WTO, OECD Officials Warn Trade Uncertainty Could Hamper Growth Prospects
New data from the Organisation for Economic Co-operation and Development (OECD) and the World Trade Organization (WTO) suggests that continued tensions and uncertainty on trade could resonate across the global economy, with damaging implications for economic and trade growth.
In new figures released on Thursday 27 September, the WTO said that trade will see more muted growth than earlier estimates had suggested, revising downward early projections from five months ago. Rather than growing by 4.4 percent this year, trade is now expected to grow by 3.9 percent, when measured by volume. The WTO does provide a range for the final 2018 figures that could be as low as 3.4 percent and as high as the originally projected 4.4 percent. Projections for next year indicate that trade growth will be slower than what is anticipated for 2018.
The WTO names a series of downside risks to trade growth going forward, including but not limited to continued uncertainty and the greater use of unilateral measures, as well as the ramifications of “geopolitical tensions” in some parts of the world.
Meanwhile, the OECD recently downgraded its economic growth forecasts for this year and the next, rating growth for both years at 3.7 percent. This was a drop in 0.1 percent for this year and 0.2 percent for next year. It also made modifications downward for its expectations for G20 major advanced and emerging economies, with some hit harder than others.
“Recently introduced restrictive trade policy measures have already resulted in marked changes in trade flows and prices in targeted sectors,” the OECD said.
The organisation also warned that there could be greater “divergences” among G20 members should “downside risks” become worse, and with poorer prospects for emerging economies. It later devotes a specific section to the growing proliferation of unilateral trade measures among some major economies, particularly those involving the US and China.
The OECD suggests that while the measures currently in place have had a “relatively mild” effect on the economy overall, there have already been measurably adverse impacts when it comes to drops in trade flows and increases in prices for products targeted by tariffs. The price increases, the Paris-based agency notes, are generally being felt by consumers.
“A series of tariffs and retaliatory counter-measures have already come into effect since the start of the year, and more may be implemented in the coming months. Uncertainty about future trade policies may be contributing to the sharper-than-expected trade slowdown, with some firms choosing to delay international orders or change their supply chains and production locations to minimise the effect of possible new trade barriers,” the OECD said.
Azevêdo: collapse of trade collaboration would have “dramatic” results
Earlier this week, WTO Director-General Roberto Azevêdo said in Berlin that while current unilateral trade measures may only cover a fraction of global trade, the situation could get worse – a possibility that he said the organisation’s economists are in the process of examining.
“Our economists have been assessing a variety of possible scenarios to develop this picture. The scenario of a full, global trade war, with a breakdown in international trade cooperation, would have very dramatic effects. It would knock around 17 percent off global trade growth, and 1.9 percent off GDP growth,” he said after meeting with German Chancellor Angela Merkel at an event known as the “Day in German Industry.”
The WTO chief also noted that talks among different groups of members on how to update the global trade club’s rules, referred to by many proponents as “WTO reform” or “WTO modernisation” discussions, could yield promising results.
Those talks are still informal, often at working group level, with some of the most recent including a meeting of senior officials and vice-ministers in Geneva last week at the invitation of Canada. That meeting was in preparation for a 24-25 October summit being held in Ottawa on the same subject. (See Bridges Weekly, 20 September 2018)
“At the root of the current tensions is the argument that the trading system is allowing distortive trade practices to go unchecked. Therefore, the argument goes, the system needs to change to be more responsive to such measures,” Azevêdo said in explaining the momentum behind WTO reform discussions.
Trade and investment ministers from the G20 coalition of major advanced and emerging economies also called for talks on WTO reform, along with expressing their interest in contributions from other trading partners on the subject. Azevêdo, referring to that meeting in his Berlin speech, said that the 30 November-1 December G20 leaders’ summit in Buenos Aires, Argentina, could be a key moment in these discussions.
Other such discussions have been held in different formats, such as via the trilateral forum between the US, EU, and Japan. The three sides held ministers’ level meetings on the sidelines of this week’s UN General Assembly (UNGA) to discuss further cooperation on trade, building on past trilateral meetings that had indicated a shared interest and initial plan for updating global trade rules in areas such as industrial subsidies and forced tech transfers. (See Bridges Weekly, 7 June 2018)
The statement issued thereafter included sections on those subjects. On industrial subsidies, for example, the three trade officials “agreed to intensify discussions among themselves and expressed their intention to advance their respective internal steps before the end of 2018 with the aim of initiating a negotiation on more effective subsidy rules soon thereafter.” (For more on the trilateral meeting and the UNGA, see related story, this edition)
The OECD figures and warnings from Azevêdo came within days of a new round of US-China tariffs on one another, each targeting several billions’ worth in goods. More specifically, the US is levying duties on approximately US$200 billion in imports from China, while the Asian economy is charging duties on up to US$60 billion in American products. (See Bridges Weekly, 20 September 2018)