Growth in global trade has slowed for five consecutive years.
Trade growth for 2016 was under 2%. That’s something that has happened only three times since 2000. On both prior occasions, the US was in recession.
What’s ahead?
Please consider a couple of snips and a few charts from the 24-page PDF, Trade Developments in 2016: Policy Uncertainty Weighs on World Trade
2016 is the fifth consecutive year of sluggish trade growth and the year with the weakest trade performance since the aftermath of the 2008 global financial crisis. Current estimates of growth in the volumes of trade in goods and services range from 1.9 percent to 2.5 percent; preliminary high-frequency data suggest that merchandise trade volumes may have grown by slightly above 1 percent. The year 2016 is different from the other post-crisis years, in that trade sluggishness is a characteristic of both advanced and emerging economies.
Trade developments in 2016 continued to reflect enduring structural determinants, such as the maturing of global value chains (GVCs) and the slower pace of trade liberalization, as well as cyclical factors, notably slow global growth, the trough in commodity prices, and macroeconomic rebalancing in China. The increase in policy uncertainty may account for up to 75 percent of the worsening of the trade slowdown in 2016.
Global Trade Growth
For only the third time since 2000 has global trade growth dipped below 2%. On both prior occasions, the US economy was in recession.
Global Trade Goods vs. Services
The above chart is ominous.
Services have dramatically slowed already.
Border adjustment taxes, currency manipulation charges, and Brexit will sink trade in goods if we remain on the Brexit-Trump path.
Year-Over-Year Merchandise Trade Growth
Year-over-year merchandise trade growth is barely above break even.
Trade Restrictive Measures
Stockpile of Trade Restrictive Measures
- In 2010 there were 464 trade-restrictive measures on deck.
- In 2016 there were 2238 trade trade-restrictive measures on deck.
Certainty vs. Uncertainty
The report blames political uncertainty: “Protectionism cannot explain the trade pattern in 2016, but it is likely that trade policy uncertainty contributed to the surge in overall policy uncertainty.”
I suggest that is a bunch of nonsense.
- The growing pile of trade restrictive measures is a certainty, not an uncertainty.
- Brexit is a certainty, not an uncertainty.
- Trump’s trade policies, although not yet implemented, belong in a category best described as “known”, not “unknown”.
Trade “Uncertainty” Blame Game
The chart labeled “Global Trade Goods vs. Services” shows services have been in decline since 2014 while merchandise continued to grow.
There is no reasonable way to blame a decline in services but not merchandise on political uncertainty.
It is not “certain’ what Trump will do, or how Brexit will evolve.
However, if the EU remains on the current path of punishing the UK over Brexit, and Trump remains on the current path of punishing Mexico, China, and Germany, it is certain global trade will collapse, with devastating consequence.
Horrific Path “Nearly Certain”
Let’s stop the “uncertainty” blame game.
It is “certain” we are on a horrific global trade path led by the EU’s desire to punish the UK over Brexit, and Trump’s desire to punish Mexico, China, and Germany over trade deficits.
Unfortunately, the forces in play over Brexit and Trump-inspired trade policies suggest a global trade disaster is “nearly certain” to happen.
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Mike “Mish” Shedlock
The days of the American consumer being the world’s consumption buyer and supporting all those exporting nations are over! There’s no more money to tap.
No more garbage quality crap from China, including fakes and forgeries, for the poor American consumer. What a shame that will be…..
also no more food.
Most of the planets population are aging.
There is a demographic headwind that is going to crash economic growth with or without anything Trump does. Rampant inflation in necessities shelter, food, heath care are eating what little discretionary spending is possible.
It is unlikely the fake republicans will repeal Obamacare, increase border taxes or create any tax cuts.
Yes, older people buy much less stuff that they don’t need…
Personally I don’t give a hoot if global trade goes AWOL in terms of amount of goods, it is a long way down to what is acceptable as necessary. What does concern me is countries freaking out and stirring up chaos. Economic Justice Warriors on all sides trampling each other, citizens, and other countries with the backing of international geo-political opportunists who happen to already control almost all the wealth except for each others, which they are ready to have us war over, is not a happy picture. Society has come to expect so much in so many countries that actually realising many promises were false instead of endlessly believing new ones would have quite some effect, they are likely to blame the first stool pigeon they are presented, and will blame anything but themselves.
Nothing new to see here as Global Trade has collapsed (past tense).
global trade might be matched by “maker trade”…you know, those 3-D printer thingies
making most of what’s in Walmart in-country. or in-house, eventually.
Nah. There are fundamental physics problems with materials and speed that are very difficult to overcome. Which is why the whole 3D printing thing has kind of died on the vine.
Like cold fusion? Cool, simple science created by the media.
3D printing hasn’t died on the vine. It’s uses are still expanding briskly. It will never, or at least not in a long time, be an efficient means of bulk mass production. Just imagine trying to fill a beach by 3d printing sand….. Or paving a road with 3d printed pavement 🙂
But as a means of getting around the worst fallout of restrictions on distributing many high-value goods, it still shows lots of promise: Import and pay duty on cheap, undifferentiated blobs of raw materials, pay someone remote to have it transformed into something valuable locally, behind the tax extraction wall.
And not just 3d printing. Imagine setting up a sewing shop in North Carolina, staffed by noone. With a bunch of Asimos running sewing machines, the arms remote controlled 1-1 by a gal in China…. Cheap, reliable networks is already allowing something similar for some types of surgery, so it’s not like the precision isn’t there. It’s just a matter of cost.
Near certain disaster…hmmmm
For economies entirely based on exports, based on massive trade imbalances, based on keeping their own markets closed and based on manipulating their currencies to keep it that way…
It will be a disaster for CHINA
Germany? 50% of GDP is export?
They should loosen up if they want to help the EU.
First, it needs to be established that more/less global trade is per se a better/worse condition. Given observed unintended consequences of global capital, labor and goods markets more is better is not obvious. Second, global trade cannot be parsed in isolation from global demographic, social and political factors, as we are seeing. So, what to conclude? Large scale macro economic processes and outcomes are only partially the result of policy decisions in one country or another. Much like weather, our job is to observe and adapt accordingly. Railing against the gods is a waste of time and energy.
It IS established.
If both sides of trade did not think they benefitted, the trade would not occur.
Smoot-Hawley is a perfect example of the stupidity of blocking free trade
Trade does not occur as an isolated event in the real world. The principle is correct but fiat currency and trade law demonstrate that trade also takes place as a corporate, government and national events, ones that effect all within their perimeters without them having a direct say.
While free trade IS generally beneficial there are also inherent dangers. In the UK, for example, during the 1930s the more marginal UK farms (suitable mainly for grazing, milk and beef production) were literally being abandoned. There were no buyers and returns were insufficient for families to prosper beyond subsistence level. At the same time there were annual food imports in the region of 55 million tons from Commonwealth countries, even then it was cheaper to produce food in Australia and cargo it to the UK. The consequence was enough to threaten the UK with defeat by starvation in WW2. Had the German convoy blockades been just a little more effective the UK would have been in truly dire straits. Indeed, it is not an exaggeration to say that WW2 saved British agriculture as we learned the lesson of security of supply.
If the Brits had spent the gains from trade on guns, rather than hookers and blow, the Germans wouldn’t have been in a position to blockade nearly as much in the first place.
How to produce synthetic oil in a laboratories in The West, has been known for a long time. Yet The West has still benefited from getting it’s oil cheap from Arabia. Spending part of the gain on the naval presence required to keep those trading routes secure from potential “German” blockades.
Yes Mish, but who are the “sides” you are referring to? Suppose I have a manufacturing enterprise in Illinois and I pay $18 per hour plus benefits and pay payroll taxes besides enormous regulatory expenses. I decide to move my plant to Mexico where I pay only $3 per hour and no regulation. There are many sides to this transaction; Myself, Mexico, my employees, their families, their communities, their school districts, the Social Security administration, state and federal unemployment, etc. It seems arbitrarily academic to state a binary position that “both sides of trade benefitted” when there are many “sides” to the transaction that suffered rather than benefited.
How many times do I have to reply to the same question?
5000?
I would have thought 300 or so would suffice.
Anything that lowers prices for the end consumer is a good thing.
Your manufacturing enterprise loses a few hundred employees.
200 million people, assuming your product sells nationally, will pay a lower price. They will have more money to spend on other items.
And they will spend it. It makes no sense for hundreds of millions of people to pay a higher price to “save” a scant number of jobs.
Of course, no jobs will be saved at all netting things out. The money spent elsewhere will create more jobs than the manufacturing jobs that were lost.
Mish
Mish, who said I lower my price???????
To be more accurate, you would have to specify which segments of society are benefitting. The millions of Americans who have lost jobs to “trade” sure aren’t seeing any benefits. International corporations, the financial industry, are definitely seeing the benefits. But you ignore the financialization that made this decade of huge trade surpluses possible. China is on the verge of financial crisis because of the belief that trade could be conducted with creative financing. Japan’s financial system isn’t much better. They were smart enough to see the short term benefits of trade surpluses, but not smart enough to see that eventually they will pay the price for gaming the system.
Mish said – However, if the EU remains on the current path of punishing the UK over Brexit, and Trump remains on the current path of punishing Mexico, China, and Germany, it is certain global trade will collapse, with devastating consequence.
Add to that Russia, Iraq and Iranian sanctions and the destruction of Libya, Syria etc. and any other madness of nannycrat theorists, warmongers and self servers.
Guess the Fed is gonna have to buy all that Treasury confetti itself. No more exporting inflation?
Trade post-Brexit will be reduced and at higher cost. That impact along might just be enough to cause global, not just UK, problems. Expect recession.
I agree with those who say trade is going to collapse if Trump does nothing. I read recently WSJ said consumer debt at every level-credit card, auto, mortgage and student loan debt is getting near the record reached back n 2008. People see the corruption on Wall Street n Washington and cities where pension benefits promised are in the wind. There r many reasons for this but debt is the biggest problem. Time for a worldwide reset. Dropping a zero from the dollar is a little extreme, might start a war. Worldwide financial collapse would occur but debt problems would be solved. Since we have the Dollar advantage it would probably be easier to monetize everything as long as we can but hey these r just ideas. How would u handle the debt problem Mish?
Eventually handles itself when you have traded all of worth and all credibility also. As reclamation is ultimately measured by the application of force it is no wonder that the US has a large military, but though they guarantee order nor can they establish it, only shape it, as it always belongs partly to others.
You’re all nascent social creditors!
Why is PewDiePie your enemy?
Marginal returns on investment. It is becoming less and less profitable to sell overseas or locate production overseas. The low-hanging fruit has been picked.
In addition, it is hard to track volumes. When you are looking at it in constant 2005 dollars you have to factor out all currency conversions. When the dollar is strengthening trade volume would look smaller without adjustments. Trade is hard to measure without including the value, except for bulk goods like coal and ore which are volatile to begin with. How many Chinese dolls or TV screens is impossible to measure without taking price into account. If you look at GDP growth in India or Europe in constant dollars, currency swings are wider than the growth you are examining. Statistics have a lot of problems.
Mish, would you happen to know how these restrictions are split geographically? Are more from one geography than others? Who, if anyone, is most responsible for a adding to the restriction sum total?
If the US is not a major source of restrictions, yet, it might explain some of Trump’s gripes and excuse them. All we hear are complaints about responses, not the cause of those responses.
Might be no useful info in this question.
https://mishgea.files.wordpress.com/2017/02/global-trade-2017-02-21d.png
Prefect timing to dump the blame on populism and its candidates.
Trade restrictive measures “on deck”, Brexit and Trump’s trade policies which will become law are UNCERTAINTEES!
Brexit ones look like certainties. Von Rompuy, previous EU President has said so today. Upshot will be lower volumes at higher cost. Baked in cake.
About $620Bn total import-export between uk-eu approx currently.
Pick a % by which that will fall. Anyone’s guess.
“Pick a % by which that will fall. Anyone’s guess.”
Or rise. Still anyone’s guess.
Our current trade policies since Nafta has done nothing but flood our country with low priced goods, suppressed wages and transferee our wealth overseas. Wages would have grown faster with our old trade policies before nafta. Kick the old system over, take some pain and put the old system in place as it was in the seventies and eighties. We need to implement a system which will incentivize items to be made in America. New paradigms are always painful to implement.
China is decisive here. In the past China was a manufacturing hub and it imported much of what it re-exported. Now as China moves up the value chain, it manufactures what was once imported so international trade falls. However the fall in world trade shows that globalisation is stalled and that will affect national economies negatively. The revenue of the multinationals as evidenced by the S&P 500 is stagnant and whatever your opinions on customs tolls, a fall in world trade is always a precursor to another global recession.
Hopefully Trump can break it completely. Then we can start over from scratch and level the playing field for the US.
I understand why the average Joe does not follow what’s been happening, but bloggers that cover the world economy as much as you have no excuse for not even mentioning the implications of FATCA on the global economy.
Armstrong and Twisted have been talking about the impact of govt’s hunting taxes around the world for years. FATCA has destroyed the Swiss banking industry, and now that the govt sharing portion has gone into effect in Jan, one can expect increased contraction of businesses tring to expand internationally.
Search FATCA at Twisted Little Things and Armstrong and you will find dozens of articles for more than four years.
The real danger is anyone who assumes the USA is able to remain global consumer of last resort. We can’t (are not able to) — thus the global trade balance is going to be adjusted no matter what “free trade” rhetoric anyone brings up.