Trade
Trump’s trade war wreaks havoc on the global economy
Author: Editorial Board, ANU
Perhaps surprisingly, all the analysis suggests that the fortunes of the US economy are little affected by the policies of a particular administration. The institutional bulwarks that overwhelmingly shape US economic policy dominate the influence of particular presidencies. At least that was until the advent of President Donald Trump.
Mr Trump now blames everyone but himself for the ominous signs of recession and disruption that now beset the United States. The truth is that Mr Trump has entirely by himself visited the gathering economic storm upon his country and upon the world. It is the reckless pursuit of the trade war with China and arbitrary actions that defy established rules and economic logic — the most recent of which was to declare China a currency manipulator — that have spooked US and global financial markets and encouraged the global flight to cash.
Mr Trump and his administration are alone responsible for the assault on the multilateral economic institutions and rules that have provided the foundations for global growth and political openness for over seven decades. The strength of the North American economy, including its technological vibrancy, the growth of Europe and the lifting of hundreds of millions of people out of poverty, most notably in Asia, have all depended in crucial ways on that system — and still they do. The free flow of trade, investment, and ideas has supported the emergence of a growing middle class around the world. Despite Mr Trump’s assault on the multilateral order, the rest of the world, and particularly Asia, has a vital interest that it remains strong and continues to deliver economic and political security among nations big and small.
The return to unilateralism and disregard for established processes affect investor confidence and drag down trade and growth. The IMF and other international agencies are now revising growth forecasts downwards. Last year, the volatility of the global economy and many currencies decreased international capital flows and increased uncertainties in global trade. This year, the global economic situation continues to deteriorate and the uncertainties are growing. These uncertainties create downside risks to the global economy and increase financial market volatility. Economic activity is weakening. Trade and manufacturing activities are slowing.
Growth remains low and the risks are all downside, significantly because of trade uncertainty. The hit to global trade continues to dampen investment and business sentiment and lower productivity.
The longer term structural effects of Mr Trump’s trade war are already evident as producers retreat from efficient international specialisation. A fracture of confidence in the trade rules multiplies the cost of lost income potential significantly. Higher tariffs reduce incomes (perhaps more than is commonly understood) but uncertainty about the trade regime in a trade war between the two largest economies and traders in the world increases the risk premium on doing international business by ten times or more, some estimates suggest. That’s the difference between a minor perturbation in income growth and a major global recession. As Jayant Menon argues, the importance of effective tariff rates compared with nominal tariff rates, and a perception that the dispute between the United States and China will not end with the trade war, also explains how a relatively small tariff has fractured Asia’s supply chain, possibly permanently.
In our lead essay this week, Yao Yang points out that the onset of the trade war shook Chinese market confidence badly although the market has been calmer in 2019. Yet, he argues, ‘there is a wrongly-placed tendency in China’s policy circles to overstate the direct impact of the trade dispute on China’s economy and its future growth. [While the] trade war has serious implications for the multilateral trading system and China’s role in it, …the dispute is about trade and behind-the-border regulations that can be negotiated and negotiating to take out some of the impediments will be good for China’s economic ascendance’.
But is that likely to happen any time soon? Sadly, Yao concludes, it isn’t.
‘It’s highly likely now that the trade dispute will drag on for a long time’, says Yao. ‘President Trump probably needs an agreement more than the Chinese side. An agreement will allow him to claim victory and boost his political capital in the upcoming presidential campaign. On the other hand, Trump will probably have to…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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