By Gerhard Apfelthaler
If you picked up a copy of the Wall Street Journal on Oct. 21, chances are that you noticed that global trade was front and center.
Kristalina Georgieva, the new head of the International Monetary Fund, linked sluggish global economic growth to escalating trade wars; the Index of Global Economic Policy Uncertainty was higher than during the 9/11 attacks on the U.S.; and one of the world’s largest shipping companies offered a grim outlook among trade tensions and slowing consumer spending.
One can easily read between the lines that the culprit is the world’s largest importing nation — the United States of America.
But wait, hasn’t the trade dispute between China and the U.S. been resolved? The simple answer is no.
After the most recent round of negotiations, we saw some short-term wins for both sides. China promised to increase purchasing of agricultural products from the U.S. and, in return, the U.S. stepped away from additional tariffs. At least, that’s what the parties have agreed to during meetings, but no formal trade agreement has been signed yet.
Besides, long-term issues that were the core reasons for the trade dispute between the economic superpowers, such as intellectual property protection, were not addressed. This will cause the trade wars to continue to percolate and, eventually, erupt again.
Most likely, we’re not going to see a big turnaround from the trend over the last 12 months. Since mid-2018, we have seen a 21 percent decline in exports to China, and the prices of goods affected by the tariffs in the U.S. have risen by 2.9 percent. The U.S. trade deficit grew again in August, recent data shows.
No surprise that Forbes labeled the outcome of recent negotiations a “mini deal.”
There is also still uncertainty over the passage of the United States-Mexico-Canada Agreement, the new North American free trade deal.
While Democrats and the administration are inching forward toward common ground, there is still some uncertainty regarding specifics, including labor reforms in Mexico, environmental standards and, above all, enforcement of the agreement.
In addition, there’s the U.S.’ ongoing spat with the European Union.
Most of the European countries depend on exports as a major contributor to their economies. In Germany, more than 40 percent of the gross domestic product is generated by exports.
It’s only logical under such circumstances that the additional tariffs that the U.S. recently imposed on Europe — admittedly with the blessings of the World Trade Organization after 15 years of litigation — on anything from Airbus planes to French wine and Scottish spirits will further dent a sputtering European economy.
And then there is still Brexit.
By the time this article appears, we will know more about the future of the U.K.’s economy, but whatever the outcome, chances are that there will be further disruption to the global economy. Earlier conservative estimates predict that the U.K. economy will fall by about 5 percent, which will definitely further impact global trade.
So far, estimates are that the ongoing trade war will cost the global economy about $700 billion, which is about the size of the entire economy of Switzerland, the IMF estimates. Global economic growth in 2019 is predicted to be around 3 percent, which is the slowest rate of expansion since the financial crisis.
Sometimes, such short-term negative impacts are offset by long-term gains.
Will those come? Only history will show. But much of the sluggishness in global trade does not necessarily come from tariffs themselves, but from the uncertainty and low expectations for the future.
These will probably take a lot longer to address and persist for years to come.
• Gerhard Apfelthaler is the dean of the School of Management and a professor of international business at California Lutheran University.