José Antonio Ocampo Gaviria, professor at Columbia University’s School of International and Public Affairs, says the slowing of international trade since the financial crisis is a major threat to the world economy.
The former UN under-secretary-general for economic and social affairs and government minister of his native Colombia talked with Global Finance about the future of emerging markets.
Global Finance: What worries you right now about international trade?
José Antonio Ocampo: There was a historic change in the trend of world trade after the financial crisis. From 1986 to 2007, exports were growing more than 7% a year in real terms. Now they are growing at 3% or less. This year international trade is stagnant, in volume terms, and contracting, in value terms. This has been one of the worst years for international trade in the postwar period. And I do not see this being recognized as a major problem.
GF: Why the decline in growth?
Ocampo: Two factors made that first period very dynamic for international trade: The fragmentation of the value chain, and trade liberalization by countries in Latin America, Asia and elsewhere. However, by now trade is essentially liberalized, so that’s no longer a catalyst. And the future of value chain fragmentation, producing different parts of the same product in different places, remains to be seen.
GF: What about falling prices for oil and other commodities?
Ocampo: Based on what I’ve seen, there are long-term cycles in commodities prices. We can say, while this is an oversimplification, that there are cycles of 10 years of strong prices followed by 20 years of declining prices. Future developments in the Chinese economy are key, whether there’s a soft or a hard landing, because of the impact that will have on commodity prices.
GF: How has the fall in commodities prices affected Latin American countries?
Ocampo: In Latin America, non-oil commodity prices have been declining since 2012; oil started to decline last year. You see a big impact on South American countries, but not on Mexico or Central America. Central American countries are winners because they are net importers of oil. Mexico is taking advantage of an economic expansion in the US. A few countries, like Venezuela, are suffering from domestic political tensions. Peru has been an interesting case—the Chile of the 2000s: that is, the most dynamic country in Latin America, except for Panama.
GF: What other trends are there to watch for?
Ocampo: In the external financing of emerging countries, there are major pro-cyclical shocks with boom-bust cycles. What’s not clear is how long this current bust cycle will last. What was peculiar in the crisis of 2008-2009, after a period of expansion in financing, was how short the contraction was and how strong the rebound. How long will today’s peculiar pattern of low interest rates in developed economies last? It could be over soon in the US, but it could last much longer in Europe and Japan.
GF: Will we have a new breed of emerging countries?
Ocampo: Countries will find their way. China will not be as competitive as it was. The depreciation of Latin American currencies will make Chinese goods more expensive. Perhaps some countries in Latin America will enter a reindustrialization period. What is going on is not a disaster—except what is happening in Venezuela. Brazil will find its footing. My country, Colombia, will recover some strength outside the commodities market. It used to be a very diverse economy and can be again.