Global trade in peril

It seems everyone but US President Donald Trump believes that the raging tit-for-tat trade brawl between the United States and China is an ill wind that blows no one any good.

Experts and delegates at the 2018 Bali Meetings of the IMF/World Bank are unanimous that the global economy cannot survive a sustained protectionist onslaught led by Trump and now gradually being taken up by opponents of globalisation, especially in Europe.

The IMF has fired off the first warning shots with its Global Financial Stability Report (GFSR), which cut global growth forecast from 3.9 to 3.7 owing mainly to the US-China face-off. There are, of course, other headwinds — Brexit, climate change, US monetary policy normalisation, rising energy prices, migrant crisis etc — causing problems for the health of the International economy.

Professor Jeffery Sachs of Columbia University is quite unhappy about it and notes that the grievances against China are exaggerated. “The trade dispute is dangerous and it should be resisted because the US is breaking international law,” he says. Sachs believes the trade war will not end well, noting that Asian stock markets have already lost trillions of dollars in value. The GSFR capital-flows-at-risk analysis suggests that “emerging market economies (excluding China) could face debt portfolio outflows in the medium-term of $100 billion or more over, a period of four quarters (or 0.6 percent of their combined GDP), broadly similar to the global financial crisis. This is a terrible gloomy forecast by whatever measure employed.

President Trump’s America First policy, in the Economics Professor’s view, is all about geopolitics as the US seeks continued domination of the global order. China’s growth, he says, threatens that goal. Sachs’ advice that the Trump administration seek redress at the World Trade Organisation (WTO) may prove unworkable as the trade body itself is wracked by its own demons.

While WTO Director-General Roberto Azevedo acknowledges the need for reform of the trade body and current global rules, Prof. Sachs believes Trump’s attempt to undermine the institution is foolhardy, as the consequences would hurt the whole world. He shares the IMF’s Christine Lagarde’s solution, which advocates the turning of “trade tensions into rapprochement” even as the US is preparing to tone up the face-off by declaring China a currency manipulator. China has rejected the accusation and has so far injected about $109billion into its economy to counter the impact of the trade dispute. Professor Yiping Huang of Peking University advises his country to focus on what has made it successful in the first place, viz, the continuous and relentless improvement of productivity.

The US is not immune from the ill effects of the trade tiff. Farmers from farming states are complaining about reduced orders for commodities hammered by China’s retaliatory tariff hikes. US Vice President Mike Pence is grumbling, rather lamely, that China is trying to interfere with the US mid-term elections by targeting farming states that helped get President Trump elected.

The rhetoric behind the trade dispute has a strong whiff of the cold war era, according to Y.V Reddy, former Governor of the Reserve Bank of India. “The new cold war”, as he calls the rivalry between China and the US, is more dangerous than the former one because of the interdependence between the two world biggest economies.

To be fair, some watchers of the trade dispute think President Trump has a legitimate basis to engage the aggressive tariff policy he has instituted against China. Takehiko Nakao, President of the Asian Development Bank (ADB), for instance, says China has benefited from the rules-based multilateral world order but may have angered the West, especially the US by unconscionably stealing technology while stubbornly restricting access to markets in critical sectors of its economy. “China should understand that the trade war is about how it is perceived by the West. The Chinese, it is believed, operate a double standard,” he asserts.

The trade dispute, Nakao says, reflects the perception of those who have lost out to globalisation. That again may just be one side of the story. Azevedo provides the other side. The world trade Czar cautions that dumping multilateralism in global trade relations as President Trump seems bent on doing would mean walking away from decades of work that has demonstrably benefitted humanity since the world agreed to resolve differences at a common forum. The millions of people that have been pulled out of extreme poverty in the past seven decades and the expansion in global trade that followed the accession of China into the global trade body a little just under two decades ago bear him out.

Interestingly, while the US is moving from multilateralism to bilateralism, some other sections of the world are coming together to further the cause of cooperation. The African Union recently created the African Continental Free Trade Area (ACFTA) to make the continent a single trade bloc like the Europe did several decades earlier. Some critics wonder whether it is the right thing to do given the looming crisis in the Eurozone, but the promoters of the ACFTA are unperturbed as the benefits of a large African market are easy for all to see.

The United Nations Economic Commission for Africa (UNECA) reckons that intra-Africa trade can increase by 52 percent by 2022 compared to 2010 trade levels if the move to integrate goes on smoothly as African leaders and policymakers hope. Experts also consider the potential growth that would follow China’s Belt and Road initiative.

There’s simply no denying the need for the world to return to the negotiation table, again and again, to discuss “How Global Trade can Promote Growth for All” as did delegates at yesterday’s plenary session moderated by none other than Fund boss, Ms Lagarde.

By Joni Akpederi and Osaze Omoragbon