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.
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