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Recent developments in global trade
Presentation „Schwerpunkt Außenwirtschaft“WKO-OeNB
Julia Wörz, Lukas Vashold and Angelika KnollmayerVienna, June 17, 2019
Foreign Research Divisionwww.oenb.at
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Global GDP growth of 3.6% in 2018 – only slightly lower than previous year (3.8%)However, signs for significant deceleration in the underlying momentum
World trade grew by only 3.8% in 2018 – compared to 5.4% 2017Slowdown started in Q2, growing headwinds:
o Slowing growth in advanced economieso Similar patterns in emerging and developing countries: Asia as a source of demand
slightly on the retreato Increasingly protectionist US trade policy stance uncertainties ↑, trade growth ↓
WTO observed significant increase in trade restricting measures, trade coverage of recent measures seven times larger than in previous period (Mid-Oct to Mid-Oct).
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World trade growth decelerated during 2018
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GDP growth weakens moderately, global trade growth slows markedly
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2011 2012 2013 2014 2015 2016 2017 2018
WorldAdvanced economiesEuro areaEmerging and developing AsiaEmerging market and develop ing economies
GDP growthyear-on-year increase in %
Source: Macrobond, IMF.
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2011 2012 2013 2014 2015 2016 2017 2018
WorldAdvanced economiesEuro areaEmerging and developing AsiaEmerging market and develop ing economies
Trade growthyear-on-year increase in %
Source: Macrobond, IMF.
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Trade to output ratio falls again below parity
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Jan-14 Jul-14Jan-15 Jul-15Jan-16 Jul-16Jan-17 Jul-17Jan-18 Jul-18Jan-19
Industr ial Production Trade
Global trade and industrial productionyear-on-yearchange in %, 3-month moving averages
Source: CPB, Macrobond.
March 2019last value:
Downturn of global trade in lockstep with decline of output growth.
After having continuously been above parity again in 2017, trade elasticity declined again during 2018 – and fell below parity in Q1 2019.
“New normal” likely slightly above one.
Current uncertainties (new tariffs, Brexit) open possibility of prolonged values below parity via direct and indirect effects (large “GVC bias” inherent in the elasticity).
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Competitiveness Price competitiveness (REER developments):
o Deterioration for USo Improvements for China, Russia and Brazil o No change for euro area
World Economic Forum introduced its new Global Competitiveness Index (GCI) 4.0:
o Broad set of indicators related to price and non-price competitiveness
o New version taylored to digitalization challenges (64 new indicators out of total of 98)
o Austria on rank 22
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World Trade Outlook Indicator points towards continued headwinds in the second quarter of 2019
Source: WTO (Release date: 20 May 2019)
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Also other leading indicators point towards moderating trade dynamics: Baltic Dry Index, PMI export component.
IMF expects world trade to grow by 3.4% in 2019 (3.9% in 2020).
Factors driving the deceleration:
o Moderating growth rates in advanced economies.
o Maturing production networks / flattening GVC participation fewer investment possibilities.
o Prolonged unclear situation with respect to Brexit.
o Elevated uncertainties concerning trade conflicts.
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Outlook for 2019: high uncertainty entails large downside risks
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Protectionism on the rise
Source: Lisa Benson / Washington Post, July 3, 2018.
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US president Trump attempts to deliver on his „America first“ campaign, repeated threats (particularly against China) and impositions of bilateral trade tariffs.
Trade between US and EU accounts for 5.2% of world trade (US-China: 4.3%) – EU most important trading partner for US (19% of exports, China: 16%).
Latest WTO Trade Monitoring Report (November 2018) saw “sharp escalation of protectionist rhetoric and trade tensions”; report shows “a significant increase in trade coverage of trade-restrictive measures” estimated at around USD 600 billion, which “is more than seven times larger than the figure for the previous annual overview and the largest coverage of such measures recorded by the trade monitoring exercise” while also being twice as high as the trade coverage of implemented trade-facilitating measures in the same period.
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Protectionism on the rise
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Protectionism on the rise under Trump, China as the main scapegoat
Overview of most important developments of trade conflictsDate Event Date Event
from against Products from against Trade coverage Sum introduced08.11.2016 Election D. Trump as US president 22.03.2018 Announcement US CN USD 50bn
02.04.2018 Threat CN US USD 50bn23.01.2018 Announcement US World 16.06.2018 Threat US CN USD 100bn07.02.2018 Introduction US World 18.06.2018 Threat CN US USD 100bn
19.06.2018 Threat US CN USD 200bn13.02.2018 Threat US World 06.07.2018 Introduction US CN USD 34bn USD 34bn
01.03.2018 Introduction with temporary exemptions US World 06.07.2018 Introduction CN US USD 34bn USD 34bn01.06.2018 Introduction US EU 03.08.2018 Threat CN US USD 16bn10.08.2018 Raised tariffs for Turkey US TR 23.08.2018 Introduction US CN USD 16bn USD 50bn14.08.2018 Introduction TR US retaliatory measures 23.08.2018 Introduction CN US USD 16bn USD 50bn
17.09.2018 Announcement US CN USD 200bn23.05.2018 Investigation order US EU 18.09.2018 Announcement CN US USD 60bn19.07.2018 Public hearings US EU 24.09.2018 Introduction US CN USD 200bn USD 250bn25.07.2018 Deal US - EU 24.09.2018 Introduction CN US USD 60bn USD 110bn
17.02.2019Investigation completed Recommendation: Introduction of tariffs on cars
01.12.2018"Truce" US - China with prolonged negotiations in Washington and Beijing
17.05.2019 Delay of decision until 13.11.2019 05.05.2019 Threat to end negotiations Trump US CN05.05.2019 Threat US CN USD 325bn10.05.2019 Increase of tariffs from 10% to 25% US CN01.06.2019 Increase of tariffs to up to 25% CN US
Tariff details Tariff details
Washing machines and solar panels
Aluminium / Steel
Automobiles
USEUJPKR
Source: NZZ, Lexoglogy, Economiessuisse, Dekabank, orf.at, Focus, derstandard,Peterson Institute for International Economics, CNBC, china-briefing; own depiction.
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Negotiations between US and China move forward in a rather sluggish pace.o Several rounds of negotations in Washington and Beijing.o Trump already showed his impatience with threats and by raising already introduced
tariffs in response to China trying to „renegotiate“ the trade deal.o China in response raised tariffs on last batch of products as well.
Decision regarding car tariffs primarily aiming at Japan, Germany and South Korea has been delayed for 180 days to November 13.
Removement of steel and aliminium tariffs for Canada and Mexico could boost the chances of all three countries ratifying the USMCA Agreement, the replacement for NAFTA. Recent threats by Trump against Mexiko elevated uncertainties, however pressure of Senate led him to back off.
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Protectionism, what lays ahead?
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Estimates from the Peterson Institute for International Economics: • 25% US import tariff on all imports of automobiles (i.e. against all trading partners) small,
negative effects on the US economy (higher domestic prices, low substitutability of products)• full retaliation by trading partners US auto industry will shrink (4% in output, 5% in
employment)
Import tariffs are inadequate to redress imbalances:• Ignores the importance of imports for productivity gains and to achieve higher price
competitiveness in the presence of global value chains• Effects on exchange rates/monetary system (Triffin dilemma: if successful global
availability of US-Dollar reserves ↓ role of the US-Dollar as primary reserve currency ↓ refinancing costs for public debt ↑)
Lingering trade war gives a 19th century answer to a – partially home-made – U.S. problem against the background of a highly complex 21st century trading environment.
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Everyone to lose from a trade war
