Global Trade March 2018 issue

Global Trade

Trade Summit


G20 Talks

United we stand?

It was a case of ‘US’ against ‘them’ at the 12th annual G20 Summit, held in July in Hamburg, Germany. Amidst anti-capitalist protests, leaders from 20 nations met to discuss politics, economics and the future of trade relations across the world. The top issues were the Paris Climate Accord (and the US’s withdrawal from it) and growing protectionism across the world. Demand to ensure the unaffected implementation of the Paris Climate Accord was led by the BRIC nations – Brazil, Russia, India and China. The quartet also stressed on the other G20 members the importance of maintaining a free, fair and open trading system across the world. The final statement from the summit reaffirmed commitment to the climate deal, despite the US dropping out. The summit also reinforced the need for more open, free reciprocal trade relations between nations.

This G20 Summit was also an important one for British Prime Minister Theresa May who, after her rather disappointing performance during the recently concluded snap elections, has been working on shifting attentions towards developing a strong BREXIT strategy and forging stronger relationships with key trading partners. May has expressed hope that many trade deals will emanate from discussions she had with world leaders at the summit. Though the summit lacked the hype and grandeur of the previous editions, it was a relief to see that most world leaders are moving in the direction of free and responsible trade policies.



Energy Policy

In reverse gear

As the world moves away from carbon fuels, US President Donald Trump in a ‘not so surprising’ move announced a new pro-coal export policy. The announcement comes on the heels of the US pulling out from the Paris Climate Accord, earlier this year. Aiming to develop “coal dominance”, President Trump announced that US will be increasing its exports of coal and LNG in the year ahead.

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While Mexico has been an important export destination for coal, the Trump administration hopes that in the coming days, US will expand exports to countries like Ukraine that have a growing demand for coal. The Trump administration further hopes to expand the market for coal by rolling back restrictions on financing of coal projects overseas. LNG is another product category where Trump is looking to increase exports. While US oil and gas production has doubled over the last few years, at one point in time, the US was one of the world’s largest importers of LNG, a tag that the Trump administration hopes to shrug off completely in the coming days. Currently, US has one LNG-producing export facility in Louisiana and is constructing four other export facilities (to be operational by 2018). The administration is expected to make more changes in its energy policy as it reviews the struggling domestic nuclear industry. It also announced plans to increase areas under drilling in the Arctic and Atlantic Ocean. While the policy has been hailed as not as radical as expected, pundits are still refraining from placing bets on the effectiveness of this move to boost energy exports from US.




Trade Deficit

On the path to glory

While it’s still a long way before US can celebrate complete autonomy from imports, if that is even possible, this latest piece of news will, without doubt, be a statistic that followers of the “tweet-happy” President are expected to hear quite frequently in the coming days.

According to latest statistics, US trade deficit has narrowed, courtesy of an increase in exports and decline in imports across a number of sectors.

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US Commerce Department data suggests that trade deficit in May 2017 saw a month-on-month (m-o-m) decline of 2.3%. The increase in exports of petroleum goods, motor vehicle parts, etc., has been a major contributor to this decline. In terms of destinations, Canada, Mexico, Germany and China were important contributors to the growth in exports, with US exports to these countries witnessing a m-o-m increase of 5.4%, 7.4%, 3.6%, and 9.6%, respectively, in May 2017. And there seems to be more good news in the offing. According to Atlanta Federal Reserve, US GDP is expected to expand at an annualised pace of 3% y-o-y in the second quarter of the year.

An improved world economy and a weak dollar are also expected to help boost these figures in the months ahead. For now, things seem on an upswing. But the long-term impact of these changes on US economy will become clear only once the numbers for the second half of the year are out.



Beef Trade

No “beef” about beef

Looks like there is at least one thing US and China can agree on, and not surprisingly, it’s food. After a 14-year ban on imports of beef from US, China is set to open its doors to American beef.

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Recently concluded talks between China and US saw several specifications being finalised for restarting the trade of beef. New specifications will now make all details on the sources of US beef available to the Chinese importers.

China is one of the largest importers of beef in the world with a steady growth in demand. The ban was placed after the break out of bovine spongiform encephalopathy (BSE), commonly known as Mad Cow Disease in Washington in 2003. The outbreak in 2003 had cost US $11 billion in exports in the first three years of the ban itself. With China settling this dispute with US, can these two economies now resolve other ongoing issues that have been impacting their trade relations?




East-west bonhomie

With EU and Britain moving towards a complete separation, the failure of TPP and the rise of the Trump brand of protectionism, EU leaders, especially Germany’s Chancellor Angela Merkel, have been stressing on the need for the European Union to strengthen its trade ties with other nations.

Among the many deals that are being negotiated the first deal to see the light of day was the EU-Japan FTA. The first signs that the deal was near finalisation came during a meeting between senior officials that included Japanese Foreign Minister Fumio Kishida and European Trade Commissioner Cecilia Malmstrom. The final decision was taken in Brussels by leaders of both countries, Prime Minister Shinzo Abe of Japan and EU joint chiefs Donald Tusk and Jean-Claude Juncker.

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Through the FTA, Japan has agreed to “open some economic areas” in the Japanese market. Tariffs on bilateral trade are to be phased out over a period of time.

Trade between Japan and EU account for a significant part of the world’s total trade, but trade barriers have been a major obstacle for expansion of trade between these two entities. With an FTA in place, EU exporters are hoping to see an increase in demand for their products in the Japanese market. The free trade accord is expected to come into force in the first half of 2019.

This deal is a breath of fresh air in a global atmosphere where protectionism is once again raising its ugly head.