In World Economy News 21/11/2016
Until he takes office in January, President-elect Donald Trump won’t be able to follow through on his pledges to scrap the Trans-Pacific Partnership, renegotiate the North American Free Trade Agreement, or penalize Chinese imports. Even without him, protectionism is rising, and world trade is slowing.
Responding to an outcry from local steelmakers, the European Union this year has punished Chinese competitors for allegedly selling steel below cost. The EU has announced antidumping duties as high as 81.1 percent on Chinese steel. “Free trade must be fair, and only fair trade can be free,” European Commission Vice President Jyrki Katainen said in a statement on Nov. 9, adding that some 30 million European jobs depend on free trade.
Around the world, many companies that binged on easy credit after the global financial crisis have excess capacity and are struggling to find buyers, since economic growth in the U.S., Europe, and Japan is relatively weak, and China’s economy is cooling. “The pie is growing more slowly, and that makes domestic producers more defensive about their share of it and more willing to fight when threatened,” says Tim Condon, chief Asia economist in Singapore with ING. Bloomberg Intelligence chief Asia economist Tom Orlik points out that over the past two decades, consumers and businesses have spent heavily on laptops, tablets, and smartphones, but despite efforts by Apple and others to popularize smart watches, there’s no new must-have device to boost global trade. Stagnant income growth in the West also forces politicians to show they understand voters’ worries. “The pressure grows for governments to appease those voices by giving them the things they want,” says Orlik, “and the things they want are trade restrictions.”
The Obama administration in June raised U.S. tariffs on steel from China, India, Italy, South Korea, and Taiwan. In July, China accused Japan, South Korea, and the EU of dumping electrical steel used in generators and announced penalties of its own. India on Nov. 2 slapped antidumping duties on Chinese steel imports.
Smaller nations are engaged in their own trade spats. Malaysia in May announced penalties on Chinese, Korean, and Vietnamese steel. Peru placed antidumping duties on imports of biodiesel from Argentina in October.
In the five months leading up to mid-October, members of the world’s 20 major economies, the Group of 20, implemented an average of 17 trade constraints a month, the World Trade Organization reported on Nov. 10. “The continued introduction of trade-restrictive measures is a real and persistent concern,” WTO Director-General Roberto Azevêdo said in a statement.
The curbs come while global commerce is sputtering. World trade volume has grown a little more than 3 percent a year since 2012, the International Monetary Fund reported last month, less than half the average expansion rate over the prior three decades. Said the IMF, “Between 1985 and 2007, real world trade grew on average twice as fast as global [gross domestic product], whereas over the past four years, it has barely kept pace. Such prolonged sluggish growth in trade volumes relative to economic activity has few precedents during the past five decades.”
Japan’s biggest shippers—Nippon Yusen, Mitsui OSK Lines, and Kawasaki Kisen—expect combined operating losses of 85 billion yen ($780 million) for the fiscal year ending March 2017. The industry is seeing the “highest ship-scrapping level ever,” Nicolás Burr, chief financial officer of German container line Hapag-Lloyd, told a conference in Hamburg on Nov. 10.
In Singapore, which relies heavily on trade, GDP shrank an annualized 4.1 percent in the third quarter from the previous three months. The city-state has one of the world’s biggest ports, but shipping container movement fell 8.7 percent in 2015 and 1.7 percent in 2016 through October.
China’s entry into the WTO in 2001 set off a surge in investment as companies moved manufacturing to the mainland. That helped growth in global trade, with Chinese factories importing more components and exporting completed products to the U.S. and other nations. China’s WTO entry “basically reshaped the global production chain,” says Harrison Hu, chief Greater China economist with Royal Bank of Scotland in Singapore. Today, more Chinese companies can make parts themselves: Components and raw materials accounted for 52 percent of China’s imports in 2007, but that’s now 42 percent, says Hu.
Under President Xi Jinping, the government is trying to steer the economy away from export-driven growth, focusing on domestic demand. That will help China have more sustainable growth, but for now it puts a damper on trade. China’s exports for the first 10 months of the year totaled $1.7 trillion, according to China’s General Administration of Customs, a 6.3 percent drop from the same period in 2015. Imports were down 7.5 percent. “China had a great run, but it’s over,” says ING’s Condon.
Source: Bloomberg
