Sagging Trade Flows Spark Alarm Before G-20 Meeting (#GotBitcoin?)
If tit-for-tat measures continue, tariffs could rise back to 2003 levels, economists warn. Sagging Trade Flows Spark Alarm Before G-20 Meeting (#GotBitcoin?)
World trade flows have sagged again in 2019, a sign that higher U.S. tariffs and other trade barriers are cooling growth as leaders from the Group of 20 large economies prepare to meet in Japan.
Most of the measures have been introduced or proposed by the U.S. or by countries retaliating against Washington’s tougher approach to tackling its trade deficits. More could come. The U.S. government for instance has detailed nearly $300 billion in new Chinese imports that would face 25% levies as early as this summer.
If those levies go ahead, economists at UBS estimate tariff levels could return to where they were in 2003, with the shipping industry carrying cars, clothing, electronics and other manufactured goods around the world among the businesses bracing for a substantial impact.
Denmark’s A.P. Moller-Maersk , which owns roughly 20% of all container capacity, said the spat between the U.S. and China may cut growth in global container volumes by a third this year. Shipping industry measures show freight prices have already been slipping this spring because of declining volumes.
“The tariffs are the biggest negative risk that can seriously hit volumes and earnings,” said Jonathan Roach, a container shipping analyst at London-based Braemar ACM. “The optimism we had just a few weeks ago when we thought a trade deal would be signed between the U.S. and China has evaporated. There is a lot of uncertainty out there.”
U.S. President Trump and Chinese President Xi Jinping are set to meet on the sidelines of the G-20 gathering. While that meeting isn’t expected to result in a trade agreement, it may help restart talks that broke down in May.
Meanwhile, concern about the impact on global trade flows is deepening.
Figures released Tuesday by the CPB Netherlands Bureau for Economic Policy Analysis indicated that the total volume of goods moving across borders fell 0.7% in April from March, having dropped by 0.2% in the first three months of the year. The Dutch economy has been highly dependent on trade for centuries, and the government’s economic research body pays special attention to changes in trade flows.
The April drop in trade flows was driven by a 2.6% decline in imports to the U.S., and a 5.3% slump in exports from Asia’s developing economies, which includes China. Economists say those declines partly reflect new barriers to trade, chiefly the higher tariffs that have been imposed since early 2018.
In a report prepared for G-20 leaders, who will meet in Osaka on Friday and Saturday, the World Trade Organization said the number of measures restricting trade that were imposed between October 2018 and May 2019 was 3½ times the average since it started to monitor policy in 2012. The measures affected $335.9 billion worth of potential imports, the second-largest total on record after the six months through September 2018.
“This will have consequences in increased uncertainty, lower investment and weaker trade growth,” said Roberto Azevêdo, the WTO’s director-general. “We urgently need to see leadership from the G-20 to ease trade tensions.”
The trade slowdown appears to have weakened factory output around the world. The Dutch research institute said that global industrial production was 0.8% lower in April than in March, having increased by just 0.1% in the first quarter.
June measures of activity in the U.S., eurozone and Japanese manufacturing sectors also pointed to a slowdown. By contrast, activity in the services sector, which isn’t directly affected by higher tariffs, continued to grow at a robust pace. Taken together, Capital Economics calculates that the purchasing managers’ indexes for the three months through June point to the weakest growth across developed economies since 2012.
Chinese shipping executives say they have withdrawn box capacity in the trans-Pacific route since the first round of tariffs were introduced last summer. Cosco Shipping, the world’s third-biggest box-ship operator, has removed 10% of its carrying capacity on the route since the end of last summer after the first U.S. tariffs were introduced.
Container imports into the five biggest U.S. West Coast seaports, the main gateways for U.S.-Asia trade, fell a combined 5.3% in May, according to Beacon Economics, a steep pullback from the surge in inbound business in earlier months as importers sought to rush goods into the country ahead of new tariffs.
Export loads from the ports, which include the agricultural goods targeted by China in retaliatory actions, fell 5.1% from a year earlier.
The upheaval in global trade is weighing on airlines. The International Air Transport Association this month trimmed by 21% its combined profit forecast for airlines to $28 billion from $35.5 billion six months ago, largely reflecting a slump in airfreight demand and cost pressures.
In December, IATA expected cargo shipped by air to grow 3.7% this year. It cut that prediction to zero growth this month. It also cut pricing expectations for those items shipped to no growth from a 2% yield increase expected in December.
“The last six months have been a bit of a disaster for air cargo. We’ve seen a really sharp fall in volumes,” IATA chief economist Brian Pearce said this month. The imposition of tariffs by the U.S. and China on imports have led to sharp drops in May airfreight traffic, measured by tons over distance flown, down 4.7% compared with the year prior figure.
Deutsche Lufthansa AG last month said it would offer fewer cargo flights to adjust to lower demand.
Trade Flows Set to Stay Weak, Says WTO
Trade body’s leading indicator for trade flows points to continued weakness as 2019 draws to a close.
Global flows of goods across borders are on course to grow at the weakest pace since the financial crisis, according to the World Trade Organization, as trade tensions and rising tariffs continue to weigh on exports and imports.
The Geneva-body that mediates trade disputes Monday said its leading indicator of trade flows points to continued weakness as 2019 draws to a close, making it more likely that international trade will end the year having risen at a slower pace than in any since 2009, when trade collapsed in the wake of the global financial crisis.
In October, the WTO cut its forecast for global trade flows in 2019, projecting that cross-border movements of goods will rise by just 1.2% this year due to trade friction and uncertainty over Brexit, after a 3% expansion last year. The WTO expects the volume of merchandise trade to increase 2.7% in 2020.
The WTO said that its Goods Trade Barometer recorded signs of a pickup in export orders, container shipping and automobile shipments, offset by weakness in airfreight, and shipments of raw materials and electronic components.
Global trade flows rose in July and August, following three straight quarters of decline, but remained weak.
The WTO’s leading indicator for trade flows rose to 96.6 from its August level of 95.7, but remained well below the level 100.00 mark that signals exports and imports are rising at the average rate recorded over recent decades.
“Some components…remain on a downward trajectory reflecting heightened trade tensions and rising tariffs in key sectors,” the trade body said.
Flows of goods across national borders have been weakened by a number of developments in 2019.
Tariffs on trade between the U.S. and China have risen. One side effect of that trade dispute is a weakening of business confidence and investment. Investment goods such as factory equipment account for a large share of global trade flows.
There has also been a slowdown in the global automobile industry, which imports and exports parts as part of its global supply chains, as well as finished vehicles. Stricter emissions controls are making cars more costly just as many countries’ markets have become saturated and alternatives like ride-sharing have sprung up.
Last month, the International Monetary Fund slashed its forecast for the growth of trade flows in 2019 to 1.1% from 2.5%, although it expects to see a rebound in 2020. Those hopes would be boosted if tensions between the U.S. and China ease.
U.S. President Trump and Chinese Vice Premier Liu He said on Oct. 11 that they were close to a limited, “phase one” trade accord that would increase U.S. sales of agricultural products to China in return for some rollback of tariffs on its imports from that country.
But talks have hit a snag over the size of farm purchases, and the two sides are also at odds over whether—and by how much—the U.S. would lift tariffs on Chinese imports, a core demand from Beijing that is linked to its offers on other issues.
However, even if such a deal is secured, uncertainties about the future of the international trade system are unlikely to go away, and economists don’t expect growth in exports and imports to return to the rates seen before the global financial crisis.
“The difficulties in agreeing on a ‘phase one’ deal…cast doubt on the ability of both sides to reach a wider agreement on the more thorny issues surrounding intellectual property, technology transfer and industrial policy,” said Neil Shearing, chief economist at Capital Economics.
The slowdown in trade flows since the start of 2018 has taken its toll on manufacturers around the world, a key factor in a broad-based economic slowdown that saw Germany and Japan—two of the world’s largest exporters—on the brink of stagnation in the three months through September.
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