Monday 21 October 2019

Dan O'Brien: Pace of globalisation picks up, despite the rise of its opponents

US President Donald Trump with Xi Jinping, China’s President. Many of Trump’s concerns over trade were shared by previous administrations Photo: Bloomberg
US President Donald Trump with Xi Jinping, China’s President. Many of Trump’s concerns over trade were shared by previous administrations Photo: Bloomberg
Dan O'Brien

Dan O'Brien

'Global trade recorded its highest growth rate in six years in 2017, both in volume and value terms." That was the happy opening line of the World Trade Organisation's (WTO) analysis of recent trends in cross-border commerce in its flagship annual trade publication launched last week.

The Geneva-based organisation's latest figures show that last year global exports of goods rose by 11pc to nearly $17.7 trillion.

Stripping out price effects, volume growth was a somewhat more modest 4.7pc. Cross-border sales of services grew by 7pc, to $5.25 trillion.

The uptick in commerce among the nations of the world last year may be a sign that rising political uncertainties are having less impact on internationalised economic activity than might have been expected.

One measure economists have used to check how globalisation is faring is the comparison between trade growth and GDP growth. As the chart shows, world trade has grown twice as fast as global GDP in recent decades. The exceptions were periods of recession and the half decade to 2016, a period which raised questions as to whether the pace of globalisation was slowing.

But last year's acceleration in the rate of world trade growth gives some reason to believe that the previous five-year period of unusually low trade growth may have been an aberration rather than the result of structural changes, policy shifts or a reaction to political changes.

The main driver of trade is usually economic growth. As long as there's a liberal international trading system, businesses can access growth opportunities in foreign markets, while increased prosperity at home encourages the purchase of goods and services from abroad.

The WTO noted last week how the composition of economic growth affects trade patterns. In general, investment spending - on plant, machinery, buildings and infrastructure - is the most import-intensive activity in most economies, as many of materials have to be sourced abroad. Consumer spending follows, with non-investment spending by governments the least import-intensive component of domestic economic growth.

The report underscores that investment was particularly strong last year. That was especially so in Asia, which accounted for 60pc of the global increase imports volumes, proving that the East is as much an opportunity for the West as it is a competitive threat.

Countries and companies involved in natural resources benefited from higher commodity prices, which in turn lead to greater investment in commodity extraction.

In value terms last year, strong growth in global exports was recorded for fuels and mining products (28pc), while agricultural goods exports rose more modestly (9pc). Manufactured goods, which account for more than two-thirds of total goods trade, grew by 8pc. There was growth in most services categories, too, including computer services (+7pc), tourism and travel (+8pc) and transport (+9pc).

The WTO's report and its statistical database allow cross-country comparisons to be easily made. Here Ireland often performs remarkably well given the small size of the country. Out of 163 members, Ireland is the 33rd biggest goods exporters in absolute terms. Even more striking is Ireland's position in international trade services.

Thanks to the tech sector and multinationals using Ireland as an international hub for services provision, the country is the 7th biggest services exporter in the world. For every $100 that spent on cross-border services worldwide, $3.5 accrues to Ireland Inc.

Moreover, services account for 58pc of Ireland's total exports, according to the latest WTO data. Among developed countries, only in Cyprus, Luxembourg and Malta do services exports out-sell goods exports to a greater degree. (In the context of Brexit, it is worth noting that the UK also has a relatively high services share in its international trade, at 44pc.) And the dominance of services in the Irish export mix is increasing. Ireland recorded the highest growth in commercial services exports among "leading traders" in 2017, with another 20pc increase. There was also good news for the wider continent. European trade growth picked up after several years of a less than stellar performance. The EU is the world's largest regional trading bloc, accounting for a third of global trade.

Last year, export growth both within the EU and with non-members hit 10pc. Any analysis of global trade patterns has to mention China. Since joining the WTO in 2001, Chinese trade has boomed. It is now the single largest exporter in the world and second largest importer after the US.

The Asia superpower's trade has surged across all categories of goods and services, but one trend may be of particular interest in Ireland. In 2000 China accounted for only 3pc of global food imports. That had risen more than threefold, to 10pc, by last year.

Chinese consumers have long been a target for Irish agri-food companies and marketeers. With Brexit looming, and a big decline in sales into the UK a real prospect, finding new markets is now an imperative. Beijing's recent lifting of a ban on Irish beef is a positive sign.

Of course, China's rise has created tensions. The world's most populous country has been one of the main targets of US President Donald Trump and his advisers, who blame it for taking American jobs. Although the recent tariff measures taken against China by the Trump administration are dangerously provocative, many of its complaints were shared by previous administrations, and are shared by other countries. China has not liberalised its economy as was expected. There are valid protests about subsidies to state or semi-state companies, violations of intellectual property rights, and forced technology transfers by companies located there.

Concerns about the security implications of Chinese FDI into Europe (and the US) is also rising rapidly up the agenda.

However, the White House's anti-globalisation has changed the dynamic of global trade politics. Along with China, America's allies in Asia, Europe and North America have been targeted with tariffs.

Trump's trade adviser, Peter Navarro, has talked of 16 countries with trade deficit "problems" with the US, of which Ireland is one. The trade ceasefire in talks 10 days ago between President Trump and President of the European Commission Jean-Claude Juncker was positive, but it remains to be seen whether this is temporary or whether the US side will return to bellicose rhetoric on transatlantic trade.

The WTO has been central to resolving disputes among its members over decades. But the court system in Geneva is increasingly clogged up. This has been made worse by the Trump Administration's refusal to fill court vacancies. From 2019 there may be fewer judges to hear an increasing number of cases.

The US might even quit the organisation - Trump threatened to withdraw the US entirely during his election campaign.

While last week's WTO's overview predicts stronger trade growth than GDP in 2018, it also notes that there was a sudden drop in global export orders earlier this year, because of what it describes as "anti-trade rhetoric".

The future of global trade depends on how much of the White House's rhetoric turns into further action. If it does, the liberalising post-war global trading system will be at risk.

Sunday Indo Business

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