World Trade: The Real Picture

World has witnessed a faster GDP growth than growth in global trade since Great Recession. Numerous attempts have been made to explain this lackluster growth in global trade. Besides, it has raised questions on the cause of this slow growth time and again. The value of global goods trade fell by 13.8% in 2015 as per the recent reports from CPB World Trade Monitor. Some of the probable explanations have also been provided like falling commodity prices, the rising USD, stagnant demand along with slow economic growth mainly in emerging markets. Blame also goes to rise in protectionism policies and lack of liberalization of new trade. Sluggish demand and factor prices are some of the cyclical factors which are responsible for almost 75% of the lowering of trade, as published by McKinsey Global Institute. A faction of economist also Speculate that reasons like development of global supply chains and China increasing its dependency from exports to domestic consumption led growth are some of the structural issues along with cyclical factors that explains the slowdown substantially.

Zilinsky-figure-1-1

Figure 1 World and regional trade volume growth since mid-2009 Note: Trade volume measured using average of merchandise export and import volume indices, seasonally adjusted; baseline quarter: 2009Q3.

SourceWTO and UNCTAD

The situation looks less severe in terms of growth. Average export and import volume indices, considered as metrics of global and regional trade, have increased since the end of financial crisis in 2009Q3. Since then, global trade has grown by more than 30 percent in cumulative terms. As the chart depicts, Asia traded more than 45% late last year as compared to 6 years ago. It outwitted the rest of the region in merchandise trade. However, one cannot deny the trend of sluggish growth since 2009 which is evident from the second chart.

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Figure 2 Growth in global trade volume, quarter-over-quarter Source: WTO and UNCTAD

These depressing figures show up in the middle of a series of meetings which inaugurated with governors of central bank and finance ministers meeting in Shanghai at their G-20 summit of February 2016. These series of meetings would continue until September 2016 G-20 Leaders Summit. Though the objective of structural reform did not mention trade facilitation and liberalization, the ministers in these meetings acknowledged the crucial contribution of trade and investment growth with their special emphasis on weaknesses.

With Chinese leadership and a revamped working group on investment and trade, trade received some special attention on the agenda of G-20. There were three main issues very close to trade being discussed in their first meeting in January 2016. These were mainly, building of Global Value chains, multilateral trading system and promoting global investment. Greater involvement of all the parties is required. However, starting from conclusion of WTO Doha round to executing the 2008 moratorium on protectionist measures and restrictions on new trade, a wide range of G-20 commitments in the history are yet to be realized.

After global financial crisis G-20 platform was crucial in grooming a mutual understanding that in the act of favoring domestic markets by raising tariffs, nations are actually pursuing dirty economics. It is however found that there have been over 3500 new protectionist rulings by G-20 members since 2008. Moreover, 81% of these protectionist measures are still active as of today. This is an indication of how jurisdictions have distorted the world market by their policies of indirect, non-tariff barriers to trade and competition. Some of these are subsidies to local players and unnecessary requirements at the local level. It is high time governments realize that these inefficient trade-related rulings not hamper domestic economic performance but also hinder efficient allocation of resources and affect growth in trade adversely.

References:

Galston, W. A. (2016). The Trans-Pacific partnership: The view from the Obama administration. The Brookings Institute Research, http://www.brookings.edu/blogs/fixgov/posts/2016/01/28-obama-perspective-on-tpp-galston; visited on March 21st, 2016

Mauldin, W. (2015). Top house democrat on trade Sander Levin rejects Pacific agreement; The Wall Street Journal; http://blogs.wsj.com/washwire/2016/02/18/top-house-democrat-on-trade-sander-levin-rejects-pacific-agreement/; visited on March 21st, 2016

Lawrence, R. Z. (2016). Studies of TPP: Which is Credible?; Peterson Institute for International Economics; http://blogs.piie.com/trade/?p=553; visited on March 21st, 2016

Mauldin, W. (2015). The Trans-pacific in 11 questions; The Wall Street Journal; http://blogs.wsj.com/briefly/2015/10/05/trans-pacific-partnership-at-a-glance-2/; visited on March 21st, 2016

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One Response to World Trade: The Real Picture

  1. yanqili says:

    After a recession of the global economy, it is always hard for trade to get back to original level due to the drop in consumer confidence and the unclear future of the whole economy. At the same time, the barriers might be another reason that impede trade from recovering quickly. But we could see that emerging markets are recovering faster than developed world especially Europe, which is struggling to pull itself out of deflation and sluggish economy. Countries might set more barriers to protect their own industries during recessions but I doubt this would do goods to themselves since the result might be the protected industries lose efficiency and impede the economy from recovering fast.

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