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Trade depletion threatens global growth

Commodity Exchange data already provide a worrisome slowdown before tariffs are imposed

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Trade depletion threatens global growth

World trade gives signs of weakness according to latest available data, all of m prior to adoption of protectionist measures start. The tightening of monetary policy in United States and consequent appreciation of dollar have put in serious difficulties emerging economies financed in US currency. China continues to readjust its bloated financial sector and suffers from uncertainty of protectionist noise. And Europe has been shocked by this year's worst-anticipated figures. As a result, global trade is being resented even before imposition of tariffs began.

In its forecasts this week, European Commission argues that global growth is being less synchronized and reviews downwards estimate for EU. "While European expansion remains solid, it makes it a slower march," he says.

On one hand, analysts see in Europe transient factors, such as bad wear of beginning of year. Also an appreciation of euro that is being forwarded. But se elements have already passed. And re are still signs of greater slowdown.

The ECB detects a certain brake on exports and, to a lesser extent, on investment. According to Commission, exports of goods and services from euro area to rest of world shrank by 0.4% in first quarter after five years of expansion. Moreover, price of oil weighs. And once debts have been refinanced, ECB's relaxed financial conditions no longer lend much more added impetus. In principle, European economy should gradually grow at slower paces, closer to its true potential growth after it has evolved over time through employment recovery, financial conditions, and cheap crude oil. "In part, it has been a return to natural average after a very positive year. In addition, intra-European trade data have described a V and have already recovered levels, "explains Francisco Vidal of Intermoney.

But fear that is felt in authorities is that trade war does harm. Both ECB and Bank of Spain have argued that re are no shortages of generalised tariff barriers. It is enough for companies to perceive that y will have problems to stop investing. "The first data to be monitored to know if commercial shock will affect investment," says Vidal.

In Germany, business confidence suffered a bump in June; Orders to German companies from China and US declined, and tudescas exports outside EU receded in May by 6.4% on a year. All this points to a worse climate that could even have made a dent since before: "It is not disposable that part of decline in exports should to a deterioration of expectations for discussions on tariffs," says a report by ECB. Securities in exporting countries and sectors already exhibit some pessimism. Weaker manufacturing data are linked to an intensification of trade concern, Community executive recognizes in its forecasts.

And now it's gotten really bad with Trump's announcement of rates from 10% to 200 billion, 000 in Chinese exports. Is golden age of trade over? At stake re are also structural factors that are being depleted and that make world trade unchecked to recover dynamism of previous times.

More information
  • World trade recovers after slowdown suffered on 2016
  • Brussels lowers Spain's GDP forecast of 2018 for price of oil and foreign sector
  • Trump redoubles pressure on China with new tariffs on or 200 billion

Before crisis, world trade experienced several decades of progress over GDP. The drop in communications costs and incorporation of China and Eastern Europe into international trade agreements led to rapid expansion. Tariffs fell and parts of production were delocalized to enclaves where it was manufactured cheaper. With entry in 2001 of China into World Trade Organization, 20% of global population entered international market, exerting a strong downward pressure on wages and prices of manufactured goods such as electronics. Although it also contributed to an increase in raw materials. In this way, ory said that products come out cheaper and that employment generated in advanced countries is relocated to or sectors such as services. But globalization and crisis have left losers: even if poverty has shrunk a lot in world as all international agencies remember, less-formed in rich countries feel lagging behind. Hence protectionist rhetoric of Brexit or President Trump.

Less investment

Prior to Trump's arrival, a dry break from trade liberalization process was already observed. The number of trade agreements has plummeted over past decade, warns ECB.

And n re's investment problem. An IMF report points out that in recent years a cocktail of lack of funding and investment has undermined trade. The former secretary of US Treasury Larry Summers abounds in this line with his ory of secular stagnation: basically it is not invested because it is preferred to save, wher for retirement in an aged society or to reduce excess debt. It also influences fact that re are bad prospects for productivity gains, which ultimately means that it pays less to invest. And without investment it is difficult to trade.

Finally, development of large supply chains and global assembly has been halted. Several reports indicate that development of se value chains could have hit ceiling. Intimately linked to this phenomenon, in China re has been a rise in wages and a shift towards domestic consumption and services. and services always require less commercial exchanges.

The risk of liquidity restriction

The European Commission warns in its economic forecast that trade conflict coincides with a context in which immense liquidity provided by central banks will begin to descend. Indeed, US Federal Reserve has already begun a more restrictive policy at beginning of last year. However, North American financial institutions continued during whole of 2017 lending dollars abroad. Until monetary normalization, green ticket began to appreciate and highlighted problems of many emerging countries to repay ir debts in US currency.

As a result, in 2018, American banks cut ir financing in dollars outside of United States. "One of most damaging factors in trade is restriction of dollar liquidity," says Alberto Matellán, chief investment economist at Mapfre. This implies that investment, trade, and refore growth capacity may be restricted.

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