March 2, 2020
This week’s column lacks a unifying theme and instead comments on several issues that have come up recently. We will return to our regularly scheduled commentary next week.
First, last week brought news that overall global trade volume declined last year for the first time in 10 years—since the financial crisis. The drop was small—0.4 percent—but noteworthy after years of growth, albeit on a much smaller scale than before the crisis. This chart shows the trend:
The two obvious questions here are what does this mean for 2020, and does it signal a longer-term trend? The answers, of course, fall into the category of rank speculation, but that’s what this column does regularly, so I’ll give it a try. First, with respect to 2020, it looks now like this year’s results will be heavily influenced by the spreading coronavirus outbreak. Whether it turns out to be a passing phenomenon that affects only the first and second quarters remains to be seen, but even if that is the way it turns out, the damage will have been done, and it is hard to see a full year that could be better than the last one.
The longer-term question is more interesting. Unless you assume a pandemic of the breadth and length of the Black Death, the coronavirus will pass through the global economy, and we will all (or most of us) come out on the other side. But if you look at the past 10 years, except for the recovery years of 2010 and 2011, you see a lower level of growth. Even a relatively good year like 2017 was not as good as most of the years before 2009. This has fueled stories about the decline or even reversal of globalization, China decoupling, and the extent to which the president’s trade policies are to blame for any or all of it. It is too soon to draw definitive conclusions about that, but it does appear the pace of global market integration is slowing down, at least in developed economies that are already well-integrated. However, over time we can expect more rapidly growing emerging economies to continue to expand, assuming they can shed the protectionist and import substitution policies that have held them back. As we all know, that is politically fraught in virtually every country, but as further improvements in transportation and communication occur, and people on an individual level become more globally connected, pressures for further market integration will only increase. So, one step backward, two steps forward, or sometimes the other way around, but you should expect the long-term trend of globalization to continue, even though it may be on a more regional than truly global basis.
The other event last week was a non-event—the lack of a trade agreement of any size with India. Typically, the president characterized this as a success—the deal would not have been big enough, and he is holding off, perhaps until after the election, for a really big deal. This fits the pattern that is now becoming clear: bluster, threats, and then negotiations that either produce something small with promises of a huge phase two agreement or produce nothing now with promises of everything later. There are never any failures in this administration. There are either brilliant successes or postponements. (To be fair, it is hard to find an administration that admits failure. The last memorable one was John F. Kennedy after the Bay of Pigs.)
There is a lesson here, not as much for the Indians as for the Europeans. Both the European Union and the United States seem to have given up hope for a comprehensive trade agreement in favor of a mini deal that addresses some current issues. That is no surprise. A big deal has always been less popular in the European Union than the United States—look at the Transatlantic Trade and Investment Partnership—and that has not changed.
Hope remains with respect to the United Kingdom that we might do better than that, and we will know more when the latter’s negotiating objectives are rolled out today. Regardless of the United Kingdom’s goals, however, the conundrum of reconciling compliance with EU regulations and conflicting U.S. regulations will have to be addressed in a comprehensive negotiation. Lately, there have been suggestions from some quarters that the United Kingdom could have its cake and eat it too by finding a way to comply with both sets of standards and regulations depending on which country a transaction was with. If that ends up being a serious thought rather than a flight of fancy, I will have more to say about it. Right now, however, I think it is just one more indication of the likelihood that in the end the U.S.-UK deal will end up as small ball like the others.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2020 by the Center for Strategic and International Studies. All rights reserved.