Tide going out on global trade
Protectionist mood comes on top of latest gloomy figures
Though there was some good news in this week’s overseas trade data, the bigger picture is a sombre one. It is encouraging that exports in the June quarter were 4 per cent higher than in the same period last year, while imports were just 0.5 per cent higher, despite the exchange rate moving 3 per cent against exporters and in favour of importers over the same period.
But for the year ended June, New Zealand ran a trade deficit of $3.3 billion as imports exceeded exports by 7 per cent.
Admittedly, that is an improvement on the $3.8b annual deficit recorded in March but we are still some way from paying our way as a trading nation.
Underlying the weakness of the trade accounts, of course, is the slump in dairy prices. Dairy products represent a quarter of all goods exports. In the latest June year, dairy exports earned nearly 8 per cent less than in the previous 12 months, even though the tonnage of dairy products shipped was 6 per cent higher.
And the prospects of improvement are not great, if the latest Agricultural Outlook from the Organisation for Economic Co-operation and Development (OECD) and United Nations Food and Agriculture Organisation (FAO) is anything to go by.
For the key dairy export commodity of whole milk powder, the break-even figure you normally hear for the average dairy farmer is US$2700 a tonne — about half the recent peak in 2013.
But the OECD/FAO forecasts do not export world prices to return to that level until 2019.
Looking beyond dairy, the picture is one of faltering growth in world trade volumes and mounting protectionism.
There is some information content in the fact that for four years now, tradables inflation in New Zealand, which reflects international prices and makes up nearly half of the consumers price index, has been in negative territory.
It is an indication that the global balance between demand and capacity to supply is not enough of the former and too much of the latter. We see the effects not only in weak commodity prices, but widespread allegations of Chinese dumping of steel.
For some time, bodies like the International Monetary Fund and the World Trade Organisation have been fretting about world trade volume growing more slowly than world
[World trade growth] hasn’t slowed down: it has stalled. It has been flat-lining since early last year.
output, a reversal of the normal trend. Their recent estimates have real trade growth running at or a bit below 3 per cent, or about half the rate between 1980 and 2008.
The latest (19th) Global Trade Alert report from the London-based Centre for Economic Policy Research, citing more timely data on word trade flows, contends that it is no longer appropriate to talk of a decline in world trade growth.
It hasn’t slowed down: it has stalled. It has been flat-lining since early last year.
Whether it is a case of little or no growth in world trade, it is an environment that adds to the incentives to resort to beggar-thy-neighbour protectionist measures.
And that is what the Global Trade Alert report finds.
It is not about tariffs, so much as behind-the-border measures.
Among them it highlights a quiet resurgence in local content requirements of one kind or another. It is something often thought to have been outlawed during the Uruguay Round 26 years ago.
The Global Trade Alert team found such measures especially rife in the electrical machinery and equipment (which includes telecommunications equipment) and vehicles trades. These are sectors in which global trade exceeds $2 trillion a year or more than 11 per cent of world trade.
It cites comments in May by Jeff Immelt, chief executive of General Electric, which now earns 70 per cent of its revenue, or US$80b a year, outside the United States.
“Globalisation is being attacked as never before,” Immelt said. In such a world, GE — which already has 420 production facilities outside the United States — would continue to “localise” production, effectively substituting foreign direct investment for trade.
But then, the US itself is not simon-pure on the protectionist front. The Global Trade Alert researchers have identified more than 600 measures discriminating against foreign firms since November 2008, the most of any G20 economy. That is nearly one every four days.
The country most discriminated against by other G20 economies is China.
Against this background of flagging growth in world trade and mounting protectionism, we can discern a distinct shift in popular attitudes within rich countries regarding globalisation.
Both candidates for the US presidency oppose the Trans-Pacific Partnership.
In Donald Trump’s case it is visceral (“Horrible deal!”, “America first!”) while for Hillary Clinton it looks more a matter of political calculation, having been dragged in that direction by the Bernie Sanders insurgency.
Either way, the agreement is in trouble.
Meanwhile, the Brexit vote was at least in part a rejection of the neoliberal orthodoxy which has been in the ascendancy since the 1980s, a central tenet of which is open borders.
That doctrine was reinforced by China’s decision to abandon communism and India’s to abandon self-sufficiency, adding billions of people to the global trading system.
It has markedly reduced global inequality.
But that is scant comfort to the disaffected millions within advanced economies who have seen their local industries die and their incomes stagnate.
For them the current system has not delivered the rising tide that lifts all boats.
For them it is more like an ebb tide that leaves them and their communities stranded, beached, going nowhere.