Yesterday I commented Draghi Increases Risk of Global Trade Collapse With Brexit Tough Talk.

Today, the World Trade Organization (WTO), slashed its global trade forecast by 39%.

WTI director Roberto Azevedo issued a Trade Wake-Up Call noting trade estimates are below global growth estimates for the first time in 15 years.


The World Trade Organization cut its forecast for global trade growth this year by more than a third on Tuesday, reflecting a slowdown in China and falling levels of imports into the United States.

The new figure of 1.7 percent, down from the WTO’s previous estimate of 2.8 percent in April, marked the first time in 15 years that international commerce was expected to lag the growth of the world economy, the trade body said.

The figures should be a wake-up call for governments, WTO Director-General Roberto Azevedo said in the six-monthly trade outlook report.

“We need to make sure that this does not translate into misguided policies that could make the situation much worse, not only from the perspective of trade but also for job creation and economic growth and development which are so closely linked to an open trading system,” the report quoted him as saying.

The data underlined concerns that, after a long period of growth through globalization and reliance on global trade, governments are increasingly seeking to protect their own industries and promote domestic producers at the expense of foreign competitors.

Although all governments deny protectionism, trade is no longer outpacing economic growth as it used to. Trade has grown 1.5 times faster than gross domestic product over the long term, and twice as fast when globalization picked up in the 1990s.

This year trade will grow only 80 percent as fast as the global economy, the WTO said, the first reversal of globalization since 2001 and only the second since 1982.

“I am absolutely convinced that this is not a moment to turn inward,” Azevedo told a WTO conference. The benefits of trade should be shared more widely, he said, with a system that does more to include poor countries, small firms, marginalized groups and entrepreneurs – an apparent nod to anti-globalization activists who say that secretive trade talks are exclusively aimed at helping big business.

Azevedo said four out of five job losses in industrialized countries were not due to competition from cheap imports but to automation and efficiency campaigns that allowed firms to cut their workforce.

“This is not a rose garden,” he said.

Key Ideas

  1. First reversal in trade since 2001, only second since 1982
  2. Job creation and economic growth are closely linked to an open trading system
  3. Not a Rose Garden
  4. Not a moment to turn inward
  5. System should include poor countries, small firms, marginalized groups
  6. Secretiveness trade talks don’t help

Azevedo is correct on all six counts.

Risk of Global Trade Collapse

  1. A “Hard Brexit” and a trade collapse between EU and UK is a very real if not likely outcome of the Brexit negotiations.
  2. On September 17, Over 300,000 Germans Protest EU Trade Deals With US and Canada.
  3. A US-EU Trade War Looms thanks to an Airbus-Boeing feud, EU fines on Apple, and US fines on Deutsche Bank and Volkswagen.
  4. Prior to the Brexit vote, president Obama gave a “Back of Queue” Brexit Warning to the UK.
  5. Donald Trump wants to build a wall on the Mexican border. Supposedly Mexico will pay for it. Hillary talks as tough as Trump. She wants a global trade prosecutor.
  6. Obama’s Trans-Pacific Partnership (TPP) trade agreement is on the death bed. Hillary Clinton and Donald Trump are both against it.
  7. On September 23, Germany’s Economy Minister stated the US-EU TTIP Talks are “De Facto Dead”.
  8. EU trade sanctions on Russia hurt the EU more than Russia.
  9. Both Japan and China seek to devalue their currencies to maintain exports.
  10. On September 9 I reported Germany’s Finance Minister Blames ECB For German Trade Surplus. My comment on that line item was “Why the Eurozone Will Destruct”.

Sound the Alarms

In light of the WTO report I repeat my warnings from yesterday:

  • The risk of global trade wars is very high and rising.
  • Trade talks are collapsing everywhere.
  • The above 10-point list is very real and very scary.
  • Protectionism is high and rising.
  • No one wins trade wars.

Both Trump and Clinton offer protectionism. Protectionism is guaranteed to cost jobs.

Mike “Mish” Shedlock