World Economy

WTO Economists Say: Strong Trade Growth Rests on Appropriate Policy Choices

WTO Economists Say: Strong Trade Growth Rests on Appropriate Policy Choices
WTO Economists Say: Strong Trade Growth Rests on Appropriate Policy Choices
Worsening geopolitical tensions could be counted on to reduce trade flows, although the magnitude of their impact is unpredictable

World merchandise trade growth is expected to remain strong in 2018 and 2019 after posting its largest increase in six years in 2017, but continued expansion depends on robust global economic growth and governments pursuing appropriate monetary, fiscal and especially trade policies, World Trade Organization economists have said.

Indeed, the WTO anticipates merchandise trade volume growth of 4.4% in 2018, as measured by the average of exports and imports, roughly matching the 4.7% increase recorded for 2017, AllAfrica reported.

Specifically, growth is expected to moderate to 4% in 2019, below the average rate of 4.8% since 1990 but still firmly above the post-crisis average of 3%.

The WTO’s trade forecasts are predicated on consensus estimates of global GDP, which have been revised upwards strongly in recent months. World real GDP at market exchange rates is projected to grow 3.2% in 2018 (up from 2.8% last September) and 3.1% in 2019.

However, there are signs that escalating trade tensions may already be affecting business confidence and investment decisions, which could compromise the current outlook.

“The strong trade growth that we are seeing today will be vital for continued economic growth and recovery and to support job creation. However this important progress could be quickly undermined if governments resort to restrictive trade policies, especially in a tit-for-tat process that could lead to an unmanageable escalation.

Call to Stop Retaliation

“A cycle of retaliation is the last thing the world economy needs. The pressing trade problems confronting WTO members are best tackled through collective action. I urge governments to show restraint and settle their differences through dialogue and serious engagement,” said WTO Director-General Roberto Azevedo.

Trade volume growth in 2017, the strongest since 2011, was driven mainly by cyclical factors, particularly increased investment and consumption expenditure. Looking at the situation in value terms, growth rates in current US dollars in 2017 (10.7% for merchandise exports, 7.4% for commercial services exports) were even stronger, reflecting both increasing quantities and rising prices.

According to the WTO, merchandise trade volume growth in 2017 may also have been inflated somewhat by the weakness of trade over the previous two years, which provided a lower base for the current expansion.

Until recently, Azevedo notes that risks to the forecast appeared to be more balanced than at any time since the financial crisis. However, in light of recent trade policy developments they must now be considered to be tilted to the downside.

“Increased use of restrictive trade policy measures and the uncertainty they bring to businesses and consumers could produce cycles of retaliation that would weigh heavily on global trade and output. Faster monetary tightening by central banks could trigger fluctuations in exchange rates and capital flows that could be equally disruptive to trade flows.

“Finally, worsening geopolitical tensions could be counted on to reduce trade flows, although the magnitude of their impact is unpredictable. Technological change means that conflicts could increasingly take the form of cyber attacks, which could impact services trade as much or more than goods trade.

“On the other hand, there is some upside potential if structural reforms and more expansionary fiscal policy cause economic growth and trade to accelerate in the short run. The fact that all regions are experiencing upswings in trade and output at the same time could also make recovery more self-sustaining and increase the likelihood of positive outcomes”, he added.

Blame Game 

China and the United States blamed each other on Tuesday for risking the destruction of the WTO, with Beijing’s ambassador decrying US hostage-taking and Washington’s envoy calling China’s claims “Alice in Wonderland”.

US Ambassador Dennis Shea, addressing the WTO’s general council for the first time, began by attacking the judges of the WTO’s Appellate Body, whom he blamed for a “steadily worsening rupture of trust”.

“Something has gone terribly wrong in this system when those charged with adjudicating the rules are so consistently disregarding those very rules,” Shea said, according to a copy of his remarks provided to Reuters.

Shea said he was “perplexed” by China’s assertion that it was a victim. “Mr. Chairman, we have now entered the realm of Alice in Wonderland. White is black. Up is down,” he said.

The United States has vetoed new appointments to the Appellate Body, causing a crisis at what is effectively the supreme court of world trade.

Chinese Ambassador Zhang Xiangchen, who had put the issue on the agenda, began by warmly welcoming “our new colleagues, especially Dennis”. But the cordial opening gave way to criticism of the “dangerous and devastating” US actions.

“By taking the selection process as a hostage, the US is abusing the decision-making mechanism of consensus,” Zhang said. The US veto, along with steel and aluminum tariffs and a threat to put $50 billion of tariffs on Chinese goods for alleged intellectual property theft, had systematically challenged the WTO’s fundamental principles, he said.

Blasts US Actions

WTO spokesman Keith Rockwell said many WTO members joined the debate, many expressing concern that the US actions could make the system dysfunctional, and prepared to discuss its views while rejecting any linkage between judicial appointments and reforming the WTO.

“It was extraordinary in its intensity,” Rockwell said. “It was unusual to see these two very prominent members laying it all on the line in terms of what they think ... This was a discussion that we had to have.”

“It is amazing to watch a country that is the world’s most protectionist, mercantilist economy position itself as the self-proclaimed defender of free trade and the global trading system. The WTO must avoid falling down this rabbit hole into a fantasy world, lest it lose all credibility.”

The WTO must not shield countries that undermined the global trading system, he said. “If the WTO wishes to remain relevant, it must—with urgency—confront the havoc created by China’s state capitalism.”


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