Sombre news on global markets

The WTO report said trade volume growth should accelerate slightly to 2.7% in 2020, while global GDP growth holds steady at 2.3% but that this also depended on easing of trade tensions

Last week, the trade war shifted to the Atlantic, when the United States (US) announced higher tariffs on $7.5 billion worth of goods, mostly agricultural and industrial products, including textiles, foods, liquor and consumer goods. This followed a ruling at the World Trade Organization (WTO), favouring the US in a complaint regarding subsidies to Airbus by some European countries for making airplanes. 

The announcement came when global markets were reeling under reports of a slowing US economy, moves to impeach the US president, uncertainties about Britain’s exit from European Union (EU), trade tensions between Japan and South Korea, and a rather gloomy forecast for global trade in a WTO report. That report said merchandise trade volume was expected to grow by 1.2 per cent in 2019, substantially below the 2.6 per cent growth that had been projected in April. Expectedly, the equity markets in India also saw greater volatility and bearish trends. 

The WTO report also said trade volume growth should accelerate slightly to 2.7 per cent in 2020, while global GDP growth holds steady at 2.3 per cent (at market exchange rates), but that this also depended on easing of trade tensions. Trade conflicts pose the biggest downside risk to the forecast; macro economic shocks and financial volatility are also potential triggers for a steeper downturn. Trade-related indicators signal a worrying trajectory, based on global export orders and economic policy uncertainty. 

Export and import growth slowed across all regions and at all levels of development in the first half of 2019, went the report.

The latest US-EU spat comes 16 months after the US government launched a trade war with China, accusing it of cheating, theft of intellectual property, currency manipulation and more. Negotiators from the two countries  are still trying to find common ground for a  deal that will ease the tension. Meanwhile, competitive EU companies that have the economic capacity to replace the US and Chinese firms looked set to gain about $70 billion in trade —about $50 billion in Chinese export and $20 billion in US export — that have traditionally passed between the world’s two largest economies, says a report from the United Nations Centre for Trade and Development.  

So, the latest US move to hike tariffs on EU products comes at a rather inopportune time for the EU. And, worse might be ahead. The WTO is due to rule in the next six months on whether to allow the EU to impose its own higher tariffs on US-origin goods because of US subsidies to Boeing, a rival to Airbus. It raises the possibility of further escalation of a bruising trade war between the US and its key trade and strategic ally.

For Indian exporters, any slowing of growth in global trade or the economy is not good news. However, any consequent fall in commodity prices can help the government’s finances and consumers. So far, there are no indications of India benefiting significantly from the US-China trade war, although recent cuts in corporate tax rates have removed one major factor that deterred global entities from locating their manufacturing or other facilities in India. However, any gains on that account might take time. In the short run, the economy might continue to struggle to cope with the slowdown. 

E-mail: tncrajagopalan@gmail.com