The World Trade Organisation (WTO) has downgraded its growth expectations for global trade, for this year and next, in response to the ongoing US-China trade war.
Half a percentage point has been shaved from this year’s growth projection for trade in goods, from 4.4% to 3.9%. In 2019, the WTO is now expecting growth of 3.7%.
The downgrade is in direct response to the trade war, with WTO director general Roberto Azevêdo saying: “While trade growth remains strong, this downgrade reflects the heightened tensions that we are seeing between major trading partners. More than ever, it is critical for governments to work through their differences and show restraint.”
By these projections, trade growth will still outstrip that of GDP by a factor of 1.3, after years of lagging behind that metric. But the optimism of 2017 has largely gone, replaced instead by uncertainty and frustration by banks and traders that at a time when strong growth was returning, geopolitics have thrown a spanner in the works.
Last week, GTR reported that a marginal improvement in first-half revenues saw trade finance revenues grow in half-on-half terms for the first time in five years. Data from Coalition, a banking research company, showed that the top 10 transaction banks by volume grew their trade finance business by 2.9% in the six months to June.
However, with the first tariffs coming into effect on July 6, 2018, it will be interesting to see the impact on the second half of the year. Most banks in Asia are sanguine about the direct impact on trade flow business but there is real concern as to the effect on investor sentiment: will companies hold off on taking out a loan while these uncertainties remain? Or will investors pull the plug on projects at a time of great flux?
Furthermore, when US President Donald Trump’s trade policy is so unpredictable, these figures can only be considered as guidance: who knows what the global trade landscape will look like by the end of 2018?
This week alone, the Trump administration has secured Canada’s backing for a revised North American Free Trade Agreement, now known as the United States-Mexico-Canada Agreement, or USMCA. Critics say that with the exception of some headline figures, little has changed.
“Some of the changes from the new Nafta/USMCA may be important for individual industries or farmers, but are not likely to make much of a difference in the overall economy,” says Chad Bown, senior fellow at the Petersen Institute of International Economics, in a social media post.
Meanwhile WTO acknowledges that trade policy measures are “far from the only risk to the forecast”. There have been signs of emerging market volatility in recent months, particularly in Argentina and Turkey, which have both been hit by currency crises.
“Developing and emerging economies could experience capital outflows and financial contagion as developed countries raise interest rates, with negative consequences for trade,” write WTO economists.
It looks as though the governing body for global trade – whose very existence has also been questioned by Trump, who has threatened to withdraw the US’ membership – is belting up and settling in for a period of significant turbulence.