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WTO: ambiguous fortunes for trade

Sustained GDP growth could give world trade a lift this year, yet it remains to be seen whether this boost will endure, warns the World Trade Organization (WTO). According to the body, mid-last year, economic growth slowed more than anticipated, causing central banks and governments to take up more expansionary monetary and fiscal policies. This seems to have delivered a GDP increase to major economies in the first quarter of 2019, but there are no guarantees this will be maintained.

Tensions remain key

The comments are taken from the WTO’s World Trade Statistical Review 2019, a 176-page document exploring the latest trends concerning world trade, with analysis of both trade in goods and services and performance of frontrunning players. The report found that China continues to expand quicker than the majority of the other manufacturing economies, while the US marked a healthy output hike in Q1 2019. However, further trade tension escalation could “derail” both GDP growth and trade, it says. The report also states that the Global Manufacturing PMI, compiled by JPMorgan Chase and IHS Markit, suggested contraction in April (49.0) but this stabilised in March (48.9), which could be an early signal of a global trade turnaround. However, any substantial improvement would likely rely upon trade tensions easing.

According to the report, last year, global merchandise trade grew by 3%, just above the 2.9% rise in world GDP over the same timeframe. However, this was substantially less than the 4.6% growth observed in 2017. The WTO puts this loss of momentum in part down to growing trade tensions and historically-high trade restriction levels.

“The WTO’s latest trade-monitoring report confirms that trade-restrictive measures are on the rise,” said Roberto Azevêdo, WTO director-general. “Trade covered by import-restrictive measures recorded in the last trade-monitoring report — mid-October 2018 to mid-May 2019 — is estimated at $339.5bn. This is the second-highest figure on record, after the $588.3bn reported in the previous report — mid-October 2017 to mid-October 2018. If trade is to pick up in 2019-20, trade tensions must be resolved.”

“WTO members implemented 38 new trade-restrictive measures during the latest review period,” the report states. “While fewer measures were introduced than in previous periods, the scale of those measures is much increased in terms of their trade coverage and the level of tariffs imposed. Trade measures implemented by G20 economies accounted for the vast bulk of the trade covered by import-restrictive measures.

“Out of the 38 new trade-restrictive measures recorded, more than 80% were applied to imports. Tariff increases accounted for more than half of all import-restrictive measures, followed by a range of import bans, special safeguards and import taxes. With respect to exports, most of the measures taken were duties, followed by bans and stricter customs procedures.”

Since 2008, world exports of merchandise trade have increased by 20% in value terms. Last year, global merchandise trade totalled $19.67tr, with its value increasing by 10% that year. The exports growth was predominantly driven by elevated energy prices, while Asia was the principal contributor to the imports rise. China was the world’s leading merchandise trader last year, and during this period, over 50% of merchandise trade was held by 10 economies: China; the US; Germany; Japan; the Netherlands; France; Hong Kong, China; UK; South Korea; and Italy. China was the biggest exporter last year while the US was the greatest importer. Significantly, the WTO highlights that trade growth for nine of the top 10 traders remains below 2008 pre-crisis levels.

Global trade and GDP have increased in tandem for the last 10 years. Both have gone up by 26% since 2008. Furthermore, over the past 10 years, India; Hong Kong, China; Mexico; and Ireland rose the most in global rankings among the top 20 goods and services traders. Zooming in on specific sectors, global merchandise exports of fuels and mining products, manufactured goods and agriculture increased by 23%, 8% and 5% respectively.

Looking ahead

With digital technology having skyrocketed in importance in the last few decades, nobody can doubt that its influence on trade will increase in the near term. However, the WTO says that questions remain concerning digital trade’s measurement and scope.

“The question surrounding digital trade is whether it facilitates existing international trade or whether it creates additional trade, or both,” it says. “Sometimes it is said that trade growth has been dampened by not measuring digital trade adequately. … Do conventional trade statistics reflect economic reality?

“Current trade statistics cannot quantify the level of international trade attributable to digital transactions, i.e. to digital ordering or digital delivery. Both these components together, however, can be used to determine the quantity of digital trade. In other words, digital trade can be explained via the nature of the transaction, i.e. whether it is digitally ordered or digitally delivered.”

When it comes to the future of trade, Asian economies are the places to look to. According to the World Trade Statistical Review 2019, Asian economies boast the biggest growth rates with regard to contribution to global value chains (GVCs), meaning they are trading with international industrial partners more and more. Over the last decade, the continent’s stake in world merchandise exports went up by six percentage points, increasing to 34% last year from 28% in 2008.

However, the WTO says that developing economies are playing increasing parts in GVCs too. Notably, in the majority of the last 10 years, developing economies outperformed or equalled developed economies’ performance in global trade. Another point of note is that from 2011, developing economies’ exports to other developing economies surpassed their exports to developed economies. In 2018, developing economies took 44% of world merchandise trade. They exported $8,779bn in merchandise trade in total, and $193bn of this was from least-developed nations.

The report also discussed trade in transport. Global exports of sea transport services decreased at an average annual rate of 1% between 2008 and 2018. As for exports and imports of transport as a whole, in 2018, global exports of transport stood at $1,017bn, a yearly percentage change of 7% — in 2017, the annual percentage change was 9%, though 7% is still much better than the figure of 2016. Imports of transport were worth $1,215bn last year, a percentage change of 9%. This percentage is unchanged from 2017, but again, much better than that the percentage change of 2016.
Source: The Baltic Exchange

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