Multilateral trade system vital for global economy
Editor’s Note: Globalization and multilateralism have been powerful trends in the world for the last few decades, helping to create wellbeing and living standards for human society that have never been seen before. However, since the 2008 financial crisis, some countries, especially the US, have resorted to protectionism, which jeopardizes the world trade system. As the trade tension provoked by the US continued to escalate, the IMF issued its World Economic Outlook on July 16, stating that tariffs imposed by the US and retaliatory measures from its trade partners could derail the recovery of the world economy. Global Times (GT) correspondents Wu Lejun and Zheng Qi conducted an interview with Gian Maria Milesi-Ferretti
(Milesi-Ferretti), deputy director of the Research Department at the IMF, to seek some insights on the multilateral trade system and possible solutions to the trade friction.
GT: In the past few months, the US has imposed tariffs on a variety of imports, not only from China, but also from Canada, Mexico and the EU. What do you think of these protectionist measures and their impact on the global economy?
Milesi-Ferretti: The measures implemented so far have been relatively modest compared with the size of the global economy. A few days ago, an IMF report estimated that the steel and aluminum tariffs imposed by the US have added uncertainties to global trade. Becasue of this, the estimate for global GDP by 2020 will be 0.5 percent lower.
Although the measures may be small from a global perspective, they are still relevant for some countries. The concerns are that there could be further measures, which could have more detrimental effects.
GT: The US has always believed that its trade deficit with China shows that China is taking advantage of the US. How do you view the US trade deficit?
Milesi-Ferretti: The US current account deficit shows that US residents spend more than they produce. And with the tax reduction policy and some additional spending in the public sector, there is pressure for the deficit to get wider. We focus on the aggregate figures for the country as a whole rather than on bilateral policies with individual countries.
GT: The trade tension between China and the US has a long history. Why, in your view, has the tension escalated recently?
Milesi-Ferretti: We hope that countries can come together and agree on a mutually beneficial set of measures that would actually ease rather than restrict trade of goods and services. There is clearly scope for agreements to make the international system work even better than it does now. So we hope that countries will work constructively toward resolving these disagreements, as opposed to implementing additional restrictions.
GT: What are your suggestions or advice for the two largest economies in the world? Do you see any possibility that they can come to an agreement?
Milesi-Ferretti: Negotiations could avoid an increase in trade barriers. We definitely hope that an agreement will be reached and we think there is interest in this on both sides. It is quite clear that these restrictions are hurting business. So the hope is that a mix of good negotiations and pressure from public opinion can ensure a move toward a more cooperative approach to these issues.
GT: Some people believe that the WTO mechanism has failed. How do you view the influence and role of the multilateral trading system in promoting global trade and the global economy?
Milesi-Ferretti: Clearly, the multilateral trade system has been a very important pillar of the global economy since World War II. China’s economy has grown in leaps and bounds since the country joined the multilateral trade system.
Does this mean the system is perfect? It isn’t. But I think the positive side of it is that countries can work together to try to strengthen and promote the multilateral trade system. Its support for free trade and services and intellectual property protection can facilitate the expansion of the global economy. It allows for further progress in the multilateral integration that has brought so many benefits to the world economy so far.
GT: We are seeing a lot of challenges to globalization right now. How do you see its future?
Milesi-Ferretti: There are a lot of challenges. The IMF is a multilateral institution. We think that a cooperative approach to multilateral policy choices is essential and integration is ultimately good for countries.
There are clearly factors we need to take into account. When we look at global integration, we need to understand that not all segments of society are affected the same way by integration. Some may have different views of it, such as workers that are displaced by further trade integration. And we have to take those aspects very seriously.
It is very important to ensure that the benefits of globalization reach across society, and that those who are negatively affected can cope with the consequences.
GT: We have seen that China’s GDP growth was 6.8 percent in the first quarter and 6.7 percent in the second quarter. How do you see the Chinese economy?
Milesi-Ferretti: What we are seeing is very much in line with our forecast – a gradual, modest slowing of the Chinese economy, which is consistent with the welcome measures to address some of the consequences of very fast credit growth.
It’s part of a re-balancing process that can reduce risks for the Chinese economy down the road. Of course, one of the consequences of these measures is that you’re going to see a slight slowdown, but in that sense it is a good slowdown because it is associated with a reduction in risks.
GT: This year marks the 40th anniversary of China’s reform and opening-up. How do you view its significance and its impact on the world economy?
Milesi-Ferretti: China already accounts for over 17 percent of world GDP in terms of purchasing power parity, and not much less than that at market exchange rates.
We think the policy of gradual opening-up is in China’s interest and will also benefit the rest of the global economy. It is a complicated process. But it is very important for China to go with market forces, and this is a trend that is gradually taking place. That needs to continue.
China’s economy has grown in leaps and bounds since the country joined the multilateral trade system. Does this mean the system is perfect? It isn’t. But I think the positive side of it is that countries can work together to try to strengthen and promote the multilateral trade system.