No end in sight for US, China spat
The trade dispute between China and the United States is likely to continue into next year as talks between US President Donald Trump and Chinese President Xi Jinping have yet to result in an agreement between the countries.
And any agreement will not solve the slowdown in global trade, says Supachai Panitchpakdi, former director-general of the World Trade Organisation (WTO).
“I do not see it as a trade war, what I see is the rise of protectionism, the rise of a deglobalisation effort that we have to try and prevent, and try and fight against,” Dr Supachai told participants at the Bangkok Post International Forum 2019 on “ASIA 2020: Trade Wars, RCEP and Economic Trends” held at Centara Grand & Bangkok Convention Centre at CentralWorld yesterday.
“This will not be resolved in 2020 … even with President Xi being invited to Iowa where they might sign an agreement, it is not going to solve the whole issue.”
He said the imbalance in trade around the world, especially the US’s trade deficit against China that Mr Trump is trying to amend via tariffs, is not the cause of the slowdown in global trade. In fact, the cause is the pullback against multilateralism that the world has witnessed in the past couple of decades.
“The World Trade Organisation has come up with an assessment that 2019 is going to be a year with the lowest trade volume expansion that we have seen in a decade with a growth of only 1.2%, compared to the norm of 5%-6% that we have seen in the past,” said Dr Supachai, also former secretary-general of the UN Conference on Trade and Development (UNCTAD).
“The fact that global trade expansion comes down to below the global output expansion of around 2.5% this year means there is a contraction of trade around the world. This means that countries will continue to try to close down their borders even more in the future,” he added.
Dr Supachai says this “alarming trend” will continue into 2020 until the world looks in favour of multilateral agreements once again. Meanwhile, the tit-for-tat between the US and China will also continue until the two leaders can go to the WTO and settle their disagreement there.
He added the slowdown in global trade is contributing to the rise of geopolitical conflicts around the world as countries are looking for more resources at the same time. He also warned the global attempt to fix the slowdown in trade and investment by flooding the world with liquidity through quantitative easing and interest rate cuts could lead to an economic bubble burst.
“Today, the world is flooded with liquidity, but there is no investment,” he said. “People are buying back shares with cash … stock markets are shooting up everywhere around the world but are these real prices we are seeing? Will something explode somewhere some day because we have gone too far with pumping in the money with no real investment?”
Dr Supachai said the problem is really on the supply side with the lack of productivity increase along with the rise of unequal distribution of income around the world.
“The huge influx of liquidity into the market has gone to enhance the prices of financial assets where asset owners are gaining in value of income while the income distribution between the assets owners and wage earners is very much tilted towards the asset owners,” he said.
“This has led to a huge increase of inequality around the world and this is an issue on the supply side as well,” Dr Supachai added.
Prinn Panitchpakdi, the Democrat Party’s deputy leader and head of the party’s economic team, on the other hand said ongoing trade tension between the US and China has little effect on Thailand’s exporting sector as the real issue is the lack of foreign direct investment.
“Thailand’s exporting sector is being affected by the weak FDI number … where 70% of FDI that is coming into Thailand will eventually translate into exports,” he told the Bangkok Post. “The flat and falling FDI into Thailand in the past three years suggests Thailand’s exports will be bad this year.”