displayed in Tables 1 and 2, the items that appear as if they could have the most impact on the Fourth District are intermediate forms of iron used in making steel and steel products.² The Fourth District is home to some of the nation’s largest industry clusters in steel, automotive, and aviation manufacturing, a situation which means that 1 out of every 12 workers in the District could be idled if the metals supply chain were interrupted. In the District, approximately 48,000 people are employed in the primary metals sector (NAICS 331), which processes iron ingots and ores into the steel used in manufacturing and construction.³ Primary metal manufacturing accounts for about 0.7 percent of total District employment. Approximately 6.6 percent of employment in the District is in industries reliant on the steel produced by these primary metals manufacturers. Specifically, 125,000 District workers are employed in the fabricated metal manufacturing industry (NAICS 332), and 265,000 people are employed in steel-intensive durable-goods manufacturing.⁴ Another 1.1 percent of our District’s employment, 93,000 workers, is employed in steel-intensive construction.⁵

Global shortages of several other commodities used in metal manufacturing could hamper production of automobiles and appliances even if iron remains available. For example, nickel is necessary to produce stainless steel, and Russia supplies about 11 percent of global exports of nickel. The US also imports approximately 16 percent of the platinum-group metals that are exported globally, and Russia is a major supplier of these. The largest demand for platinum is for the manufacturing of catalytic converters for vehicles.

Considering the overlapping concentrations of Ukraine, Russia, and the Fourth District in metals industries, we engaged with several of our contacts in the steel industry to ask specifically about the impact of the war. As of the end of April 2022, they said that prices for various inputs had risen, but they did not expect work stoppages. Our contacts indicated that US steel producers have successfully substituted imported iron and scrap steel from other countries. They also said their customers do not expect to reduce production because of a lack of other inputs such as catalytic converters.

Lost sales to Ukraine and Russia and increased sales to their trading partners

Some Fourth District firms could benefit from increased demand as global buyers seek to replace supplies unavailable because of the war. Table 3 lists the potential increases in demand for commodities exported by Fourth District producers that could substitute for Ukrainian and Russian supplies. At the same time, Fourth District producers are losing customers they had in Ukraine and Russia. Table 4 lists the top items by value that are produced in the District and exported to Ukraine and Russia.

Notes: The rightmost column is calculated as follows: D4_demand_increase = (UKR_exports + RUS_exports) x US_share_global_exports x D4_share_US_production. The District share of US production is estimated based on the share of employment in the industry in District counties observed in the QCEW in 2021. The dollar values are averages of the annual figures from 2016 to 2020. Values are inflation adjusted to 2022 dollars before averaging. Columns sums may not equal totals because of rounding.
Sources: DESA/UNSD, United Nations Comtrade database via World Bank World Integrated Trade Solutions, Quarterly Census of Employment and Wages.

The estimates in Table 3 represent an upper bound on demand increases because many nations, including China and India, have announced they will continue to buy exports from Russia. As a result, global supplies will probably not contract by the total Russian export volume.

In some cases, Ukrainian and Russian exports include related products at multiple stages of production. For example, pig iron is used to produce flat-rolled steel products, and fertilizer is used to produce corn. The ability of District producers to meet the added demand could be constrained by shortages of the intermediate items.

Notes: The rightmost column is calculated as follows: D4_demand_decrease = (UKR_imports_from_US + RUS_imports _from_US) x D4_share_US_production. The District share of US production is estimated based on the share of employment in the industry in District counties observed in the QCEW in 2021. The dollar values are averages of the annual figures from 2016 to 2020. Values are inflation adjusted to 2022 dollars before averaging. Columns sums may not equal totals because of rounding.
Sources: DESA/UNSD, United Nations Comtrade database via World Bank World Integrated Trade Solutions, Quarterly Census of Employment and Wages.

The net changes from this analysis sum to $731 million in additional demand for raw materials and products produced in the District. Compared to the Fourth District’s GDP, the increase is less than one tenth of 1 percent.⁶ While there will be winners and losers among the District’s exporters, it appears the net change may be modest.