News, events and analyses related to global trade and snippets of changing trade matrix during the month of December 2016

USA
Presidential Elections
Trumpenomics at work

Donald Trump’s victory in the White House race stunned many, but both US and the world are slowly coming to terms with the fact that Trump will be at the helm of affairs of the world’s most powerful nation. At a time when geopolitics is more about trade and economics, Trump’s isolationist ideology has been a cause of concern for many large trading partners of US.

Trump was openly anti-China during the campaign, and if he does follow up on his campaign promise, trade with China could stall. What is being feared is that China’s exports to US (in CY2015, US’ imports from China were worth $502 billion) could collapse. But, US is in no better position because if China retaliates, US could lose its $116 billion (as of CY2015) market.

In CY2015, since 35% of China’s exports was ‘processing trade’ (those components that China imports from other countries and assembles for exports), $169 billion of Chinese exports to US in the same year represented imports from Japan, South Korea, Taiwan and others. In simple words, if at all trading between China and US goes wrong, there would be unprecedented collateral damage.

But in a critical situation like this, economists fear that the US economy could be the one that suffers the most. And China might just turn the situation in its favour. China has already fired the first salvo. Immediately after Trump’s election, which doomed TPP, a US-led free trade pact, China announced at a gathering of Asia-Pacific leaders, in Peru, that it would seek support for its own regional trade deal.

Trump’s election rhetoric has also focussed on withdrawing from many existing trade agreements. And, on the chopping block are major deals – from the Trans-Pacific Partnership (which is yet to be ratified) to the North American Free Trade Association (NAFTA), a trade deal with Canada and Mexico.

Russia might emerge the winner though. Trump is in favour of strengthening trade ties with Russia – it is likely that he will relax economic sanctions against the country if Vladimir Putin consents to negotiate with him on a deal.
Trump’s tough stance is not that different when compared to that adopted by the likes of Barack Obama and Hillary Clinton, in their presidential manifestoes. So, what is different this time? Trump is unpredictable, and that is a characteristic that most world leaders fear to contend with.

China
Exports
The Dragon Stumbles

In November, the US presidential elections and demonetisation of Rs.500 and Rs.1,000 currency notes in the world’s largest democracy were not the only headlines that topped the mainstream international press. Another topic that received a lot of attention was a trade phenomenon gripping the Chinese economy and the possible adverse repercussions it could have on many parallel economies.

China’s exports contracted for seventh consecutive month in October. While exports fell 7.3% year-on-year, imports dropped 1.4%. Exports to US, China’s biggest export destination, too fell by 5.6% in October (in September the drop was 8.1%). Similarly, shipments to EU countries in October were also down by 8.7%. Interestingly, imports too continued its downhill journey for the second month in a row in October after rising for the first time in nearly two years in August.

What’s more worrying is that China’s exported only 7.7 million metric tonne of steel in October, which is a 15% drop from the corresponding period in 2015. This, when major importers, including US, India, EU, have accused China of dumping subsidised steel, which indirectly damages local industry. Earlier this year, US imposed new tariffs on Chinese steel, but China vigorously denied the dumping claims. However, Chinese steel producers pledged to cut back capacity amidst the outcry.

China accounts for about half the total production of steel worldwide. Its performance affects partners from Australia to Zambia, which have been battered as China’s has slowed to levels not seen in a quarter of a century. All eyes will be on China in the coming months. And, though its long-term impact is yet to be seen or calculated, any change in the behaviour of its steel sector is expected to have a major impact worldwide.

Canada-EU
Dairy farms
The competition heats up!

Canada has finally woken up to tackle the increasing imports of European dairy products into the country under the free trade agreement. As Canadian farmers aren’t satisfied with the sanctioned amount, last month, the government has announced that it would spend CAD 350 million to address the issue. About CAD 250 million will be utilised to update farm equipment, while the remaining will be spent to help dairy processors modernise operations.

However, there is more competition ahead for the Canadian dairy sector from new imports (European cheese), which is expected under the Canada-European Union trade deal that was signed in October. According to Dairy Farmers of Canada, an influential lobby group, the money allocated by the Liberal government will address only parts of the damage which will be inflicted due to Canada’s trade deal with the EU.

The bone of contention mainly stems from the fact that the previous Canadian government had promised CAD 4.3 billion (over 15 years) to compensate dairy, poultry and egg farmers. Some experts however are of the view that Canadian dairy products have a proven track record, and, therefore, are likely to retain their ground against competing European dairy products, which (given the current value of euro and the fact that it is likely to remain steady in the near future) are fairly expensive.

Singapore-Indonesia
Bilateral Ties
Of cooperation and digital resilience

South East Asian countries are truly embracing the importance of building business synergies. A case in point is the recent handshake between Singapore Prime Minister Lee Hsien Loong and Indonesian President Joko Widodo, to form an Indonesia-Singapore Business Council. The council will strengthen business networks and cooperation between the two nations and is likely to be co-chaired by Singapore’s Economic Development Board (EDB) and Indonesia’s Investment Coordinating Board (BKPM). The two countries will cooperate in areas like hospitality and tourism, apart from jointly building capabilities in digital economy and developing a smart city in Makassar in Indonesia. The initiative will further strengthen the economic ties between Singapore and Indonesia, which recorded bilateral trade of $58.7 billion in CY2015.

Vietnam
TPP
It’s a ‘U’ turn

Vietnam has decided to shelve ratification of Trans-Pacific Partnership (TPP), supposedly, one of the largest trade agreements in the world. If you’re questioning ‘why’! Well, Trump’s victory in the 2016 US election hasn’t gone down well with many – at least not with Vietnam. Prime Minister Nguyen Xuan Phuc quotes, “The United States has announced it is suspending the submission of TPP to the parliament so there are not sufficient conditions for Vietnam to submit its proposal for ratification.”

Critics feel that Vietnam might be taking a wrong step, as TPP could have given its economy a boost. However, Vietnam is confident that its economy will continue to grow, with exports increasing at 8% y-o-y going forward, making the most of its existing trade treaties. PM Phuc said that the country has the inherent strength to grow in sectors such as footwear, textiles and seafood, even without the TPP.

Iran
Gold exports
Bringing back the glitter to gold

Iran has decided to invest more in gold mining projects and related industries. Iranian authorities believe that gold can actually help Iran boost its economic growth – the plan has been substantiated with a recent discovery of gold reserves in the Yazd province and establishment of several gold complexes in the region. Iran’s proven gold reserves are presently estimated at 340 metric tonne – spread across 24 mines, of which 15 are actively being mined.

The Money & Credit Council of the Central Bank of Iran (CBI), issued a letter to Customs authorities to legalise export of raw gold, provided it’s extracted from domestic mines and is not sold in Iranian markets at competitive international prices.

The ban has been lifted, but what the country lacks are cutting-edge mining technology and machinery required to produce gold on par with international standards. Also, domestic consumption is higher than its current production, which leaves little scope for gold exports. Iran’s raw gold production is projected at 5-10 tonne per year while the gold in circulation stands at 300 tonne per annum.