Tariff compromise: how can world trade change in 2019

This week, the seventh meeting of the representatives of the United States and China is being held in Washington, where new terms of trade between the two states are discussed at a high level. Before the start of the next round of negotiations, Donald Trump stated that the process is complex, but it is progressing well. The President of the United States also allowed the extension of the deadline for reaching a trade agreement, which is now set to March 1, 2019.

The US-foreign trade conflict unfolded last year, when the United States introduced import duties on Chinese exports, totaling $ 250 billion. In the summer, 25% duties on deliveries of goods from China to $ 50 billion came into force, after which 10 were added in September % duties for another $ 200 billion

In response, Beijing introduced tariffs (from 5% to 10%) on US imports of $ 60 billion. The United States threatened to impose additional Chinese goods on tariffs of $ 267 billion. Thus, all exports from the PRC to the States could be subject to restrictions.

It was expected that from January 1, 2019, 10% duties on Chinese goods would rise to 25%. However, following the meeting of the two heads of state at the G20 summit in Argentina, Donald Trump said he was postponing the increase. Countries agreed to negotiate and reach a compromise agreement before March 1, 2019. However, if the agreement is not reached, the United States intends to increase tariffs to 25%.

The US and China are discussing specific aspects of a future trade deal, reports Reuters. We are talking about the preparation of six memorandums of understanding, which cover the areas of technology, services, intellectual property rights, as well as currency regulation and agriculture.

Against the backdrop of the confrontation between the two largest economies, the World Trade Organization (WTO) signals a slowdown in global trade. The indicator of world trade of the WTO in the first quarter of 2019 fell to 96.3 points - the lowest since March 2010.

In the last three months of last year, the index showed 98.6 points. Recall that the value of this indicator is less than 100 units indicates that trade is developing with a lag from the medium-term trends.

It is noteworthy that out of seven indices, on the basis of which the WTO indicator is calculated, six have reduced their indicators compared to the previous quarter. The most notable was the decline in the index of electronic components - from 93.9 to 88.7 points. The index of export orders in the first quarter decreased from 96.6 to 95.3 points, the international air transport index - from 100 to 96.8 points, the index of agricultural raw materials from 97.2 to 94.3 points.

The container cargo turnover index in the first quarter of 2019 dropped by 0.9 points (to 100.3), but remained above the 100 points mark. The index could have been supported by advancing deliveries of goods from the United States and China in anticipation of a possible increase in tariffs, the WTO report says.

In turn, the index of production and sales of cars fell from 96.9 to 92.5 points. WTO experts believe that one of the reasons for the deterioration of this indicator was the technical problems of the German car industry.

Last year, the IMF estimated growth in world trade at 4% compared with 5.7% from 2017. Organization specialists expect that in 2019 and 2020 a 4% indicator will remain.

According to the IMF forecast, in 2019, the trade of developed countries may show a slight increase - 3.5% compared to 3.2% in 2018. On the contrary, the developing economies expect a slowdown - up to 4.8% after 5.4% a year earlier.

The decline in international trade triggered World Bank specialists to lower their global GDP growth forecast this year from 3% to 2.9% and to 2.8% in 2020 and 2021.

Alexander Daniltsev, Director of the Institute of Trade Policy at HSE, said in an interview with RT that recently the trade in traditional goods has been largely replaced by the services sector, primarily financial. Economic activity moves there, which negatively affects the scale of trade. The decline in commodity turnover in monetary terms is also facilitated by the dynamics of prices for raw materials, which are kept at a relatively low level.

“In the context of globalization, the trade war between Washington and Beijing has touched everyone without exception. For example, a company that manufactures equipment in China, interacts with suppliers of components from South Korea, Japan, and Europe. In the case of reduction or closure of production, all contractors and partners will suffer. Now, for example, we see a rapid decline in exports from Japan, despite the fact that the yen demonstrates relative weakness to the other world currencies, ”explained RT stock exchange expert at BCS Broker Konstantin Karpov.

According to him, trade wars led to the formation of a trend towards the de-globalization of business. Even if an agreement between the United States and China is reached, companies from different countries will not develop bilateral relations at the same level.

“Priority in trade will be given to local companies. The problem is that in the absence of suitable partners, the business will develop slowly or not at all, ”Karpov said.

In turn, Alexei Korenev, an analyst at FINAM, thinks that Beijing and Washington will be able to reach a compromise solution. However, the parties will have to make some concessions.

“It became known that one of the main conditions for the abolition of duties on the part of Washington is China’s commitment not to devalue the yuan. But it was precisely the weakening of the Chinese currency, which last year fell by 5% against the dollar, which was one of the most effective tools to neutralize the negative effects of American restrictions, ”said Korenev.

Meanwhile, a trade dispute with Washington negatively affects the state of the Chinese economy. This statement was made by the head of the statistical office of China Ning Jizhe.

Thus, the growth rate of China's GDP fell to a minimum in the last 28 years. According to the State Statistical Office of the country, in 2018 this figure was 6.6% against 6.8% in 2017. The value turned out to be the lowest since the 1990s.