The cross-border movement of goods, services, and capital increased markedly for the thirty years up to the Great Financial Crisis. Although the recovery has given way to a new economic expansion in the major economies, global trade and capital flows remain well below pre-crisis levels. It gives a sense globalization is ending.
The election of Donald Trump as the 45th US President has underscored these fears. His first few weeks in office clearly mark a new era not just for America, but given its central role in late-20th-century globalization, for the world as well. Trump is a bit of a Rorschach test. He did not win a plurality, let alone a majority of the popular vote, but that does not stop pundits from claiming that Trump won because of this or that issue.
There are some campaign promises which Trump has backed away such as citing China as a currency manipulator on his first day as President or pursuing legal charges against Hillary Clinton. His priorities have been repealing the national health insurance, formally withdrawing from the Trans-Pacific Partnership, and signaled an intention to re-open the North American Free Trade Agreement.
Trump and his closest advisers seem intent to unwind not just his predecessor’s initiatives, but the general thrust of America’s grand strategy since the end of WWII. His rhetoric of America First harkens back to Warren Harding, who succeeded Woodrow Wilson after the US Senate rejected the League of Nations. Some historians refer to that period as ‘isolationism, ’ but in practice it was unilateralist.
“It’s a great thing for the American worker, what we just did,” Trump said on Monday after signing an order withdrawing the U.S. from the Trans-Pacific Partnership accord with 11 other nations. He didn’t sign any actions to direct a renegotiation of the Nafta accord with Mexico and Canada, yet he said on Sunday he would begin talks with the two leaders on modifying the accord, BBG reported. “We’ve been talking about this a long time,” Trump said.
As the AP notes, the move is basically a formality, since the agreement had yet to receive required Senate ratification. Trade experts say that approval was unlikely to happen given voters’ anxiety about trade deals and the potential for job losses. It remains unclear if Trump would seek individual deals with the 11 other nations in TPP— a group that represents roughly 13.5 percent of the global economy, according to World Bank figures. Trump has blamed past trade deals such as the North American Free Trade Agreement and China’s entrance into the World Trade Organization for a decline in U.S. factory jobs.
Trump’s trade focus fulfills a campaign promise to rewrite America’s trade policy during his first days as president. In declaring his determination to renegotiate Nafta, Trump would rework an agreement that has governed commerce in much of the Western hemisphere for 22 years. By scrapping the Trans-Pacific Partnership accord negotiated by former President Barack Obama, Trump will delight many of his most fervent supporters as well as a good many Democrats, while opening an economic vacuum in Asia that China is eager to fill.
Trump campaigned against the TPP and other trade deals, including Nafta, during his campaign for the White House. In a video released in November, Trump promised to exit TPP “on day one,” calling it “a potential disaster for our country.”
A reversal in U.S. trade policy could make 2017 the year that efforts to build multinational trade zones crumble, returning the focus to tough, bilateral dealmaking.
In October 2015, officials from 12 nations including the U.S. and Japan gathered in the American city of Atlanta to ink the historic Trans-Pacific Partnership, confident of the dawning of a new age of trade governed by such high-level, multilateral agreements. Yet that dream lies all but dead just over a year later, not least due to Donald Trump’s presidential victory and his pledge to pull the U.S. from the agreement upon taking office Jan. 20.
Many bilateral free trade agreements, which reduce or abolish tariffs and set rules for trade in goods and services between two nations, have been struck over the years. Multilateral agreements extend this notion to the regional level and improve security in the areas they cover, further greasing the wheels of commerce.
Yet Trump prefers his trade pacts one on one — the better to drive hard bargains, leveraging U.S. economic and diplomatic might to secure the most advantageous terms. Multilateral pacts involve far more careful compromise and require each nation to give and take small concessions rather than pushing for an unambiguous win.
On Monday China followed through a warning to “take further measures” against WTO members which continue to impose tariffs on its goods 15 years after Beijing’s accession to the organization.
On Monday the Commerce Ministry said that China has launched a dispute resolution case at the WTO, demanding that all WTO members, particularly the US and EU, stop using the “surrogate country approach” to impose higher tariffs against Chinese goods, which they claim to be exported at artificially low prices. “Regretfully, the US and EU have yet to fulfil this obligation,” the ministry wrote on its website. Sunday December 11 marked the 15th anniversary of China’s WTO accession, and China expects governments which have not already done so, to lift anti-dumping tariffs against its exports and treat Beijing like a fully-fledged member of the organization. The WTO and China agreed an accession protocol when Beijing joined the organization in 2001. Article 15 of this protocol dictates the terms which importing WTO members can use to compare their prices with those of Chinese producers, to determine if that producer is competing fairly with the domestic producers in the importing country. Some WTO members including the US and EU want to reserve the right to restrict Chinese imports with higher tariffs, in order to protect their manufacturers against “dumping,” the process by which a manufacturer exports a product to another country at a price below that charged in its home market, or at a price lower than the cost of production.
In order to investigate whether China is dumping goods, for the first 15 years of WTO membership Beijing was subject to the “surrogate country approach,” as laid out in Article 15.
Refusal by the U.S., European Union and others to recognize China as a market economy is the latest sign of intensifying trade friction between the Asian economic giant and other world powers, exacerbated by a supply glut in such industries as steel.
U.S. Secretary of Commerce Penny Pritzker said Wednesday that the time was “not ripe” to grant China market-economy status under World Trade Organization rules. A spokesperson for China’s foreign ministry shot back at a press conference the following day, claiming that “the world recognizes China’s success in developing a market economy.”
Dec. 11 will mark the 15th anniversary of China’s accession to the WTO — a milestone Beijing says automatically brings full market-economy status. The country has until now been labeled a non-market economy under the treaty. While Japan has not explicitly supported either side of the issue for fear of straining diplomatic ties, it is seen continuing to handle China as a non-market economy in practical terms.
This status allows Chinese products such as steel to be saddled with steep tariffs if it is determined, based on international prices, that the country is dumping those goods. Recognition as a market economy, meanwhile, would force trading partners to use domestic Chinese prices as a baseline for judgments about export prices, limiting their ability to impose trade restrictions.
Prices in China are far lower than international prices for many goods. Steel products, the leading point of contention, go for 10-20% cheaper here than in Japan due to production overcapacity. China made 800 million tons of crude steel in 2015. But the domestic industry was capable of pumping out more than 1.1 billion tons, putting excess capacity at nearly three times Japan’s actual output for the year.
China has sought to close this gap by boosting exports. The country sent 24 million tons of steel overseas in 2009. By 2015, that amount had more than quadrupled to 112 million tons. The influx of cheap steel eroded earnings at Japanese, European and American steelmakers, forcing widespread layoffs.
India’s core sectors – coal, crude, natural gas, refinery products, fertilisers, steel, cement and electricity – rose 5 per cent in September compared with 3.2 per cent in August.
Data showed the eight core industries grew 4.6 per cent in the April-September period.
With a weightage of some 38 per cent of India’s industrial output, core sector index is seen as a barometer of how India’s industry is doing.
Steel was the best performer despite the downturn in the global market, reporting a 16.3 per cent growth, nearly as much as the 17-month high of 17 per cent reported in August.
Analysts said the range of tariff protection that India has given to the steel sector from dumping by Chinese and East Asian competitors helped.
“Steel growth shows that demand from downstream industries remains and that they are replacing imports with domestic production,” said Sudipto Bose, an independent steel sector market analyst.
The refinery sector reported the second highest growth rate at 9.3 per cent, while cement, which reflects on downstream construction and infrastructure, showed a 5.5 per cent growth.
However, electricity generation grew just 2.2 per cent while fertiliser grew 2 per cent. Three key sectors – coal, crude and natural gas – contracted. Coal output contracted 5.8 per cent, natural gas output shrank 5.5 per cent, while crude production contracted 4.1 per cent.
Sharp differences have emerged within the government over imposing an anti-dumping duty on met coke imports from China and Australia, with the commerce ministry pushing for the move and the steel ministry opposing it.
The directorate general of anti-dumping (DGAD), which is part of the commerce and industry ministry, has recommended a duty of $25 per tonne on imports from China and $16 per tonne on shipments from Australia.
Officials said a decision could be expected next week. India had last year raised the import duty on Chinese met coke to 5 per cent from 2.5 per cent.
Meanwhile, the steel ministry is lobbying for an anti-dumping duty on alloy and non-alloy flat steel products from China and the European Union. Imports of these products have increased four-fold over three years.
The DGAD had initiated an anti-dumping investigation in January following a complaint filed by the Indian Metallurgical Coke Manufacturers Association on behalf of producers such as Saurashtra Fuels, Gujarat NRE Coke, Carbon Edge Industries, Bhatia Coke and Energy and Basudha Udyog.
The companies claimed Australian and Chinese companies were dumping low ash metallurgical coke, and only a levy could save an “otherwise dying domestic industry”.
Over the past several years, whenever we have looked at the IMF’s global growth forecasts, the only chart we said is worth keeping an eye on, is that of global trade, because while GDP can be massaged, retroactively revised, and “double-seasonally adjusted” when the need arises – and is far more a political “metric” than an economic one – trade remains the most objective indicator of how the world is truly doing at any given moment, especially since “central banks can’t print trade.”
In fact, it has been our contention for several years now that the single best indicator of the global economy is the rate of growth in global trade, which unfortunately has been slowing for the past 5 years.
Making matters worse, according to a new update from the World Trade Organization, global trade is now set to grow at the slowest pace since the financial crisis. In a report issued today, the WTO said that world trade will again grow more slowly than expected in 2016, expanding by just 1.7%, well below the April forecast of 2.8%.
The forecast for 2017 was also slashed, with trade now expected to grow between 1.8% and 3.1%, down from 3.6% previously. With expected global GDP growth of 2.2% in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009.
Falling rates of global trade growth have attracted much comment by analysts and officials, giving rise to a literature on the ‘global trade slowdown’ (Hoekman 2015, Constantinescu et al. 2016). The term ‘slowdown’ gives the impression of world trade losing momentum, but growing nonetheless. The sense of the global pie getting larger has the soothing implication that one nation’s export gains don’t come at the expense of another’s. But are we right to be so sanguine?
World trade volume plateaued around January 2015
Using what is widely regarded as the best available data on global trade dynamics, namely, theWorld Trade Monitor prepared by the Netherlands Bureau of Economic Policy Analysis, the 19th Report of the Global Trade Alert, published today, evaluates global trade dynamics (Evenett and Fritz 2016). Our first finding that the rosy impression painted by some should be set aside. We demonstrate that:
–World export volumes reached a plateau at the start of January 2015. The same finding holds if import volume or total volume data are used instead.
–Both industrialised countries’ and emerging markets’ trade volumes have plateaued (Figure 1).
Figure 1 World trade plateaued around the start of 2015
Group of 20 trade ministers meeting here characterized excess capacity in steel and other industries as a global issue requiring collective responses, while citing subsidies and other government support as a contributing factor.
Industrial overcapacity hurts commerce and workers, noted the statement released at the close of a two-day meeting Sunday. To address this problem, nations must communicate and cooperate more to take effective steps to enhance market functions and promote adjustment, the statement said. This is seen as a tacit appeal for the reorganization of China’s so-called zombie companies — those unable to survive without government support.
Japan, the U.S. and Europe had sought to include remedies for tackling the overcapacity problem in the statement. Beijing opposed such a move, calling the issue a structural one that went beyond the scope of a meeting of trade ministers. China has been exporting steel it cannot absorb domestically at low prices, impacting the earnings of steelmakers abroad.
The statement also urged steelmaking nations of the G-20 to participate in a September steel committee meeting of the Organization for Economic Cooperation and Development. The countries are to talk about establishing a global forum to discuss the overcapacity issue.