The World Trade Organization cut its forecast for global trade growth this year by more than a third on Tuesday, reflecting a slowdown in China and falling levels of imports into the United States.
The new figure of 1.7%, down from the WTO’s previous estimate of 2.8% in April, marked the first time in 15 years international commerce was seen lagging the growth of the world economy, the trade body said, Reuters reported.
The figures should be a wake-up call for governments, WTO Director-General Roberto Azevedo said in the six-monthly trade outlook report.
“We need to make sure that this does not translate into misguided policies that could make the situation much worse, not only from the perspective of trade but also for job creation and economic growth and development which are so closely linked to an open trading system,” the report quoted him as saying.
The data underlined concerns that, after a long period of growth through globalization and reliance on global trade, governments are increasingly seeking to protect their own industries during a period of economic difficulty and economies are increasingly driven by domestic consumption.
Although all governments deny protectionism, trade is no longer outpacing economic growth as it used to. Trade has grown 1.5 times faster than gross domestic product over the long term, and twice as fast when globalization picked up in the 1990s.
Reversal of Globalization
This year trade will grow only 80% as fast as the global economy, the WTO said, the first reversal of globalization since 2001 and only the second since 1982.
Azevedo said the benefits of trade should be shared more widely, with a system that does more to include poor countries, small firms, marginalized groups and entrepreneurs—an apparent nod to anti-globalization activists who say secretive trade talks are exclusively aimed at helping big business.
The WTO also said it expected slower 2017 trade growth than in its previous forecast, with a rise of 1.8-3.1% rather than the 3.6% it had estimated in April.
“While the benefits of trade are clear, it is also clear that they need to be shared more widely. We should seek to build a more inclusive trading system that goes further to support poorer countries. This is a moment to heed to lessons of history and recommit to openness in trade, which can help to spur economic growth,” Azevedo said.
The chief economist of the International Monetary Fund has also urged governments to embrace the benefits of free trade, warning that tariffs cause self-inflicted economic harm on countries that impose them.
“Those who promote ‘getting tough’ with foreign trade partners through punitive tariffs should think carefully”, said the IMF’s Maurice Obstfeld earlier this month.
“It may be emotionally gratifying; it may boost specific industries; the threat may even frighten trade partners into changing their policies; but, ultimately, if carried out, such policies cause wider economic damage at home,” he said.
UK Referendum
The WTO, which warned the UK would face a £9 billion ($11.66 billion) spike in import taxes if it voted to leave the EU, also said it did not expect the UK to fall into a recession as a result of the Brexit vote.
The WTO’s biggest downward revision to imports from its April forecast came in South America (-4.5% to -8.3%), the US (4.1% to 1.9%) and Asia (3.2% to 1.6%), but it predicted European imports would rise to 3.7% from 3.2%.
It added that the UK referendum result did not lead to an obvious downturn in economic activity, with its main impact being a drop in the value of the pound against the dollar and the euro.
It forecasts that growth will slow down in the UK in 2017, but that the country will not fall into recession.
