Tuesday 22 October 2019

Global trade fears as outlook at its worst since crash

Forecast: WTO director general Roberto Azevedo has estimated that merchandise trade volume growth would fall to 2.6pc this year
Forecast: WTO director general Roberto Azevedo has estimated that merchandise trade volume growth would fall to 2.6pc this year
Tariffs: US President Donald Trump has hit Chinese imports

David Chance

The outlook for global trade fell sharply in the first quarter and is at its weakest level since 2010 with the prospect of worse to come, according to the World Trade Organisation - a development that could spell trouble for the economy here.

The World Trade Outlook Indicator fell to a reading of 96.3 on a scale where 100 and above indicates expansion, while below that number indicates a contraction.

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The closely-watched indicator was published after US President Donald Trump ramped up his tariffs on imports from China last week, extending a trade war that could dent economic growth. While he deferred a decision on car tariffs that could hit the EU, he kept the threat open.

"The outlook for trade could worsen further if heightened trade tensions are not resolved or if macroeconomic policy fails to adjust to changing circumstances," the World Trade Organisation said in its monthly assessment of the prospects for trade.

The decline in the WTO's outlook was led by lower readings for international air freight, car production and sales (92.2), and agricultural raw materials (92.4) .

The threat of a trade war between the United States and European Union over cars would hit Ireland hard, as it is the most exposed to trade with America of any EU state.

Data released last week showed exports from here surged 12pc in the first three months of the year, the biggest increase in the EU apart from Luxembourg.

While Mr Trump's announcement that a decision on whether to impose car tariffs of up to 25pc would be made after six months, it also set up the prospect of a prolonged period of uncertainty.

The twists and turns of the relationship with China have been driven by the President's Twitter feed and until just over a week ago, expectations had been for a negotiated deal to end the conflict.

In its April trade forecast WTO director general Roberto Azevedo estimated that merchandise trade volume growth would fall to 2.6pc this year and the body's economists forecast that if a global trade war were to start this year, it would cut global economic growth by almost 2pc by 2022.

For comparison, that figure is just shy of the 2.1pc contraction in global output in the financial crisis in 2009.

President Trump has pressed ahead with his tariffs despite mounting evidence that they are damaging, rather than helping the US economy.

A study by the New York Federal Reserve last month said the tariffs were costing US consumers $1.4bn a month.

Further evidence came yesterday in a damning assessment from the National Bureau of Economic Research, the top economic research body in the US.

It said Mr Trump's trade protection measures do not increase "but will instead reduce manufacturing employment" and that those losses would grow if there was retaliation from other countries.

In the event of a full-blown trade war between the US and EU, those losses will escalate, according to the research paper published on Monday.

"Under the US and EU tariff trade wars, all involved countries will lose, meaning that the US cannot gain employment from trade protection measures," three economists, Chunding Li, Jing Wang, and John Whalley wrote. "Comparatively, the US will lose more manufacturing employment than the EU," the report said.

Talks between Washington and Brussels are stuck as the US is pressing the EU to open agricultural markets, something that officials here say was not on the agenda.

Irish Independent

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