19% after the accord is signed – more than six times the pre-trade-war rate of 3% – and with worrisome signs of escalating U.S.-Europe trade tensions, this forecast, like those of the past several years, may turn out to be wishful thinking. All this bears critically on the precarious state of the global business cycle. Historically, the rapid expansion of cross-border trade has been an important part of the global growth cushion that shields the world economy from all-too-frequent shocks. From 1990 to 2008, annual growth in world trade was fully 82% faster than world GDP growth. Now, however, reflecting the unusually sharp post-crisis slowdown in global trade growth, this cushion has shrunk dramatically, to just 13% over the 2010 to 2019 period. With the world economy operating dangerously close to stall speed, the confluence of ever- present shocks and a sharply diminished trade cushion raises serious questions about financial markets’ increasingly optimistic view of global economic prospects. © Project Syndicate Stephen S. Roach , a faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China . The confluence of ever-present shocks and a sharply diminished trade cushion raises serious questions about financial markets’ increasingly optimistic view of global economic prospects.
its stall speed. That leaves the world much more susceptible to recession than it would otherwise be in a more vigorous environment of above-trend global growth. The same message comes through loud and clear in gauging the risks to the global trade cycle – long the major engine of global growth in an increasingly integrated, supply- chain-linked world economy. The IMF’s latest assessment put global trade growth at just 1% in 2019 – its seventh consecutive downward revision. Indeed, last year was the weakest trade performance since the historic 10.4% plunge in 2009, which was the worst contraction since the early 1930s. Compared with the 5% average over the 2010 to 2018 period, the slowdown of world trade growth to just 1% in 2019 is all the more alarming. In fact, it was the fourth-weakest year since 1980, and the three worse years – 1982, 2001, and 2009 – were all associated with global recessions. Global trade growth has never recovered to its pre-crisis pace, a shortfall that has been the subject of intense debate in recent years. Initially thought to be a consequence of unusual weakness in business capital spending, there can be no ignoring the impact of protectionism following the start of the U.S.-China trade conflict. Now that the two sides have agreed to a truce in the form of a “phase one” trade deal, there is hope that the trade prognosis will improve. Reflecting that hope, the IMF’s January update calls for a modest rebound to 3.3% average growth in world trade over the 2020 to 2021 period. But with the average U.S. tariff rate on Chinese imports likely to remain at about
American Consequences
73
Made with FlippingBook Ebook Creator