Global Economy & Trade 2019

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2-3 December
Stocks fall, bonds climb amid concern over longer trade war
(Reuters) – A comment by President Donald Trump that a deal to end the U.S.-China trade war might not come until after the November 2020 election weighed on global stock markets on Tuesday, sending investors to the safety of bonds.
Trump’s saying the trade war may last another year came a day after his administration announced new tariffs on steel from Brazil and Argentina and threatened duties of up to 100% on French goods because of a digital services tax that Washington says harms U.S. tech companies.
Europe appeared to be the next theater of the global trade war. France said on Tuesday it was prepared to push the European Union to respond in kind if the United States followed through on its threats to raise tariffs.
Global trade takes a beating—and with it the global economy
By Eswar Prasad
(Brookings) What do recent trade data portend? The news is not good, and suggests that not only is the world economy weaker than it was earlier this year but that more weakness lies ahead. Still, it may be premature to call a worldwide global recession. Much will, of course, depend on U.S. trade policy and whether the Trump administration chooses to tamp down or further escalate its trade disputes, not just with China but also with other major U.S. trading partners such as the European Union. Otherwise, trade will drag down rather than boost growth.
The World Trade Organization, which monitors world trade, recently slashed its forecast for global trade growth in 2019 from 2.6 percent to just 1.2 percent. For 2020, the forecast has been cut from 3 percent to 2.7 percent, which still suggests a rebound.
But other indicators paint a less promising picture. The Baltic Dry Index, a closely-watched indicator based on bulk commodities shipping that serves as a reliable indicator of future trade activity, has fallen by nearly 50 percent since August (after doubling in the first eight months of the year), squelching hopes for a rebound in global trade.

27 November
Reuters: World shares made another push for an elusive record high on Wednesday after U.S. President Donald Trump said Washington and Beijing were in the final throes of inking an initial trade deal. Meanwhile U.S. stocks will keep rising in 2020 but at a much more modest pace than this year, with plenty to potentially slow the ascent, according to a Reuters poll of strategists.

25 November
After the US-China Trade War
Stephen S. Roach
Trade truce or not, a protracted Cold War-like conflict between the United States and China has already begun. That should worry the US, which, unlike China, is devoid of a long-term strategic framework.
(Project Syndicate) …the political calculus of both countries is coming into closer alignment, with each looking for some face-saving truce. There is always a risk that other complications will arise — recent events in and revelations of developments in China’s Xinjiang Province come to mind. But, at least for the time being, the politics of the trade war are now pointing more toward de-escalation rather than a renewed ratcheting up of tensions.
…if a phase one accord is reached, it behooves us to ponder what the world will look like after the trade war. Several possibilities are at the top of my list: deglobalization, decoupling, and trade diversion.
Deglobalization is unlikely. Like the first wave of globalization that ended ignominiously between World War I and the Great Depression, the current wave has generated a mounting backlash. Populism is rearing its ugly head around the world, and tensions over income and wealth inequality – aggravated by fears that technological innovations such as will undermine job security – are dominating the political discourse. Yet the climactic event that underscored the demise of the first wave of globalization was a 60% collapse in world trade in the early 1930s. Notwithstanding the current political dysfunction, the odds of a similar outcome today are extremely low.

22 November
The end of world trade as we know it
Less than a month remains before the lights effectively go out on the WTO’s dispute system and Trump seems happy to flip the switch.
(Politico Eu) The world will not end on December 10, yet for many who have spent their careers within the global trading oversight system, the date has apocalyptic consequences.
That is when the World Trade Organization’s highest dispute-resolution body will cease to function after the administration of President Donald Trump blocked reappointments to the panel. Without a working appeals system, international trade disputes may never see resolution and could quickly evolve into tit-for-tat tariff wars that spiral out of control.
The looming crisis exposes deeper cracks at the WTO. The consensus-based organization, which includes 164 countries with wildly divergent stages of economic development, has largely failed to work out new rules for freer trade since it was formed in 1995. Negotiations launched in Doha in 2001 were finally declared dead by the U.S. in 2015 after yielding few results.
The United States could use its agenda to neuter the Geneva-based WTO even further, after Bloomberg reported earlier this month that it had floated the possibility of blocking the organization’s biennial budget approval. Without money, the global body would effectively shut down next year.
… But even if the U.S. manages to ram through its fixes to the dispute system, American officials have a litany of other changes they want to see at the WTO. They include making it harder for countries like China to self-proclaim “developing” status, which affords them certain preferential treatment on trade. The U.S. also wants more transparency from all nations, especially from China, on subsidies given to domestic businesses that export.
A weakened World Trade Organization could bring back an era that allowed economically strong countries to steamroll other nations. Before the WTO established a rigid dispute process, trade was governed by the General Agreement on Tariffs and Trade, which resolved trade disputes through diplomatic muscle rather than a deliberative, legal manner.
Unease with the prospect of not having a final authority on disputes has prompted Canada and the EU to begin work on a “shadow Appellate Body” that would mimic much of the WTO version. Judges would be made up of former Appellate Body members.

15 October
IMF cuts global growth forecast to lowest level in a decade (video)
Brett House, vice-president and deputy chief economist at Scotiabank, breaks down the latest International Monetary Fund economic outlook report.

2 October
WTO allows U.S. to retaliate with tariffs on EU exports because of Airbus subsidies
The EU’s top trade official responded to the announcement by saying the bloc would prefer to reach a settlement with the United States to avoid a tariff war — but it will respond if President Donald Trump imposes new duties on EU products.
EU Trade Commissioner Cecilia Malmstrom said a tariff war “would only inflict damage on businesses and citizens on both sides of the Atlantic, and harm global trade and the broader aviation industry at a sensitive time.”
“If the U.S. decides to impose WTO authorized countermeasures, it will be pushing the EU into a situation where we will have no other option than to do the same,” she said.

1 October
Global Trade Is Deteriorating Fast, Sapping the World’s Economy
(NYT) A weakening world economy, President Trump’s trade war with China and fears of a potentially tumultuous Brexit have combined to produce a dramatic slowdown in global commerce, the World Trade Organization said Tuesday.
The Geneva-based organization slashed its forecast for trade growth for this year and 2020, a troubling indicator as economists warn of continued weakness in the global economy.
World trade in merchandise is now expected to expand by only 1.2 percent during 2019, less than half the 2.6 pace of growth anticipated in April, the W.T.O. said in a statement. World trade is forecast to reach 2.7 percent next year, below the 3 percent previously foreseen.
WTO lowers trade forecast as tensions unsettle global economy
(Press Release) Escalating trade tensions and a slowing global economy have led WTO economists to sharply downgrade their forecasts for trade growth in 2019 and 2020. World merchandise trade volumes are now expected to rise by only 1.2% in 2019, substantially slower than the 2.6% growth forecast in April. The projected increase in 2020 is now 2.7%, down from 3.0% previously. The economists caution that downside risks remain high and that the 2020 projection depends on a return to more normal trade relations.

3 September
Trump’s trade war has led to a historically weak Chinese currency — and a new study shows that impact could spread globally
(Business Insider) Global currencies have become a front-and-center issue in the US-China trade war.
The yuan slid nearly 4% versus the US dollar in August, its largest monthly decline in decades.
That weakness could spread to other emerging-market currencies, according to a study by Institute of International Finance. … A new report from the Institute of International Finance took a look at the yuan’s impact beyond the US. It ultimately concluded that if it depreciates further, it could end up weighing on the currencies of other emerging-market nations.

26 August
G7 struggle to lighten darkening economic outlook
National leaders leave annual summit with few promises for global economy.
By Hans von der Burchard and David M. Herszenhorn
(Politico Eu) — There were none of the customary references to “prosperity,” “economic growth” or “mutually beneficial trade” as leaders of the world’s richest democracies closed out their annual G7 summit on Monday.
And with good reason: They can’t make any promises
French President Emmanuel Macron, German Chancellor Angela Merkel and other G7 leaders used the summit to make a strong lobbying push, aimed at stopping Trump from further disintegrating global trade flows. But by the end, they only seemed to have patched up a bit of the worst damage done by the self-appointed “tariff man” by persuading him to soften his rhetoric against China, which had seemed to reach maximum bluster when he ordered American companies to shut operations there.

23 August
Is a global recession imminent? | Brett House & Adam Taylor
Economist Brett House and trade expert Adam Taylor discuss the escalating trade tensions between the United States and China, and what it could mean for Canada.

28 June
G20 leaders at odds over trade, geopolitical issues
Japanese PM chides China over Hong Kong rule of law, while Trump criticized for ‘America first’ policies
(AP) World leaders attending a Group of 20 summit in Japan that began Friday are clashing over values that have served for decades as the foundation of their co-operation as they face calls to fend off threats to economic growth.
“A free and open economy is the basis for peace and prosperity,” Japanese Prime Minister Shinzo Abe told his counterparts in opening the two-day G20 meeting, which comes as leaders grapple with profound tensions over trade, globalization and the collapsing nuclear deal with Iran.
While groups like the G20 endeavour to forge consensus on broad policy approaches and geopolitical issues, they also are divided on an array of issues.

25 June
Trump’s Trade War With China Is Already Changing the World
Trump’s tariffs have changed global trade. Just not in the way he expected.
His tariffs are contributing to a “generational shift” in which companies make their products.
By Michael Schuman
(The Atlantic) The trade war between the United States and China has ratcheted up of late, with President Donald Trump and President Xi Jinping set to have a one-on-one meeting at the G20 Summit this week in hopes of restarting stalled trade negotiations. But whether or not or a deal is struck, the trade fracas between the two countries has already led businesses to redraw the map of global production: Instead of companies shifting manufacturing from China back to the U.S. as Trump wanted, they’re moving their assembly lines to Southeast Asia and other parts of the world. (One survey revealed that about 40 percent of companies doing business in China reported that they have relocated or are considering moving operations out of China.) It’s not just businesses that are feeling an effect. As China and the U.S. drift apart, a new pattern of global relations may be emerging, with China and Russia growing closer than at any point in recent memory.

4 June
Trump’s trade wars sent global investment tumbling – World Bank
Brexit and trade disputes push bank’s policy uncertainty index to record high, says report
(The Guardian) Donald Trump’s trade wars with China, Mexico and Europe have sent global investment tumbling, according to a World Bank report that forecasts worldwide growth this year will slip back to levels not seen since 2016.
The Washington-based lender to developing world countries said in its half-yearly global health check that spiralling political uncertainty was to blame for a slowdown in trade and a collapse in investment spending that will push down GDP growth to 2.6% this year “before inching up to 2.7% in 2020”.
The decision by the Trump administration to impose higher tariffs on Chinese imports and prolonged Brexit uncertainty were among a string of events to increase the World Bank’s policy uncertainty index to a record high
World Bank Cuts Global Outlook as Trade Tumbles to Decade Low
(Bloomberg) “There’s been a tumble in business confidence, a deepening slowdown in global trade and sluggish investment in emerging and developing economies,” World Bank President David Malpass said in a call with reporters. “Momentum remains fragile.”
The bank also warned that risks are skewed “firmly” to the downside, citing reignited trade tensions between the U.S. and China, financial turbulence in emerging markets and sharper-than-expected weakness in advanced nations, particularly Europe.

11 May
Paul Krugman: Killing the Pax Americana
Trump’s trade war is about more than economics.
… trade policy isn’t just about economics. It’s also about democracy and peace.
…the postwar trading system grew out of the vision of Cordell Hull, FDR’s Secretary of State, who saw commercial links between nations as a way to promote peace. That system, with its multilateral agreements and rules to limit unilateral action, was from the beginning a crucial piece of the Pax Americana. It was as integral to the postwar order as the I.M.F., which was supposed to provide a safety net for nations having balance of payments trouble, or for that matter NATO.
And Trump’s trade war should correspondingly be seen as part and parcel of his embrace of foreign dictators, lack of respect for our allies, and evident contempt for democracy, at home as well as abroad.
… where the Europeans are weak, Trump is malign. He’s working actively to make the world a more dangerous, less democratic place, with trade war just one manifestation of that drive. And the eventual negative consequences for America and the world will be much bigger than anything we can capture with economic modeling of the effects of tariffs.

12 April
China’s imports slump sparks fresh fears about global economy
Country has $32bn surplus in March but trade war with US is serving as brake on growth
As China and U.S. inch toward a trade deal, Canada gets a warning of potential harm
(Globe & Mail subscribers) U.S. and Chinese negotiators have, in nine rounds of talks, shaped the contours of an agreement that is expected to see Beijing lower some of the barriers that have made it home to the most hostile rules for foreign investors among any major economy monitored by the Organization for Economic Co-operation and Development.
All of China’s trading partners are likely to benefit from changes to protectionist policies, protections for intellectual property or requirements for technology transfer, said Tomas Valasek, the director of Carnegie Europe, on a recent visit to Beijing.
But in other respects, the United States is playing “a complete zero-sum game” relative to other countries, he said. Observers believe Washington is seeking roughly US$200-billion a year in additional Chinese purchases of U.S. goods, which over the six years to 2025 could amount to US$1.2-trillion
It all amounts to “purchases that would have been dispersed or divided between all of the other countries, and now won’t be,” Mr. Valasek said. On at least three different occasions, European leaders have reached out to the White House to suggest joining forces in trade talks with China, Mr. Valasek said.

21 January
IMF cuts world economic forecast for 2019, citing trade tensions
(Market Watch/AP) The International Monetary Fund has cut its forecast for world economic growth this year, citing heightened trade tensions and rising U.S. interest rates.
The IMF said Monday that it expects global growth this year of 3.5%, down from 3.7% in 2018 and from the 3.7% it had forecast for 2019 back in October.
Unveiling its forecasts at the World Economic Forum in Davos, Switzerland, the fund left its prediction for U.S. growth this year unchanged at 2.5%. But it trimmed the growth outlook for the 19 countries that use the euro currency to 1.6% from 1.8%.
“Higher trade uncertainty will further dampen investment and disrupt global supply chains,” said IMF chief economist Gita Gopinath.
Rising interest rates in the U.S. and elsewhere are also pinching emerging-market governments and companies that borrowed heavily when rates were ultra-low in the aftermath of the 2007-2009 Great Recession.

17 January
A brief history of globalization
by Peter Vanham, Media Lead, US and Industries, World Economic Forum
(WEF) Silk roads (1st century BC-5th century AD, and 13th-14th centuries AD)
People have been trading goods for almost as long as they’ve been around. But as of the 1st century BC, a remarkable phenomenon occurred. For the first time in history, luxury products from China started to appear on the other edge of the Eurasian continent – in Rome. They got there after being hauled for thousands of miles along the Silk Road. Trade had stopped being a local or regional affair and started to become global.
That is not to say globalization had started in earnest. Silk was mostly a luxury good, and so were the spices that were added to the intercontinental trade between Asia and Europe. As a percentage of the total economy, the value of these exports was tiny, and many middlemen were involved to get the goods to their destination. But global trade links were established, and for those involved, it was a goldmine.

2 January
The Trump administration is weakening the global trading system
(The Economist) The coming year is shaping up to be one of preferential trade deals, where two or a group of countries agree on their own trading rules. As well as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which came into effect on Sunday, and an EU-Japan deal, America is aiming to strike several such accords. But do these act as stepping stones towards broader trade liberalisation? Or do they distort trade and divide the world into competing trade regions? And what will be the impact on the multilateral system overseen by the World Trade Organisation (WTO)?
Nearly 300 preferential trade deals are now recorded by the WTO. Many go beyond tariff-cutting to include rules on state-owned enterprises, intellectual property and trade in services. Having grown into an integrated trading area, the EU became an enthusiastic proponent, striking many reciprocal deals, including with Canada, Mexico and Singapore. In June it started talks with Australia.
As they proliferated, economists learnt more about their impact. One fear had been that they might divert custom from more efficient producers in third countries. But a study by Aaditya Mattoo, Alen Mulabdic and Michele Ruta of the World Bank, published in 2017, found that shallow deals do little to reduce trade with third countries, and deep ones tend to increase it. This, they think, is because rules on competition policy, subsidies and standards are hard to apply in a discriminatory way.
Though previous American administrations were sometimes frustrated with the WTO, they viewed it as the foundation of the trading system. Preferential deals were an instrument of diplomacy. TPP was intended to create a template for a trading system that might eventually include China, and perhaps give reform-minded Chinese policymakers something to aim for.
Mr Trump’s trade agenda could hardly be more different. His “America First” rhetoric, threats of tariffs on allies and of withdrawal from the WTO, and policies of blocking appointments to the WTO’s court and using tariffs as a national-security tool, are inimical to an even-handed system that all can support. Even if these policies turn out to be temporary, the uncertainty they cause may be permanent.

31 December
Canada and 5 other nations pull trigger on world’s biggest trade deal — leaving America out in the cold
Opinion: The world’s most radical trade pact has come into force across the Pacific as the U.S. sulks on the sidelines
The world’s most radical trade pact has come into force across the Pacific as the U.S. sulks on the sidelines, marking a stunning erosion in American strategic leadership.
Eleven countries are pressing ahead with the Comprehensive Agreement for Trans-Pacific Partnership (CPTPP), defying barely-disguised efforts by the Trump administration to kill the treaty.
A vanguard of Japan, Singapore, Mexico, Australia, Canada and New Zealand activated the treaty over the weekend, ripping down barriers to trade in almost all goods. It eliminates 18,000 tariffs and slashes others in stages over coming years.
The pact opens up trade in services on the basis of equal treatment. It cuts the costs of customs clearance, rules of origin and compliance to a minor friction. Once Vietnam, Malaysia, Peru, Chile and Brunei have ratified the treaty it will cover 13.5 per cent of global GDP, bigger than the EU’s post-Brexit market and a faster-growing region of the global economy.
South Korea, Thailand, Taiwan, Indonesia and Colombia have all expressed interest in joining. So has the U.K., despite being in the Atlantic. It promises to become the world’s biggest free trade zone in short order, and perhaps the nucleus of a new global order.
The White House assumed that the TPP would wither on the vine without U.S. impetus. Instead, long-standing U.S. allies across the Pacific have brushed off pressure from Washington and forged ahead regardless with what is now known as the “anti-Trump pact.”
America is the biggest loser,” says the Peterson Institute in Washington. The fall in food tariffs under the CPTPP means that U.S. farmers will be undercut by exporters from Australia, Canada, and New Zealand in the lucrative Japanese market.
The latest twist is that Chinese officials have begun to explore the possibility of joining the pact that was supposed to exclude them, prompting a wary riposte from its founders.

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