Monday, May 6, 2019

Trade in 2019

Big decisions loom – but there are wildcards too

By Douglas Lippoldt, Chief Trade Economist

Three trade policy decisions loom large in 2019. And at least three wildcard issues could evolve for better or worse. We expect global export growth to fall from 4.8% to 3.2% this year with trade tensions posing a risk to continued expansion.

The three decision deadlines concern a potential increase in punitive US tariffs on imports from China, the UK’s exit from the EU, and a potential blockage of the World Trade Organization’s appeals process for dispute-settlement.

The wildcard developments that could emerge to help or hinder trade during 2019 include threatened US tariffs on car imports, the G20 summit in Japan, and negotiations for a Regional Comprehensive Economic Partnership in Asia.

  • The first decision concerns the ongoing US-China trade dispute. In 2018, the US raised concerns about unfair trade practices in China and imposed unilateral duties of 25% on $50bn of imports. Beijing retaliated but the US hit a further $200bn of imports from China with a 10% tariff and threats to raise the tariff to 25%.
  • In December, Beijing and Washington agreed a 90-day truce until 2 March 2019. If talks fail, the US will hike duties as planned and more tariffs could follow on the remaining $267bn of imports from China. Solutions might include China buying more US goods and services, structural reforms, and improved intellectual-property protection.
  • The second decision concerns Brexit. The UK is scheduled to leave the European Union on 29 March 2019. An EU-UK withdrawal agreement has been negotiated but ratification remains uncertain and the UK risks exiting without a preferential framework for bilateral trade relations.
  • Third is a looming blockage at the appeals body of the WTO’s dispute-settlement mechanism. The US has so far rejected compromise suggestions and is blocking appointments to the body while seeking to limit the scope of its decisions. Without an accommodation by 10 December, the appeals body won’t have a quorum of jurists needed to take decisions.

And this blockage is happening at a time of rising protectionism and increased numbers of disputes. The 38 new disputes launched in 2018 was the highest in two decades, with 26 involving the US. With no clear way forward, the future of the dispute-settlement system remains uncertain just as it appears to be most needed.

  • The first wildcard is the possibility of Washington imposing additional tariffs on at least $208bn of global vehicle imports later this year. The US considering whether these imports undermine US national security: if so, the US has 90 days to determine what actions to take.
  • The second concerns the G20 nations. The November 2018 G20 summit in Buenos Aires underscored the need for WTO reform. Leaders may use June’s summit in Japan to brainstorm on strategies for addressing the challenges at the WTO and could also provide an opportunity for further trade talks between the US and China.
  • The third wildcard is the pan-Asian Regional Comprehensive Economic Partnership, now under negotiation and scheduled to conclude this year. Members include the 10 ASEAN nations and six of their free-trade agreement partners - Japan, Korea, China, India, Australia and New Zealand. That encompasses nearly half of the world’s population and, once complete, should reduce tariff burdens, liberalise some services trade and boost GDP in the region.

The long-term economic potential for trade remains bright, fuelled by the prospects for growth in emerging markets. Ultimately, the global economy will benefit if policymakers navigate the forks in the road this year in a manner that supports openness and renews the rules-based multilateral trading system.

Disclosure and disclaimer

Analyst Certification

The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Doug Lippoldt

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