The rise of protectionist politics, particularly in the US and UK, could mean a further slowdown in global trade. A new report argues however, that key structural and cyclic downwards trends of trade growth are about to come to an end, with, as a result, a global increase in trade activity and a boost in global economic growth.
Trade has been a key component of recent global economic development, and particularly a key driver for the success of Asian economies. Trade has however, made headlines recently as a key concern of the US electorate, and a key platform on which the now President of the US ran.
The rise of a more protectionist US, as well as the potential of additional barriers for trade between the UK and the EU, post Brexit, are said, by pundits, to potentially bring about a slowdown in global trade, and thereby, affect wider Asian economies.
In a new report from Deloitte, titled ‘Trade to trump protectionists and boost global growth’, the consultancy firm explores in how far Asian economies are likely to be affected by wider global political and economic trends going into 2017.
According to Deloitte's analysis, trade has been one of the key drivers for economic growth across Asian countries. Cheaper labour and other structural costs, has seen manufacturing and services leave regions such and Europe and North America for far flung shores.
One of the most prominent benefits to Asia has been growth in merchandise exports, which has moved away from predominantly European and North American regions from the early seventies, as Asia begun to track towards generating almost the lions share by 2015. The movement of trade across the globe, the growth of which has far outpaced economic growth, by half again as fast over the past 50 years, has boosted the economic output of, among others, Asian countries.
The movement of trade has allowed economic growth in a number of Asian economies to significantly boost per capita incomes, although benefits are not apparent in all economies - with Bangladesh workers, in particular, continuing to face poor wage growth. It has also massively boosted the profits of multinational corporates, and wealth inequality among businesses (and people).
The rapid acceleration of trade growth across the globe was the result of a range of factors, from the fall of the Iron Curtain, a manufacturing and export focus in China, to technological advances that allowed particularly IT services to shift to India.
While global trade has been steadily accelerating since the 1970s, the global financial crisis saw a sharp contraction, before a period of weaker trade growth. The slowdown in trade, the firm notes, particularly to levels below that of global economic growth as such, is of concern to Asian economies dependent on continued growth in trade for their own growth in GDP.
The reason for the sharp contraction in trade are, the firm notes, multifaceted. However, one part of the trend is the result of a considerable slowdown in key investments in advanced economies, which, the firm suggests, have resulted in a wider impacts to trade. Particularly as consumption, rather than investment, generate changes in the trade intensity.
Trade values too have been affected by macroeconomic conditions, particularly as US dollar has risen, which reduced the dollar price of internationally traded goods. A second condition affecting value is the movement of excess manufacturing capacity out of China to regional economies, which has resulted in deflationary pressures on manufactured goods prices.
While global trade growth has remained relatively depressed relative to the period before the financial crisis, and in so far as political posturing and Brexit, among others, suggests that trade will be negatively affected in the long-term, Deloitte’s analysis argues that the future of both trade, and global economic growth, are not as dire as made out by pundits.
According to Deloitte’s analysis, the recent trend of low global economic growth is set to come to an end this year, as the contribution from emerging economies again ramps up and advanced economies begin to again make strategic investments. By 2021 global economic growth is set to hit 6% according to the firm.
The slowdown in trade, and the Trump related protectionism, is also unlikely – the firm suggests – to considerably dampen global trade growth. Cyclical effects related to the Chinese economic transformation slowing growth and lower infrastructure spending in the West, are likely to come to an end, while the slowdown in Chinese manufacturing will likely be picked up by other regional economies whose labour prices are more competitive. The growth of services across Asian economies, and their export – particularly in China and India – mean that in the long-term it is likely that trade volumes will again pick up steam.