19/8/20: The VUCA World of World Trade

 

WTO projections for global merchandise trade by volume:

Let's take a closer look. Optimistic scenario is for a 13% y/y drop in merchandise trade flows. Pessimistic one is for a 30% drop. Swing is 17 percentage points. These are not forecasts, but are uncertain guesses. We are in a VUCA world, folks.

Let's take a second look: COVID19 shock will be permanent (new trend line post-recovery is permanently below old trendline and flatter) with a minor impact post-2022 that will compound over longer period of time. In pessimistic scenario, the impact appears to be also permanent, but seriously severe.

On a linear trend projection, pre-2008 consistent trend would have left us at around 155 index reading in 2022. 2009-2019 trend would have gotten us to around 122 index reading. Optimistic scenario would leave us around 119 in 2022; pessimistic - at around 95. Wait... optimistic gap for COVID19 and GFC impacts to no GFC and no COVID19 impact is... 33 points! One third of 2015 annual level of trade activity. GFC but no-COVID19 gap to pre-2008 is between 36 points and 60 points. 

And the final look: notice 2019 line... it is virtually flat. As WTO notes (see Chart 4 here: https://www.wto.org/english/news_e/pres20_e/pr855_e.htm) there was, basically, no growth in trade in 2019, before the COVID19 hit. 

We are in a VUCA world, folks.

5/7/18: Does the WTO treat the U.S. "very badly"?

Yesterday, President Trump has suggested that the WTO is treating the U.S. "very badly"

In reality, the U.S. leads WTO in terms of dispute resolutions wins and in terms of intransigence to WTO functioning and reforms. Here is a slide from my lecture on international institutions frameworks highlighting this fact:

In the previous post, I also shown that the U.S. contributes disproportionately less than the EU and China to WTO budget: http://trueeconomics.blogspot.com/2018/07/3718-china-eu-and-us-arch-stantons-grave.html.

In fact, back in October 2017, President Trump claimed that: Trump, Oct. 25: "The WTO, World Trade Organization, was set up for the benefit for everybody but us. They have taken advantage of this country like you wouldn’t believe. And I say to my people, you tell them, like as an example, we lose the lawsuits, almost all of the lawsuits in the WTO — within the WTO. Because we have fewer judges than other countries. It’s set up as you can’t win. In other words, the panels are set up so that we don’t have majorities. It was set up for the benefit of taking advantage of the United States."

WTO dispute resolution rules require that none of the panelists on each 3-person panel hearing disputes cases can be from the country involved in a dispute (per Article 8: https://www.wto.org/english/docs_e/legal_e/28-dsu_e.htm). In other words, the number of experts from any particular country that are available to serve on dispute resolution panels is immaterial to the experts service in the U.S. dispute cases.

In reality, thus, the U.S. loses slightly fewer cases brought against it, than it wins cases brought against other nations by it. The high rates of U.S. losses and wins are fully comparable with those of other advanced economies and reflect, in fact, not some WTO bias against any given nation, but rather the simple fact that majority of nations, including the U.S. tend to bring to the WTO arbitration only such cases where concerns raised are well-founded and researched. Which, in effect, means that the WTO dispute resolutions system (slow as it might be) is effective at restricting the number of frivolous cases being brought to resolution, aka, a good thing.

Much of the above evidence does not just come from my own arguments alone. Here is an intelligent and pro-trade set of arguments about why the U.S. claims of unfair treatment under the WTO regime are not only wrong, but actually conceal the much less pleasant protectionist reality of the Washington's policies: https://www.forbes.com/sites/danikenson/2017/03/09/u-s-trade-laws-and-the-sovereignty-canard/2/#657177747edc.

29/11/17: China vs U.S. - the WTO Fight

Per latest reports, there is a renewed spat between the U.S. and China in the WTO. As reported in the FT (https://www.ft.com/content/f7941646-d571-11e7-8c9a-d9c0a5c8d5c9):

"The Trump administration has lambasted China’s bid for recognition as a market economy in the World Trade Organization, citing decades of legal precedent and what it sees as signs that China is moving in the opposite direction under Xi Jinping. The US move to oppose China’s longstanding efforts to be recognised as a market economy in the WTO came in a legal submission filed last week and due to be released publicly on Thursday in a case brought by Beijing against the EU."

Here are background slides to the dispute from my recent lecture @MIIS :

First, what's behind the WTO dispute: the fight between the U.S. and the EU against China and other emerging economies in core Bretton Woods institutions - the IMF and the World Bank

 Plus the geopolitics of trade:

 All of which informs the current fight in the nearly-comatose WTO:

So the case is not new, but the case is highly important. Not because China is or is not a market economy. But because China is directly challenging U.S. (and European) dominance over the post-WW2 international institutions. 

Make no mistake here: trade status is just the current, momentary, battle field in what is a long, and quite outright nasty, geopolitical war.