World trade growth is slowing. Its future may depend on internal trade within a handful of discrete, powerful regions—especially Asia. 

Author: Laurence Neville

“In no previous year have we found so many trade distortions so quickly . . . [and] our initial totals have tended to be revised up.

Simon Evenett, Center for Economic Policy Research

“MULTIPOLAR STATE”

Credit Suisse does not stipulate minimum trade growth levels for its “globalization thrives” scenario. However, it seems doubtful that the pre-crisis growth rates will return. ING’s Leering says that, based on earlier recovery cycles in the world economy, the ratio of global trade growth to world GDP growth will rise modestly to 1.2 by the end of 2016. Subsequently, he believes, implementation of the 2013 Bali Package, which will reduce import tariffs and streamline customs procedures, will result in net offshoring of production and lift the trade-to-GNP growth ratio to 1.5.

Yet that trend is far from guaranteed and could easily be stopped in its tracks by an economic slowdown or by any of Credit Suisse’s globalization-killers, including high levels of sovereign debt. More likely, the relationship between trade and economic growth will weaken somewhat over the medium term—though it certainly will not break down—as the exceptional gains in trade from ever-longer global supply chains made in recent decades become harder to replicate. At the same time, the nature of globalization looks set to change. Credit Suisse concludes that “the world is currently in a benign transition from full globalization to a multipolar state, though this is not complete.”

Recent trade agreements and their expected impact on future trade growth bear out this analysis. Although the recent TPP has been heralded as a fillip for global trade, it will actually do more to spur regional trade. TPP and its counterpart, the Transatlantic Trade and Investment Partnership, came about precisely because the Doha Round of WTO talks have failed to achieve anything significant since 2001. To date, only the Bali Package has emerged.

Meanwhile, even optimistic trade observers acknowledge that trade patterns will change in the coming years. An HSBC report called Trade Winds, published in November, suggests we are on the verge of a decade of global trade growth and forecasts that worldwide exports will quadruple to an estimated $68.5 trillion by 2050. The report’s authors expect this growth to be driven by a burst of intra-Asian trade that will lift the region’s share of global exports to 27% by 2050 from 17% at present. “Asia’s position at the leading edge of technological and supply chain innovation gives it a unique opportunity to benefit from this next wave of globalization,” says Paul Skelton, HSBC’s regional head of commercial banking in Asia-Pacific.

THE IPHONE EFFECT

Leering, ING: World trade is an independent source of growth, not simply its by-product, and can raise living standards.

No one expects the world to revert to pre–Cold War status. People around the globe today have more in common than they did in the past. Overseas travel and tourism, especially in emerging markets such as China, are growing rapidly and helping to broaden citizens’ experience of and perspective on the world. And trade, in both goods and services, has paved the way for shared global enthusiasms, from the popularity of Château Lafite Rothschild among China’s elite to intercontinental excitement at the premiere of the latest Star Wars film or new iPhone model.

Yet global trade and globalization are subject to thousands of variables, any one of which could change the way people, businesses, countries and markets interact around the world. Therefore all predictions must be treated cautiously. Moreover, trade itself is changing. As the TPP agreement acknowledges, much future trade growth is likely to come from services such as healthcare and education—facilitated by improved information technology and communications—rather than from goods. Already, services account for four out of five US jobs and a growing share of jobs in other TPP countries, according to the White House’s Office of the US Trade Representative.

It seems unlikely that trade growth will again match the heady pace it reached from the 1990s to the 2000s. Nevertheless, trade and globalization will in coming years affect more people and companies than ever before. Whether or not trade patterns, regulations and even the rule of law become more regionalized, individuals, companies and countries will continue to grow closer, not more distant. Given the huge benefits that trade and globalization have delivered for humanity so far, including lifting hundreds of millions of people out of poverty, their perseverance can only be welcome.

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