Hello from Brussels. News just breaking as we write: Big Phil Hogan will, after all (as we suspected and rather presumptuously advised), be staying in Brussels and not applying to be World Trade Organization director-general. Not enough guarantee of US and EU member state support to be worth the risk of giving up the trade commissioner job. He’s now got the slightly awkward task of reassuring said member states that he is fully committed to that role nonetheless.
It’s nearly halfway through the year, so our main piece reviews progress in the predictions for 2020 we made in January. Fairly obviously Covid-19 has somewhat changed the prospects for getting anything done this year, which has helped some of our predictions and hurt others. But anyway, here’s how we’re doing on the bits where we think there’s enough info to judge at this stage. Overall? We’re quietly pleased, though there’s still a lot to play for. Carmen M Reinhart, chief economist of the World Bank, answers key questions in today’s Tit-for-Tat, while our chart of the day highlights an “unprecedented” decline in world trade.
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US-China, Brexit and the WTO
2020: the verdict so far
US-China: our prediction
“The first phase of the US-China mini-deal will be signed . . . but there won’t be another substantive one this year. Even the first one will lead to continual grumbling about exactly how many tonnes of soyabeans China is buying. Goods tariffs between the two countries won’t end the year higher than they are now, but those implemented since Trump became president in 2017 won’t be eliminated either.”
US-China: how’s it looking?
Pretty good so far. There are indeed fraught arguments about soyabeans (and other purchases), and US tariffs have been reduced but with no chance of elimination. Donald Trump has moaned about the pact but kept it in place. If he’s running as the Great Dealmaker in the election, he probably won’t tear it up before then.
US-EU: our prediction
“US relations with the EU will take a turn for the worse, but not disastrously. Trump will not impose car tariffs on imports from Europe . . . The US will take some kind of action over the digital services tax, and the EU will start a WTO case.”
US-EU: how’s it looking?
Also on track. No car tariffs, but plenty of unpleasant rhetoric from Washington and threats about Section 301 duties over the digital services tax, along with separate actions over EU agricultural regulations.
EU-China: our prediction
“The EU’s relationship with China will be much less combative than US-China and EU-US relations, but not particularly fruitful . . . The bilateral investment treaty being negotiated between the two will miss its 2020 deadline . . . The European Commission’s attempts to impose collective EU policies on 5G procurement, foreign investment and procurement with China in mind will make little progress.”
The EU wants a collective policy on 5G procurement © Kevin Frayer/Getty
EU-China: how’s it looking?
Bang on for the investment treaty, which is in real trouble even allowing for coronavirus-induced delays. The commission is trying to expand its arsenal of weapons to go after subsidised Chinese companies but reluctance among some member states will slow it down.
EU and others: the prediction
“With environmental and specifically Amazonian deforestation considerations unresolved, ratification of the EU-Mercosur trade deal will be stalled indefinitely. The bilateral deal with New Zealand will progress quickly and will be nearly or totally agreed by the end of the year. The EU-Australia agreement will be slower.”
EU and others: how’s it looking?
There’s a lot of opposition to the Mercosur deal in EU member states, so our prediction will be tested when it’s submitted for ratification, probably in October. Looks like we were a bit optimistic about the New Zealand FTA, with Covid-19 not helping negotiations, though the Kiwi trade minister who is cross with Brussels over slow progress still thinks talks can be concluded by year-end.
UK: the prediction
“On Brexit, UK prime minister Boris Johnson will find a way . . . of de facto extending the transition period rather than having the UK drop into a bare-bones bilateral trade deal by year-end. There will be talks and possibly completion of a UK-US bilateral deal covering essentially minor technical measures.”
The UK’s David Frost, left, and EU’s Michel Barnier during the first round of trade deal talks in March © Oliver Hoslet/POOL/Reuters
UK: how’s it looking?
The Brexit prediction’s not looking great at the moment — the only plans are for light-touch border controls for the first six months — but this could change in the autumn. The UK has started full-spectrum talks with the US but the chemical-washed chickens are already in a flap, and it won’t get done this year if at all. A consolation minor deal may well come in future years.
WTO: the prediction
“The WTO appellate body crisis will not be resolved, as the US will continue to block judge appointments. By the end of the year, at least a dozen countries will have signed up to the EU-inspired alternative version . . . A strong European candidate to be the new director-general of the WTO will emerge ahead of the incumbent Roberto Azevêdo retiring in 2021, but US opposition will mean an African nominee will be the favourite by December 31.”
Ngozi Okonjo-Iweala is clear frontrunner for the top WTO post © Michael Nagle/Bloomberg
WTO: how’s it looking?
We’re pleased with these. The workaround AB went into effect on April 30 with 19 participants. Azevêdo resigned early, but the narrative about his replacement was correct. A potential strong EU candidate for DG (trade commissioner Phil Hogan) pulled out today, having had problems attracting US support, leaving the Nigerian Ngozi Okonjo-Iweala as clear frontrunner.
Overall verdict?
Given we’re forecasting in an environment of, let’s say, bracing uncertainty, we’re fairly satisfied so far. Of course, we’ve got the US presidential election, possibly more waves of Covid-19 and God knows what other wild cards to appear, so we’re not about to declare victory at half-time. We’ll check back in December.
Charted waters
World trade experienced an “unprecedented” decline in April as most big economies suffered from strict coronavirus lockdowns, according to widely watched data which found that the eurozone was the hardest-hit area.
Tit for tat
Carmen M Reinhart
Carmen M Reinhart, vice-president and chief economist of the World Bank Group joins us to answer three blunt questions.
Do you expect a full-blown financial crisis to emerge from the pandemic and, if so, how will it be different to the global financial crisis of 2008-09?
It will be worse than the 2008-09 financial crisis. Severe economic contractions are historically associated with financial crises because they strain public and private balance sheets and impair the capital positions of banks. The output and employment losses associated with the pandemic have been sharper and shared by many more countries than in 2008-09. Unlike the global financial crisis, which was concentrated in 11 advanced economies, this crisis is truly global and it is inflicting great damage in developing and emerging economies. We estimate that Covid-19 will push 71m to 100m into extreme poverty, measured at the international poverty line of $1.90 per day.
You’ve called the pandemic “another nail in the coffin of globalisation”. Is there anything governments can or should be doing to reverse this, or is this inevitable in your view?
Globalisation took two strikes with the 2008-09 crisis — Brexit and the US-China trade war. The pandemic has thrown a third. People will be more mistrustful of crossing national borders, many firms are reorienting their global supply chains inward, and global investors may increase their home bias as debt difficulties among sovereigns increase. Unfortunately, the clear commitment by governments to seek international co-operation (or, at least, co-ordination) needed to stem the tide of deglobalisation is lacking at the moment.
We’ve seen poorer nations benefit from debt relief from countries such as China during the pandemic. How can they be helped through trade: would it be a mistake for them to now implement protectionist policies?
To be effective, debt relief must be accompanied by greater transparency of national balance sheets in order to trace who benefits. How encompassing are China’s debt relief plans remains to be clarified and to date private sector creditors have all but dismissed the G20’s appeal to the better angels of our nature. Protectionism’s rise has been fuelled by the contest between the two largest economies of the world. Developing nations would be well advised not to get in the middle, to be a reliable partner to all, and to keep their markets open. Of course, this is easier said than done, as tariffs and curbs on trade often arise in “bad times” when access to international funding dries up.
Don’t miss
Global stocks fell on Monday as investors considered whether the acceleration of coronavirus infections in the US would lead to further tightening of lockdown measures that hold back economic recovery.
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Brussels is calling on the UK to reveal its post-Brexit policy on state aid, saying Britain’s lack of a public plan for a domestic subsidy regime risks hampering the two sides’ future relationship talks.
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The lesson from the pandemic crisis is to be better prepared, writes Martin Wolf. Self-sufficiency in “essential products” would not be a good way to achieve this. On the contrary, it would be a costly error. Protectionism in a crisis only concentrates risk domestically and diminishes economies of scale.
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Tokyo talk
The best trade stories from the Nikkei Asian Review
Food-related companies in Asia and other parts of the world are reviewing their supply chains, with companies from US meat processing giant Hormel to Thailand’s Charoen Pokphand Foods exploring smaller factories in less concentrated locations.
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Yangtze Memory Technologies, China’s first homegrown memory chipmaker, will roll out its first-ever storage products line-up in the second half of the year in its effort to close the gap with international rivals and avoid geopolitical risks.
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Source: Economy - ft.com
