What trade war? It’s actually booming
hong kong/washington — It was meant to be the year of the trade war. Instead, it was the year of the trade boom.
As 2017 draws to a close, the International Monetary Fund is projecting the volume of trade in goods and services will have climbed 4.2 per cent over the year, up from 2.4 per cent in 2016. That would be the first time trade has outpaced output growth since 2014 and harks back to the pre-crisis days when such outperformance was a regular occurrence.
Among the winners: big manufacturing powerhouses such as Germany and China and producers of electronics like South Korea, which on Thursday raised its benchmark interest rate for the first time since 2011 after months of surging exports. Caterpillar and Samsung Electronics are some of the companies that are cashing in.
Closely-watched gauges on manufacturing suggest the recovery should continue into 2018. A weighted average of flash Purchasing Managers Indexes for China’s major trade partners came in at 56.3 in November — the highest since February 2011, according to Bloomberg Economics. China’s official manufacturing PMI unexpectedly climbed to 51.8 in November.
“A trade boom, rather than a trade war, has been the big theme,” said Chua Hak Bin, a Singaporebased senior economist with Maybank Kim Eng Research.
That doesn’t mean the threat of protectionism has passed. President Donald Trump is still vowing to crack down on countries the US believes don’t trade fairly, and negotiate deals more favourable to America. While the White House is focused on pushing through tax cuts, there are still signs Trump plans to get tough on trade.
The US Commerce Department this week took the unusual move of evoking powers it hasn’t used in more than a quarter century to begin a probe into Chinese aluminum imports that could lead to tariffs. The US move “is a cautionary and potentially significant marker in the US crusade against what are deemed unfair trade practices,” said Patrick Bennett, a Hong Kongbased strategist at Canadian Imperial Bank of Commerce. “The issue of trade protectionism has potential to continue looming large for financial markets.”
The US has taken other steps to tighten trade enforcement and more is expected in 2018 as investigations into Chinese intellectual property practices and other areas continue. The US has proposed changes to the North American Free Trade Agreement that have been rejected by Mexico and Canada, raising the risk that Trump will follow through on his threat to pull out of the deal. The US also wants to revamp its trade deal with South Korea.
“There is a sense that this administration regards with suspicion” multilateral organisations such as the World Trade Organization, said Carlos Gutierrez, who was US Commerce secretary under George W. Bush and now chairman of the National Foreign Trade Council in Washington. He added that Nafta talks “aren’t going anywhere,” a distressing situation for global companies that have built supply chains on the assumption they won’t have to pay tariffs within North America.
Since Trump wants to boost US growth, he will be pleased with the bullish outlook for the world economy. But he also wants to reduce the US trade deficit with the rest of the world — a goal that could slow the recovery in trade if it leads to more barriers.
That contradiction will loom over the world’s trade ministers when they meet next month in Argentina at a high-level gathering of members of the WTO. WTO Director-General Roberto Azevedo has warned that the Trump administration’s decision to block appointments to the WTO’s appeals panel is undermining its ability to resolve trade disputes. Trump doesn’t feel the US gets a fair shake at the WTO — an argument other members question, given America’s leading role in creating the trade tribunal and the global rules that underpin it. — Bloomberg