GENEVA/WASHINGTON – Trade, that lifeblood of the world economy, is growing at its slowest rate in seven years and could falter even more should anti-globalization sentiment encourage governments to throw up more barriers.
That’s the verdict from the World Trade Organization, which dramatically slashed its forecast for trade growth this year by about a third to its lowest rate since 2009, when the global economy was mired in recession in the wake of the financial crisis.
In an update to its forecasts Tuesday, the world’s leading trade body said anti-globalization sentiment could make matters worse, especially if policymakers respond to that in a “misguided” manner.
The Geneva-based WTO, perhaps best known for dealing with trade disputes, predicted that global trade will rise only 1.7 percent this year, way down from its April prediction for 2.8 percent.
It said the downgrade, which came as the WTO opened a three-day forum about ways to make trade more inclusive, was largely due to an unexpectedly sharp drop in merchandise trade volumes in the first quarter. Lower economic growth and trade in developing countries like China and Brazil as well as a deceleration in imports in North America lay at the heart of the sharp downgrade.
If the WTO’s forecast comes true, it will be the first time in 15 years that global trade grows more slowly than the world economy, which it expects to expand by 2.2 percent.
“The dramatic slowing of trade growth is serious and should serve as a wake-up call,” WTO director-general Robert Azevedo said. “It is particularly concerning in the context of growing anti-globalization sentiment.”
“We need to make sure that this does not translate into misguided policies that could make the situation much worse,” he added, referring to job creation and economic growth.
As well as reducing its 2016 forecast, the WTO cut its project for next year to between 1.8 percent and 3.1 percent from 3.6 percent.
The WTO warned of a number of risks, such as the effect of the British vote to leave the European Union, which has increased uncertainty in a part of the world where trade has been relatively strong.
Other risks include financial market volatility stemming from changes in monetary policy in developed countries — the U.S. Federal Reserve is set to raise interest rates again while the European Central Bank and the Bank of Japan could cut borrowing costs further.
It also voiced worries that growing anti-trade rhetoric around the world might affect trade policy.
One planned trade deal that looks to be in trouble is the proposed Trans-Atlantic Trade and Investment Partnership, commonly known as TTIP, between the United States and the EU.
TTIP aims to remove trade barriers between the two but the secretive discussions have reportedly become bogged down amid growing concerns — and protests — in Europe over what a deal would mean for food safety and privacy protections, among other things.
Free trade has become a ripe target in the U.S. presidential campaign.
At Monday’s debate with Hillary Clinton, Donald Trump declared the need to “renegotiate” trade deals because U.S. trading partners are “taking our jobs.”
For her part, Clinton, too, is opposing a major Pacific Rim trade deal, the Trans-Pacific Partnership (TPP), negotiated by the Obama administration.
Their opposition resonates with many voters: In this angry election year, Americans are deeply skeptical of free trade — or hostile to it.
The backlash against trade threatens a pillar of U.S. policy since World War II: Through trade pacts and institutions like the WTO, the United States has sought to rip down barriers to global commerce, including quotas and taxes on imports.
Economists argue that the benefits of free trade outweigh the costs. Imports cut prices for consumers. And exposure to foreign competition makes American companies and the overall U.S. economy more efficient. Free trade, it was widely believed, paid off.
But doubts grew, especially as China emerged as an economic power. China overwhelmed the world with hundreds of millions of low-paid factory workers who could crank out products for less than just about anyone else. And critics charged that China didn’t play by the rules — unfairly subsidizing exporters, manipulating its currency to give them a competitive edge and condoning the theft of U.S. trade secrets.
Whatever the reasons, the United States last year ran a $334 billion trade deficit with China — a big chunk of America’s $500 billion total trade deficit.
Even some economists are having second thoughts about free trade. David Autor of the Massachusetts Institute of Technology, Gordon Hanson of the University of California, San Diego, and David Dorn of the University of Zurich looked at the American workers most exposed to competition from China.
They encountered an unpleasant surprise: Instead of finding jobs in newer, growing industries, as economic theory dictated they would, Americans who were thrown out of work by the “China shock” bounced from job to job and suffered a drop in lifetime pay. China’s rise has “challenged much of the received empirical wisdom about how labor markets adjust to trade shocks,” they concluded.
Trump and Clinton both oppose the trade agreements that are a hallmark of U.S. economic policy. Clinton has broken with President Barack Obama by opposing the TPP, an agreement that Obama’s administration forged with 11 Pacific Rim countries (excluding China) and that awaits congressional approval. Awkwardly for Clinton, her position represents a change: When she was Obama’s secretary of state, she had called the TPP the “gold standard” for trade deals.
Trump vows to tear up existing trade deals, such as the North American Free Trade Agreement with Mexico and Canada — “the worst single trade deal ever approved in this country,” he said Monday night. He also says he’ll slap huge tariffs on Chinese imports and on American companies that make goods overseas and then ship them back to America.
He traces America’s economic problems to unfair trade deals reached by clueless U.S. negotiators outfoxed by craftier foreigners. The author of “The Art of the Deal” says he can do better.
The WTO’s downgrades came as the World Economic Forum warned that a decade-long trend away from free trade around the world is hurting economies.
In its annual survey on competitiveness of 138 economies, WEF noted a global trend to increase barriers to trade without imposing tariffs. That can include quotas on trade, levies and other types of restrictions.
“Declining openness in the global economy is harming competitiveness and making it harder for leaders to drive sustainable, inclusive growth,” said Klaus Schwab, WEF’s founder and executive chairman.
The WEF, which is best known for hosting an annual gathering of business and political leaders in the Swiss ski resort of Davos, ranks a country’s competitiveness according to 12 factors such as the state of its infrastructure, its ability to foster innovation and the standard of its education system.
For the eighth straight year, Switzerland was ranked as the most competitive economy in the world, just ahead of Singapore and the United States.