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Global trade is in much better shape than one year ago—at least for the moment

The situation has changed a lot since late 2015 and early 2016, when the first contraction in global trade volumes since the Great Recession raised many fears about the economic health of the emerging countries and, by extension, the outlook for the recoveries in the developed countries as well. Indeed, global trade has recovered steadily in recent months, with annual growth (in 6 month average terms) reaching 6.9% in April 2017, its highest level since 2011. This result is largely attributable to the 11.8% rise in imports by the emerging countries while the rate was only 1.8% for the developed countries. Naturally, part of the rebound can be explained by base effects following the trough one year earlier. It would take much more to invalidate the observation, in the last few years, of the falling “growth elasticity” of global trade: while global trade used to increase at twice the pace of global GDP growth over the previous three decades, since 2011 global trade has grown, on average, at the same pace as GDP. Furthermore, it is possible that these statistics only give a very partial view of the true behaviour of total trade flows, which increasingly consist of services that international organisations readily admit are difficult to measure, especially when such services are distributed electronically, and even more so when they are partly free and provided in exchange for information.

  • Such a rebound seemed far from assured at the end of last year, when the appetite for a return to some forms of protectionism appeared to be sharply on the rise with the Brexit vote and the election of Donald Trump.
  • First of all, global trade has its own momentum, which is increasingly separate from the highly visible decisions of restricting trade in particular sectors. Global value chains are increasingly integrated (even though this process is likely reaching its limit) and trade between emerging countries themselves is gaining ground. Even if the United States had withdrawn from NAFTA or if the US Congress had officially denounced China as a “currency manipulator”, it is not clear whether this would have heavily impacted global figures six months down the road.
  • Nonetheless, a major factor is the fact that the escalation in protectionism has not occurred—or at least not yet. The White House, which is increasingly on the defensive as investigations into the President's team intensify, has been unable to put forward a coherent plan. The Border Adjustment Tax endorsed by the Republicans in Congress—incidentally a well thought-out proposal—has been met with stiff resistance in the United States itself and seems to have been all but abandoned. The most visible protectionist moves have been the (not necessarily definitive) withdrawals from treaties that still needed to be finalised or ratified (TTIP and TPP). Some aspects of NAFTA are being renegotiated, though not necessarily in a protectionist direction. On this side of the Atlantic, Hard Brexit now looks slightly less likely and the results of the elections in the first half of 2017 in the Netherlands and France did not follow the trajectory set by Britain and the United States in 2016.
  • Does this mean smooth sailing for global trade going forward? Not necessarily, for two reasons of a structural nature. The first is that there's no reason to believe that the many complex factors behind the rejection of globalization by large shares of the population in the developed countries will rapidly disappear. New political offers may still thrive on this find fertile ground, or Trump himself may bring the issue back onto the agenda later in his term. Indeed, at last Saturday's G20 meeting he won a concession on the role of “legitimate trade defence instruments” whose definition leaves room for interpretation. The second reason is that the purely economic factors behind the slowdown in global trade, which are still being investigated, are very probably here to stay. They include, among others, the limit reached in integrating global value chains, the smaller contribution of (trade intensive) investment in GDP growth, and reduced interest in outsourcing due to rising incomes in the emerging countries. Yet new accounting methods for international trade may emerge and cast a different light on this apparent structural deceleration.

 

 

 

 

 

2017-07-13-key focus

 

 

Tristan PERRIER, CFA, Strategy and Economic Research at Amundi
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Global trade is in much better shape than one year ago—at least for the moment
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