It comes as little surprise that the World Trade Organization expects global merchandise trade to continue decelerating in the coming months – but it’s bad news, nonetheless.
Mounting trade tensions, tighter credit conditions in key markets and waning business confidence have caused export orders to fall, the WTO said in its World Trade Outlook Indicator report on Monday. The index is approaching the weakest level recorded in 2012 during the eurozone crisis.
In particular, the production and sale of cars, electrical components and agricultural raw materials are “below trend”, the WTO said. The latest reading of the indicator, which “is designed to provide ‘real time’ information on the trajectory of world trade relative to recent trends”, is the lowest since October 2016, the WTO said.
The grim forecast is in line with WTO warnings in September that tit-for-tat measures which began with US duties on steel, aluminium and billions of dollars of Chinese goods would crimp global trade. At the time, the WTO predicted that trade growth would slow to 3.9% this year and 3.7% in 2019 from 4.7% in 2017 and warned that the global economy was at risk from strained ties between major trading partners.
Can US-China reach deal at G20 summit?
As world leaders gather for the Group of 20 summit that starts today in Buenos Aires, where US President Donald Trump is set to meet Chinese President Xi Jinping, many are pinning their hopes on the two reaching a deal to avoid a further escalation of their trade war.
But Trump recently poured cold water on those hopes by telling the Wall Street Journal that he intended to move ahead with higher tariffs on $200 billion of Chinese imports and threatening duties on another $267 billion of goods from China. Many people doubt the two presidents will reach any sort of détente in Buenos Aires.
Especially with China already slapping its own levies on $113 billion of US imports and the US trade chief issuing a report – quickly rebuffed by Beijing – that China had done little to change its ”unfair” trade practices since March. There is a general feeling that the US and China remain far apart on the issues behind the trade conflict.
It’s less than clear whether Xi will offer concessions to Trump and, if he does, whether they would be substantive enough to address American concerns. It’s equally unclear whether Trump is actually open to concessions after he told reporters this week that while China is keen to strike a deal, “I don’t know if I want to do it”.
China-US trade war skews priorities
So don’t expect much out of the G20 meeting, where the standoff will take centre stage. That fact itself will distract leaders from other major trade issues, say Simon Evenett and Johannes Fritz.
“The ongoing Sino-US tariff war … casts a pall over this year’s G20 leaders’ summit,” they write in the latest Global Trade Alert Report. “At a time when the G20 is considering WTO reform, the risk is that the Sino-US bilateral tariff war skews assessments of global trade priorities.”
Trade between the two countries was “thoroughly distorted before the trade war broke out”, the report says. Not only does the US apply non-tariff measures on $369 billion of Chinese exports – a third more than what is affected by duty increases alone – but “70% of each nation’s exports faced trade distortions in the other’s markets in 2017. Following this year’s bilateral tariff war, 87% of Chinese exports now face trade distortions in the US market and 92% of US exports compete at a disadvantage in China”.
Many governments apply measures that distort trade and “bilateral pressure won’t result in big strides towards free trade”, the report says. “Piling pressure on trading partners through brazen unilateralism is not a recipe for global free trade.”