Mitch Joel WARNING... LONG RANT! It takes a lot for me to both get angry and publish about it. Canada’s…
Global Economy & Trade 2019-August 2022
Singapore’s woes sound a warning for wider Asia
Trade-dependent city-state’s slowing growth reflects waning prospects for a quick post-Covid economic bounce back
by William Pesek
It’s typhoon season – economic typhoon season – in Singapore and wider Asia.
(Asia Times) To those betting on a strong Asian rebound from the Covid-19 era, Singapore has a sobering message: “Think again.”
Singapore matters because of its role as Asia-Pacific region weathervane. Its open and trade-reliant economy is often the vanguard of zigs and zags in global demand. When container-ship parking around Singapore gets crowded, manufacturers have reason to shudder.
At the moment, Asia’s weathervane is signaling fresh headwinds coming its way. Some are coming from Washington, where the US Federal Reserve’s interest-rate hike cycle is accelerating. Others are emanating from Europe, where growth is slowing under the weight of high energy costs.
Six ways to improve global supply chains
Darrell M. West
(Brookings) It is a time of tremendous disruptions in global supply chains with many problems ranging from shifts in consumer demand and off-shoring reliability to transportation jams, anti-competitive practices, and geopolitical complications. As noted in a 2022 Council of Economic Advisers report, supply chains currently “are efficient but brittle – vulnerable to breaking down in the face of a pandemic, a war or a natural disaster. Because of outsourcing, off-shoring and insufficient investment in resilience, many supply chains have become complex and fragile.”
In this paper, I outline six ways to improve global supply chains:
Boosting domestic production through on-shoring and near-shoring
Easing transportation jams
Prioritizing public health
Managing labor shortages
Fighting anti-competitive practices
Mitigating geopolitical tensions
…the challenge of improving global supply chains is their multifaceted nature. There is not a single cause, which, if corrected, would address the situation but a series of difficult problems that interact in complex ways. For example, labor shortages linked to economic shocks and a continuing pandemic weaken production capabilities and impede resolution. A Washington Post story made that clear connection when it documented how “COVID shutdowns in China are delaying medical scans in the U.S.” The reason is simple. When COVID-19 numbers increase, China closes factories that make medical equipment destined for America and therefore exacerbates supply chain obstacles.
The same logic applies throughout supply lines and illustrates why it is so challenging to address these matters. Resolution is going to require progress on many different fronts. There will need to be improvements on a variety of factors to make a difference in production, logistics, and distribution. Progress will not be easy or quick but can be made if there is a clear and comprehensive strategy to deal with the multiple challenges and complex interconnections.
Supply Chain Hurdles Will Outlast Pandemic, White House Says
The administration’s economic advisers see climate change and other factors complicating global trade patterns for years to come
(NYT) …in a report released Thursday, White House economists argue that while the pandemic exposed vulnerabilities in the supply chain, it didn’t create them — and they warned that the problems won’t go away when the pandemic ends.
“Though modern supply chains have driven down consumer prices for many goods, they can also easily break,” the Council of Economic Advisers wrote. Climate change, and the increasing frequency of natural disasters that comes with it, will make future disruptions inevitable, the group said.
‘Last on the rung:’ Africa deals with fallout from a ‘Made in the USA’ supply chain crisis
Shipping lines flock to Asia-to-U.S. trade lanes at expense of many developing nations
(WaPo) With U.S. retailers willing to pay almost any price to get their goods to American shores in time for the holidays, ocean carriers have redeployed container ships from the developing world to the more lucrative Asia-to-United States trade lanes, where rates for some shipments this fall were 15 times pre-pandemic levels, according to the Freightos index.
Already lagging in coronavirus vaccinations, Africa risks becoming collateral damage in the supply wars. The International Monetary Fund says the 45 nations of sub-Saharan Africa are mired in the slowest economic recovery of any region, with supply chain disruptions helping fuel inflation at roughly twice its pre-pandemic level.
Africa’s place on the periphery of global production makes it a lower priority for the world’s cargo carriers. In Kenya, manufacturers are “highly vulnerable to global supply-chain disruptions and external shocks,” due to their dependence upon foreign raw materials, a September study by KPMG and the Kenya Association of Manufacturers concluded.
‘It’s Not Sustainable’: What America’s Port Crisis Looks Like Up Close
An enduring traffic jam at the Port of Savannah reveals why the chaos in global shipping is likely to persist.
(Europa.Eu) It has come to this in the Great Supply Chain Disruption: They are running out of places to put things at one of the largest ports in the United States. As major ports contend with a staggering pileup of cargo, what once seemed like a temporary phenomenon — a traffic jam that would eventually dissipate — is increasingly viewed as a new reality that could require a substantial refashioning of the world’s shipping infrastructure.
The turmoil in the shipping industry and the broader crisis in supply chains is showing no signs of relenting. It stands as a gnawing source of worry throughout the global economy, challenging once-hopeful assumptions of a vigorous return to growth as vaccines limit the spread of the pandemic.
In recent weeks, the shutdown of a giant container terminal off the Chinese city of Ningbo has added to delays. Vietnam, a hub for the apparel industry, was locked down for several months in the face of a harrowing outbreak of Covid.
Early this year, as shipping prices spiked and containers became scarce, the trouble was widely viewed as the momentary result of pandemic lockdowns. With schools and offices shut, Americans were stocking up on home office gear and equipment for basement gyms, drawing heavily on factories in Asia. Once life reopened, global shipping was supposed to return to normal. But half a year later, the congestion is worse, with nearly 13 percent of the world’s cargo shipping capacity tied up by delays, according to data compiled by Sea-Intelligence, an industry research firm in Denmark.
The Supply-Chain Mystery
Why, more than a year and a half into the pandemic, do strange shortages keep popping up in so many corners of American life?
By Amy Davidson Sorkin
(The New Yorker) What are these supply-chain issues, and why, more than a year and a half into the pandemic, do they keep popping up in so many corners of life?
… At times, it’s been oddly hard to come by plumbing fixtures, construction materials, salad dressing, and even some new books. Remote work and schooling have added to the demand for tech products, contributing to long waits.
…a worldwide shortage of semiconductors [whose] supply has been constrained by COVID-related plant closures in Asia, where many of them are made.
… What’s often at the heart of a supply-chain issue is a labor issue. Last week, the ports of Los Angeles and Long Beach were approaching a crisis state because more than seventy container ships were idling offshore, in what had become a maritime parking lot; there aren’t enough dockworkers to unload their cargo, or enough truck drivers to move it out of the ports.
…severe weather events are a reminder that the pandemic supply-chain ruptures may pale compared with those which will be associated with the climate crisis in coming years. Indeed, one of the most urgent tasks now may be to think about the two issues together. In both cases, the scramble for quick fixes—clearing downed power lines, restocking pasta—can distract from the need for systemic change. The real challenge, when it comes to thinking about supply chains, isn’t making sure that a container ship is unloaded. It’s deciding how we want to live.
Quietly Vying with US, China Boosts Trade, Investments in Latin America
(VoA) China now leads the world in trade with Africa and in direct investment in parts of Asia, but despite rapidly increasing its trade and investments with Latin America it still lags behind the United States with no immediate chance of displacing it.
Latin America stands out from other regions where China has invested due to its more protectionist government policies plus a long legacy of U.S. economic involvement that’s less obvious in other parts of the world, analysts say.
This week, a group of U.S. government officials is in Latin America scouting infrastructure projects for the Group of 7’s plan for the group’s “Build Back Better World,” which was announced in June and seen as an alternative to China’s Belt and Road Initiative building infrastructure projects in the developing world
Paul Krugman: Honey, Who Shrunk the World?
… Starting around 1988, there was a huge surge in trade — sometimes referred to as hyperglobalization — that leveled off around 2008 but left the world’s economies much more integrated than ever before.
This tight integration has played an important background role in pandemic economics. Vaccine production is very much an international enterprise, with production of each major vaccine relying on inputs from multiple nations. On the downside, our reliance on global supply chains has introduced forms of economic risk: One factor in recent inflation has been a worldwide shortage of shipping containers.
… tariffs eventually reduce exports as well as imports, typically by leading to an overvalued currency that makes exporters less competitive. And conversely, slashing tariffs leads to more exports. Basically, nations can choose to be inward-looking, trying to develop by producing for the domestic market, or outward-looking, trying to develop by selling to the rest of the world.
What happened in much of the developing world during the era of hyperglobalization was a drastic turn toward outward-looking policies.
For more than a generation after World War II, it was widely accepted, even among mainstream economists and at organizations like the World Bank, that nations in the early stages of development should pursue import-substituting industrialization: building up manufacturing behind tariff barriers until it was mature enough to compete on world markets.
… orthodoxy shifted to a much more free-trade set of ideas, the famous Washington Consensus. … the change in economic ideology led to a radical change in policy, which played an important role in surging world trade: We wouldn’t be importing all those goods from low-wage countries if those countries were still, like India and Mexico in the 1970s, inward-looking economies living behind high tariff walls.
From ports to rail yards, global supply lines struggle amid virus outbreaks in the developing world
Even as the U.S. economy is slated to enjoy its fastest growth since 1984, supply lines now are expected to remain snarled through the first half of next year or longer, according to corporate executives.
(WaPo) Fresh coronavirus outbreaks are forcing factory shutdowns in countries such as Vietnam and Bangladesh, aggravating supply chain disruptions that could leave some U.S. retailers with empty shelves as consumers begin their back-to-school shopping.
Where Did That Cockatoo Come From? (paywall)
Birds native to Australasia are being found in Renaissance paintings—and in medieval manuscripts. Their presence exposes the depth of ancient trade routes.
(The New Yorker) …perched on the pergola, directly above a gem-encrusted crucifix on a staff, was a slender white bird with a black beak, an alert expression, and an impressive greenish-yellow crest.
Cockatoos are nonmigratory, and their native habitat is restricted to Australia, Indonesia, Papua New Guinea, the Solomon Islands, and the Philippines. Most of the twenty-odd species of cockatoo originate east of the Wallace Line—a boundary, established in the mid-nineteenth century by Charles Darwin’s sometime collaborator Alfred Russel Wallace, that runs through both the strait separating Borneo from Sulawesi and the strait dividing Bali from Lombok.
Wallace noted the absence in Australia of pheasants and woodpeckers, birds common on other continents, and wrote that the area’s cockatoos were among those species “found nowhere else upon the globe.”
Although goods from these regions sometimes entered Europe in the centuries before Wallace’s explorations, little was understood about their place of origin, or about how they moved westward. Even present-day scholarship of what is now called the Global Middle Ages—between 500 and 1500—has paid only glancing attention to Australasia, in part because of a dearth of written records of trade or other forms of cultural exchange with the continent.
Quoting Irish poet, Biden ends EU trade war in renewal of transatlantic ties
(Reuters) – U.S. President Joe Biden ended one front in a Trump-era trade war when he met European Union leaders on Tuesday by agreeing a truce in a transatlantic dispute over aircraft subsidies that had dragged on for 17 years.
The EU also lifted its tariffs on U.S. steel and aluminium for six months in the hope that the United States will do the same for Europe.
Biden faces battle for trade war breakthrough in Brussels
(Politico) While the two sides are likely to produce a joint statement stressing their common goals, the grumpy European camp has a laundry list of unresolved differences in areas such as data transfers, green taxation and a global trade court, where U.S.-EU rifts are proving to be every inch as difficult to patch up as those with China.
How bad are global shipping snafus? Home Depot contracted its own container ship as a safeguard
(CNBC) Home Depot is one of the largest importers in the country. Yet with congested ports, container shortages and Covid-19 outbreaks slowing shipments, the company made a decision: It was time to get its own boat.
The pandemic has created complexities that have ricocheted across the globe, from congested ports to soaring consumer demand.
A Covid-19 outbreak in southern China is a new concern. As Chinese authorities try to stop the spread, they have restricted the number of vessels that can access ports in the major exporting hub. That’s forcing some ships to skip over the ports or anchor offshore as the boats wait to dock. Large shipping companies, such as Maersk, have warned clients about delays. It has caused the biggest backlog since at least 2019, according to a Reuters report.
‘This is 100 per cent the worst thing we’ve ever seen’: How Canadian companies are adjusting to supply chain chaos
Nicolas Van Praet
(Globe & Mail) Fifteen months into the COVID-19 crisis, supply-chain shock has emerged as a top-of mind worry for Canadian corporate leaders, forcing a deep rethink of how to source the materials and goods they need and how much profit they’re willing to sacrifice in the face of rising expenses. Some say it will take months or even years for the capacity constraints and backlogs to ease, a situation that could permanently influence what Canadians can buy and at what price. Roughly 80 per cent of the world’s goods travel by ship.
Congestion at South China ports worsens on anti-COVID-19 measures
(Reuters) Congestion at container shipping ports in southern China is worsening as authorities step up disinfection measures amid a flare-up in COVID-19 cases, causing the biggest backlog since at least 2019.
The Quad and International Trade? The U.S., Australia, Japan and India
Braumiller Law Group
What’s happening with The Quad? Well, President Biden recently hosted The Quad’s first ever leader-level summit on March 12th, 2021. He spoke about us sharing a vision of a free, open, inclusive, and healthy Indo-Pacific region, unconstrained by coercion, and anchored by democratic values. …but in the meantime, on a global scale, China is a major player in all things considered with cross-border trade and is outpacing the U.S in economic growth, quite notably in this Asian sector of the world.
China took in roughly 20% of Japan’s exports last year, jumping ahead of the U.S. as the leading destination. Even though India’s trade with China fell to a five-year low at $45 billion, China still ranks as India’s number one trading partner, recently taking that position from the U.S. China is also Australia’s largest trading partner at $261 billion annually flowing in two-way trade. China has dropped to the 3rd largest trading partner with the U.S. behind Mexico and Canada, but still was involved in $560 billion in two-way trade in 2020. To say the least, there is a lot at stake when laying the groundwork for “getting along” and making concessions to agree on policy for the benefit of all concerned, if that is even possible at this time given the ongoing China coercion in the S. China sea.
G7 criticises nations who undermine global trade in rallying cry for reform
(Reuters) -Trade ministers from the Group of Seven (G7) wealthy nations criticised countries who undermine the global trading system and called for democratic states to rally behind reforms of the international trade rulebook.
Following a virtual meeting, the G7 members said they were concerned about “increased use of non-market policies and practices” and took aim at those who use heavy subsidies, mask the state’s involvement in the economy, and steal technology.
China, a World Trade Organization member since 2001, has denied criticism that it steals intellectual property, unfairly hurts the environment or improperly trades goods made with forced labour.
Global trade above pre-pandemic levels but fears grow of two-speed recovery
While the report states that the value of goods trade in Q1 2021 was higher than before the coronavirus crisis began, trade in services remains below averages.
Tourism and travel are service industries that have been acutely hit by virus mitigation measures, with flights grounded and borders closed to tourists in many countries around the world during various lockdown restrictions.
Global trade’s recovery from COVID-19 crisis hits record high
World trade’s recovery from the COVID-19 crisis hit a record high in the first quarter of 2021, increasing by 10% year-over-year and 4% quarter-over-quarter, according to UNCTAD’s Global Trade Update released on 19 May.
Trade recovery remains uneven, the report notes, especially among developing countries, with exports from East Asia rebounding substantially faster.
East Asian economies are also behind the recovery of trade among developing countries (South-South trade). When trade figures from East Asian developing economies are excluded, South-South trade remains below averages.
The report shows that in Q1 2021 the value of exports remained below averages for countries with economies in transition, the Middle East, South Asia and Africa. Although South America’s exports increased relative to Q1 2020, they remained below 2019 averages.
It finds that in Q1 2021 the value of merchandise imports and exports of developing countries was substantially higher compared with Q1 2020 and Q1 2019 (by about 16%).
Also, in Q1 2021 trade continued to rebound not only in sectors related to COVID-19, such as pharmaceuticals, communication and office equipment, but also others like minerals and agrifood.
In contrast, the energy sector continued to lag behind and international trade in transport equipment remained well below averages, the report shows.
Suez Canal Traffic Backlog Finally Cleared Following The Ever Given Saga
The canal authority began an investigation Wednesday into what exactly caused the Ever Given to run aground and block the waterway. That investigation should be complete within two days, he said.
Cargo Overboard, Intense Rolling: The Risks Of Fully Loaded Mega-Container Ships
Suez Canal blockage: Captain of Ever Given not aiding probe; calamity’s cost tops $1B
And that’s just the bill Egypt could soon be trying to collect. It does not include damages for the owners of more than 400 boats delayed by the calamity on the Suez Canal, nor compensation that could be sought by companies whose materials or products were on those boats.
Lt. Gen. Ossama Rabei, head of Suez Canal Authority, told Egypt’s Sada ElBalad news that Egypt will likely seek $1 billion in compensation for physical and financial damages resulting from the grounding of the massive cargo ship Ever Given. Rabei said the compensation would cover losses from transit fees, the cost of six days of dredging and tugboat activity – and damage to the canal from the dredging.
… The canal carries more than 10% of world trade, and the global cost of the closure was estimated at up to $10 billion a day.
G7 trade ministers agree to develop collective action on ‘harmful industrial subsidies’
China’s generous support for its domestic companies is a major sore spot for Western economies.
The trade ministers also echoed President Joe Biden’s goal to “build back better” from the Covid-19 pandemic and underscored their commitment to make progress this year on WTO reform and other trade areas, including climate, the digital economy and creating more opportunities for women.
Why the World’s Container Ships Grew So Big
As global trade has grown, shipping companies have steadily increased ship sizes — but the Suez Canal blockage showed that bigger is not always better.
(NYT) Global supply chains were already under pressure when the Ever Given, a ship longer than the Empire State Building and capable of carrying furnishings for 20,000 apartments, wedged itself between the banks of the Suez Canal last week. It was freed on Monday, but left behind “disruptions and backlogs in global shipping that could take weeks, possibly months, to unravel,” according to A.P. Moller-Maersk, the world’s largest shipping company.
The crisis was short, but it was also years in the making.
Who pays for Suez blockage? Ever Given grounding could spark years of litigation
The Suez Canal Ship Is Finally Free: Updates
The saga of the world’s most famous stuck ship, the Ever Given, is finally over. Ongoing attempts to dislodge the massive container vessel — which blocked off the Suez Canal in Egypt when it ran aground diagonally last Tuesday — at last proved successful on Monday.
The Ever Given has reached Great Bitter Lake on the Suez Canal, where its hull will be inspected for damage — and where it can stay the hell out of the way so other shipping traffic can resume. The Suez Canal Authority has announced that navigation through the channel will start up again at 8 p.m. local time Monday.
Suez crisis and the fragility of global trade
The closure shows how an accident can trigger a major fiscal and supply-side crisis. Instituting new protocols is essential
By Commodore C Uday Bhaskar (rtd)
(Hindustan Times) The modern Suez was built in the mid-19th century through efforts by the French and opened for navigation on November 17, 1869. This was a tectonic development for global maritime connectivity and impacted colonial history in a definitive manner. The rise of the British Empire was enabled considerably by this canal. Since its inauguration, the Suez has been closed five times — the longest period being the eight years from 1967 to 1975 during the Arab-Israeli conflict.
… Whatever the final verdict about why the MV Ever Given ran aground, it would be fair to surmise that the causes would be a mix of material failure, human error and unanticipated local conditions. Given the scale of the consequences — both fiscal and supply-chain disruption — the need to objectively review existing procedures and protocols specific to the Suez merits the highest priority.
…while the resilience of merchant ships and maximum profit orientation of the shipping industry are under scrutiny, the welfare of the seafarer in these times merits policy review. Working conditions at sea for the crew are very exacting and this is an issue that warrants empathetic attention even as global attention is focused on ensuring that the Suez Canal is navigable again.
Piracy fears mount as ships take long way around Africa to avoid blocked Suez Canal
(WaPo) With some experts predicting that freeing the ship could take weeks, a number of global shipping companies on Friday began seeking alternative routes.
At least seven tankers carrying liquefied natural gas were diverted, including three steered toward the longer route to Europe via the Cape of Good Hope in southern Africa. Another nine tankers were expected to be diverted if the blockage continues into the weekend, an analyst for data intelligence firm Kpler told the Guardian newspaper.
Detouring around Africa is likely to add a week or two to most itineraries. It will also mean hundreds of thousands of dollars in additional fuel costs.
With more ships potentially being diverted to the Cape of Good Hope, piracy could increase. Pirates have long preyed on ships moving in the waters off the Horn of Africa, and the seas off oil-rich West Africa are now considered among the world’s most dangerous for shipping.
A light-hearted look at a very serious problem
The Big, Stuck Boat Is Glorious
The Ever Given is very big and very stuck
(The Atlantic) …the Ever Given has made cartoonishly noticeable some of the crucial infrastructure of global capital, which is usually invisible in most people’s daily life. She has done so with an absolutely sublime visual gag, improved by every new detail about the problems the ship is causing and every new photo of the impotent human measures being undertaken to fix them. Peruse the surrounding waterways on any of the internet’s maritime trackers, and you’ll find the beginnings of a far more significant problem: More than 150 other absolutely huge shipping vessels, transporting everything from live animals to crude oil, are waiting on either side; the barge ran aground at a point where the Suez has only one lane, which means that traffic is blocked in both directions. (emphasis added)
Global shipping is an unglamorous business that has created some extremely glamorous fortunes, but mostly for people you’ve never heard of (unless you’re an art dealer). If you never, ever think about all the big-ass boats out there full of cheap clothes or baby strollers, the industry is working as designed. But a significant majority of your material possessions, including virtually everything you’ve ever bought from Amazon or Best Buy or Target or Walmart, was ferried most of the way from where it was manufactured to where you bought it on a ship similar to the one currently taking an extended smoke break in the Suez.
Containerization, the process that created a need for ships as incongruously huge as the Ever Given, is a relatively modern shipping process developed after World War II. It involves loading goods into big metal boxes the size of tractor-trailer beds and then loading those boxes onto boats in tall stacks that move among major global ports. Its proliferation has made moving large quantities of manufacturing components and consumer goods around the world more efficient and less costly—20 times less expensive by volume, according to one estimate, than traditional bulk shipping—which makes the things you buy less expensive. It also tempts corporations to shuffle their production facilities and the jobs that go along with them around the globe in search of lax labor laws, lower wages, and bigger margins.
After the Ever Given: what the ship wedged in the Suez Canal means for global trade
(The Conversation) The blockage is disrupting important energy trades, but probably not dramatically as there are alternative routes and sources should the blockage last a long time.
About 600,000 barrels of crude oil are shipped from the Middle East to Europe and the United States via the Suez Canal every day, while about 850,000 barrels a day are shipped from the Atlantic Basin to Asia also via the Suez Canal. While the SUMED pipeline, which runs parallel to the Suez Canal, will enable some crude to continue to flow between the Mediterranean and the Red Sea, European and North American refiners will want to replace Middle East oil with oil from sources that don’t usually pass through the canal. Similarly, Asian refiners will want to replace North Sea crude oil.
A reminder of supply chain fragility
For commodities such as oil, LNG, coal and iron ore, there is a world demand and a world supply which must balance. However, one source can often be substituted by another. This means the blockage of the Suez Canal will affect the spot price of commodities locally and the charter rates for the ships that carry them, but the trade will continue.
It’s a different story for products carried by container ships like the Ever Given. These products tend to be highly differentiated and more difficult to substitute. The blockage of the Suez Canal will undoubtedly cause shortages of specific products around the world, either because they don’t arrive at their destinations on time or because manufacturers run short of key inputs or components.
Shortages will remind manufacturers of the fragility of global supply chains, and they may look at how to reduce their dependency on specific sources, particularly those that are distant and rely on container shipping.
Ship stranded in Suez Canal could have ‘massive ramifications’ for global supply chain: historian
The worst scenario here is she cracks her hull [and then] we start getting oil leaking into the canal. But worse, you have a catastrophic break of the vessel, which would close a canal for months.
(CBC The Current) While crews scramble to free the vessel, the dozens of ships that usually traverse the canal daily are stuck in limbo. “…if I’m a shipper.… I’m going to start detouring them 3,000 to 4,000 miles around Africa and adding 12 to 14 days on my voyage,” Mercogliano told The Current’s Matt Galloway. …those extra days could lead to further delays at ports in Europe causing shortages in goods.
What you’re seeing right now is the pile up of vessels. Roughly about 50 vessels go through the canal every day. So we’re seeing about 175 vessels after three days sitting there. Lloyd’s List in London estimates about nine billion dollars’ worth of goods go through the canal on a daily basis.
Suez Canal could be blocked for weeks by ‘beached whale’ ship
(Reuters) – A total of 206 large container ships, tankers carrying oil and gas, and bulk vessels hauling grain have backed up at either end of the canal, according to tracking data, creating one of the worst shipping jams seen for years.
The State of Globalization in 2021
by Steven A. Altman and Phillip Bastian
(Harvard Business Review) The rebound of world trade has surpassed even the most optimistic early forecasts. Trade in goods dropped faster in March and April 2020 than during the Great Depression and the global financial crisis. But it started growing again in June and rocketed all the way back to its pre-pandemic level by November. Despite early disruptions, trade turned out to be a lifeline for economies and health care systems. Trade in medical products and electronics (for working from home) soared, as social distancing shifted spending from local services (e.g. restaurants) to imported goods.
The trade turnaround should put to rest the idea that Covid-19 is the last straw for global supply chains. Many companies have already shelved pandemic-era reshoring plans, recognizing that concentrating production at home often raises costs without boosting resilience. Diversification across efficient domestic and/or foreign production locations, along with investments in technology and inventory, usually makes more sense, and surveys show more companies embracing these strategies.
Expect supply chain shifts to accelerate when business travel opens up again, but with most pre-pandemic trends, such as China plus one sourcing, continuing. With trade still flowing, companies risk falling behind competitively if they miss out on imported inputs or export sales. So, efforts to boost resilience need to fit into broader supply-chain strategies addressing shifts in demand and production costs across countries, geopolitical tensions, and advances in automation and other technologies.
How the WTO Changed China The Mixed Legacy of Economic Engagement
(Foreign Affairs March/April) By most accounts, in Washington and more broadly, China’s economic model has not turned toward market liberalism since 2001 but instead consolidated into a form of state capitalism that Beijing hopes to export globally. …
But rather than judge China’s WTO entry in the categorical terms of success or failure, a more productive way forward would be to understand the ways in which WTO membership did lead to positive change within China—and when and why that positive change started to slow and then reverse. … At least for a few years, China’s accession to the trade body bolstered Chinese reformists and helped authorities push through necessary changes, in the process showing that multilateral institutions can boost domestic reform in China.
Trade set to plunge as COVID-19 pandemic upends global economy
(WTO) World trade is expected to fall by between 13% and 32% in 2020 as the COVID 19 pandemic disrupts normal economic activity and life around the world.
The wide range of possibilities for the predicted decline is explained by the unprecedented nature of this health crisis and the uncertainty around its precise economic impact. But WTO economists believe the decline will likely exceed the trade slump brought on by the global financial crisis of 2008‑09
‘Law of the jungle’: World Trade Organization appeals court shut down by U.S.
Global commerce will lose its ultimate umpire Tuesday, leaving countries unable to reach a final resolution of disputes at the World Trade Organization and instead facing what critics call “the law of the jungle.”
The United States, under a president who favours a go-it-alone approach to economics and diplomacy, appears to prefer it that way.
The terms of two of the last three judges on the WTO’s appellate body end Tuesday. Their departure will deprive the de facto Supreme Court of world trade of its ability to issue rulings.
Among the disputes left in limbo are seven cases that have been brought against Trump’s decision last year to declare foreign steel and aluminum a threat to U.S. national security and to hit them with import taxes
With WTO blocked, Canada and Europe agree to establish body for trade disputes (25 July)
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.
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.
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 Hong Kong 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 artificial intelligence 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 2018
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, 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.