Global Trade Rebounds Despite Trump’s Protectionist ThreatsBy
Robust exports have spurred central bankers to shift views
But analysts warn China, U.S. relations could upend recovery
Donald Trump’s election as U.S president sparked warnings of damaging trade wars and an end to globalization as we know it.
So far, those predictions haven’t played out. International trade is having its best performance in years as global growth enjoys its strongest synchronized upswing since 2010.
Globalization is showing signs of resilience to Trump’s America First agenda. Ford Motor Co. last month canceled plans to build the Focus in Mexico and announced it would assemble the car in China instead, underscoring the ability of multinational firms to circumvent trade threats in a world of global supply chains. The model -- the first made-in-China vehicle for American buyers -- may become the Asian nation’s biggest automotive export ever to the U.S.
The better mood is a key reason central banks are adopting a more hawkish tone, or at least a more upbeat one, after years of pumping cheap money into their economies.
At the European Central Bank, policy makers have expressed confidence the global recovery is increasingly supporting trade and euro-area exports, underpinning an upswing that has so far been largely driven by domestic forces. Bank of Canada Governor Stephen Poloz, who is expected to raise interest rates next week, has been citing the synchronized nature of global growth as a major positive for the recovery.
British manufacturers are enjoying what Bank of England Deputy Governor Ben Broadbent has called a “sweet spot,” in which firms still have access to the European Union’s single market until Brexit is complete while already enjoying a boost in competitiveness because of the weaker pound.
“At the beginning of the year, we thought there would be much greater trade-related risks,” said Helen Qiao, Bank of America Merrill Lynch’s chief economist for Greater China. “That has largely died down.”
Still, fears of a damaging trade spat between the world’s two biggest economies haven’t gone away. Fresh tensions are emerging between the U.S. and China. President Xi Jinping has complained of a negative turn in relations ahead of a planned meeting with Trump on the sidelines of a Group of 20 summit in Germany this week.
For his part, the U.S. president has repeatedly accused key trading partners, including China, of unfair trade. His administration is weighing whether to impose sweeping tariffs on steel imports, according to people familiar with the matter.
Criticism of globalization is fueled by the fact that while the trade rebound has inflated corporate profits, it hasn’t translated into substantial wage gains, said Stephen Roach, senior fellow at Yale University and former chairman of Morgan Stanley Asia.
“We can’t underestimate the political power of the hollowing out of middle class wage structure in developed economies like the U.S.,” said Roach. “That has created a significant backlash against trade, correctly or not.”
Politics aren’t the only factor that could upend the trade recovery. Weakening commodity and energy prices will hurt emerging economies in particular. So will the fading impact from a cycle of smartphone upgrades that has driven demand for Chinese purchases of electronics components.
“The best is likely behind us,” said Santitarn Sathiratha, head of emerging Asia economics for Credit Suisse.
Still, the picture is relatively robust for now. Trends in global trade remain strong, especially in Asia where exports are growing at the fastest pace since 2011. South Korean shipments abroad, a useful indicator of global demand, expanded almost 14 percent in June from a year earlier, an eighth straight month of gains.
Many countries are forging ahead with trade deals. The Trans-Pacific Partnership, which the U.S. withdrew from in January, could still be resurrected by the end of this year even without America’s involvement, New Zealand Prime Minister Bill English said in a speech last month.
The European Union and Japan have overcome differences on farm and car exports to clear the way for a free-trade agreement between two partners that make up more than a quarter of the world’s economic output.
The degree of connectivity between global supply chains, companies and customers also makes it more unlikely political tensions will derail world growth.
“Our strong hunch is that international trade volumes will continue to expand,” Mickey Levy, chief U.S. and Asia economist at Berenberg Capital Markets wrote in a note. “Any new barriers that are actually erected as a consequence of the populist thrusts toward nationalism will get a lot of attention but have only minor macro impacts.”
A new report by the World Trade Organization found that trade restrictions in the Group of 20 economies have risen only at a moderate rate, despite the fears of rising protectionism.
All of which gives grounds for optimism, said Chetan Ahya, co-head of global economics and chief Asia economist at Morgan Stanley.
“We are seeing a big pick up in trade numbers,” he said.
— With assistance by Andrew Mayeda, and Jill Ward