While trade policies in the West are in a flux, Asia continues to forge ahead with both mega-regional and bilateral deals.
Global Trade is experiencing a fundamental shift. The director general of WTO, Roberto Azevêdo, reported that in 2016 world trade grew at 1.3%. This was the slowest pace since the financial crisis. In 2016, world merchandise exports were valued at $15.46 trillion, down 3.3% from the previous year. All regions recorded declines in exports, with the smallest drop registered by Europe (-0.3%) and the largest reported by the Commonwealth of Independent States (-16.2%). On the import side, Europe saw a small increase of 0.2%, while all other regions recorded declines. Global merchandise trade is expected to rebound, with WTO forecasting a growth of 2.4% in 2017 compared to 1.3% in 2016. Further, it is likely for global merchandise trade to pick up slightly in 2018 and grow 2.1-4%.
Global trade faces uncertainty and declining growth due to Britain’s vote to exit the EU and President Donald Trump’s resolve to take the US down a new isolationist and protectionist path. The US is re-examining all its major trade deals and has proposed to impose huge tariffs on goods from China and Mexico, two of its largest trading partners. The failure of WTO’s Doha round of trade negotiations is another blow to free and fair world trade, as negotiations have undermined the credibility of the multilateral system, regional trading agreements have collapsed with the US denouncing the TPP, RCEP negotiations are going slow and OBOR is mired in controversies.
Asia has remained the engine of world growth for many years and the withdrawal of the US from the TPP is a turning point in international trade for the region, especially at a time when China is increasing its presence on the world stage. According to trade experts, the exit of the US from the Asia-Pacific region provides a golden opportunity for China to reaffirm and establish its hegemony.
Under the One Belt, One Road Initiative, China plans to spend over a trillion dollars on developing roads, railways and ports, primarily in Central Asia, Southeast Asia, the Middle East and Africa, to promote trade into and out of China. If completed successfully, the potential gains for China are vast, both economically and politically. Also, with the TPP off the table, China can now forge ahead with the RCEP—a trade deal comprising 16 countries including China, India, Japan and South Korea. It accounts for almost half of world’s population, almost 30% of global GDP and over a quarter of world exports.
There are debates of a TPP minus one—without the US—and this idea gained ground in the recently concluded meeting of the eight remaining countries in Chile. While trade policies in the West are in a flux, Asia continues to forge ahead with both mega regional and bilateral trade deals. In fact, India is renegotiating some of its comprehensive trade deals with countries like Korea and Japan to get greater market access and trade benefits.
Thus, there is a major contradiction and there is no dearth of economic policy options for countries wanting to follow what suits their economy the best. Another region that is in a flux due the changing trade paradigm is the African Union. Africa has always been a strong supporter of multilateralism, led by WTO, even though it has some of the most effective and advanced forms of regional trading agreements in the world. Africa is concerned that the Doha round that focuses on helping developing countries overcome their supply-side constraints with respect to production costs, and both quality and quantity challenges, is on its death bed.
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It believes that with Brexit and America First, there would be no further negotiations or progress on the Doha agenda. Some of its bilateral trade deals with the EU are also in a limbo due to Brexit. Africa is moving towards a massive regional agreement called the Continental FTA by the end of 2017 and an economic union by 2019. According to UNCTAD, the CFTA would be a key driver for Africa to pursue its structural transformation and industrialisation efforts as envisaged in the African Union’s Agenda 2063, and a means to promote implementation of the UN 2030 Agenda for Sustainable Development.
It is evident that there has been a rise in protectionism across the world, especially in the US and EU, but it seems to have played a limited role in suppressing trade flows. A lot will depend on the next ministerial of the WTO at Argentina at the end of this year. Uncertainty looms large but has been positively offset by several countries supporting multilateralism and globalisation, led by China and India.
Professor of Applied Economics and Economic Policy, IIPA, New Delhi. Views are personal.