[SCMP Column] Alarm over global trade

September 26, 2016

Roberto Azevedo, Director General of the World Trade Organisation, does not mince words: “World trade is under siege”. After decades of double-digit annual growth in world trade, driving much of the growth in the global economy, trade hit a wall with the Global Financial Crisis of 2008, flatlined to the end of 2014, and has contracted ever since.

That is horrid news for Asia’s ports. It is horrid news for the world’s shipping lines. It has taken the life of Hanjin, one of South Korea’s biggest shipping lines. It is in the process of taking the lives of thousands of Hong Kong’s small trading companies. And for all those businesses around the world that rely on international trade for their livelihoods, there is no relief in sight.

If you want to get really gloomy about it, read Simon Evenett’s latest and 19th Global Trade Alert, which has become compulsory reading for those anxious to track and understand the protectionist forces that have gathered since 2008. Since the Lehman crash in 2008, his Global Trade Alert has tracked a total of 8,681 new protectionist measures initiated by governments around the world – over 1,000 of them introduced last year.

All of the top 10 offenders are G20 member economies, and by far the worst offender has been the US. India and Russia have travelled in the US slip stream, but none come near the 630 protectionist measures put in place by the US since 2008. These include 200 new requirements for US government procurement contracts to go to US companies, and for other “buy local” initiatives. Of the 8,681 measures worldwide, Evenett argues that significantly the most damaging have been subsidies and state aid to local companies, trade defences, and import tariffs. Predictably, the main target of all these protectionist moves has been China – whose companies have been hit by more than 2,900 of the measures – about one third. And two thirds of the measures have targeted foreign companies.
In the absence of growth in the global economy, governments worldwide “have been tempted to “steal” market share by resorting to beggar-thy-neighbour activity,” says Evenett.

As someone who has always seen growing world trade, and the globalization underpinned by it, as a force for competitive good in all of our economies, the rise in populist attacks on liberal world trade and on globalization is deeply alarming. But many in the political trenches in the US and Europe strongly disagree, or are complacent about the harm being inflicted by declining trade. Take Paul Krugman, for example, who argued two years ago: “Ever-growing trade relative to GDP is not a natural law. It is just something that happened to result from the policies and technologies of the past few generations. We should be neither amazed nor disturbed if it stops happening.”

Such misplaced complacency comes from a view that flat-lining trade can easily be explained away by weak demand for commodities linked with the post-2008 crash, in particular the slump in oil-related prices, and a massive economic rebalancing being engineered inside China, where many high-value components that used to be imported are now being manufactured inside China, and where more of China’s output is being consumed by increasingly affluent Chinese households.

There is no denying the importance of either of these factors, but what Evenett traces is a much more troubling trend which includes a big rise in discriminatory intervention by Governments against foreign companies, reimposition of import tariffs, and a surge in trade defence and safeguard investigations, like anti-dumping initiatives.

Focusing in particular on steel, where accusations against China for “dumping” surplus steel on global markets has put in jeopardy China’s recognition as a market economy, the latest Global Trade Alert reveals that at the end of last year 91% of all steel traded worldwide was affected by trade discriminatory measures – compared with 50% of world steel trade in 2009. Today Government export incentives provide sweeteners for 88% of world steel trade, compared with 77% in 2010.

An exemplar of this trend is Sajid Javid, Britain’s Business Secretary, who sanctimoniously argued: “I have led calls for the speeding up of trade defence investigations, and I have repeatedly supported tariffs on unfairly traded steel. All have led to a significant drop in Chinese imports. I’m not a fan of tariffs and duties. I certainly don’t believe in protectionism. But I’m even less keen on unfair trading.”

Sorry Honorable Minister, but these are weasel words typical of weasel politicians worldwide. As the Financial Times’ Trade Editor over a number of years, the story in country after country was consistently the same: these pesky, corrupt and untrustworthy foreign businesses are stealing the contracts and the jobs of our honest, upstanding local companies so we need protective walls to ensure they trade fairly. Complaints about “unfair trade” are the first resort of protectionists and struggling oligopolists the world over.

But with so many populist politicians worldwide intent on blaming the poor state of the global economy on pesky foreigners, there is a real danger that free trade, and the largely beneficial impacts of globalization, are in jeopardy. So it is that bosses like Jeff Immelt at GE are pragmatically bending to the pressure: “We will localize. For GE, sustainable growth will require local capability inside a global footprint. We will produce for the US in the US, but our exports (from the US) may decline.”

I see in all this a grave danger that the rising tide of protectionist “zero sum thinking” is leading to the emergence of a new 21st century form of mercantilism. A combination of state incentives and local content requirements are tilting commerce in favour of local firms which, unable to take advantage of globally distributed comparative advantages will seek the defence of higher tariff walls and will call for policies to capture talent, foreign investment, R&D and intellectual property.
If such protectionist reflexes are not kept at bay, many of the competitive improvements in the global economy that have been driven by strong trade growth over the past four decades will be lost. We in Hong Kong will be among the first to feel the pain.
[ Back ]