The end of February saw one of the first unofficial assessments of world trade in 2015 prepared by the Netherlands Bureau for Economic Policy Analysis (The Hague). The appraisal is shocking: in 2015, international trade fell for the first time since 2009. And not by fractions of a percent, but by 13.8 percent (and this refers to values expressed in US dollars). It should be noted that according to IMF estimates, global GDP grew by 3.1 percent in the same year of 2015.
For nearly an entire decade prior to the 2007-2009 crisis, international trade had growth rates that were, on average, double that of global GDP growth rates. Following the crisis, the growth rates of the global economy and world trade began to converge, then trade began to lag behind global economic growth.
This is a sign that the era of economic globalisation is coming to an end. The combination of moderately positive GDP growth and the distinctly negative growth of world trade that emerged in 2015 presents the risk that global GDP may become negative in 2016, which is to say that there will be a global economic collapse.
There are different explanations for why world trade experienced such a sharp decline last year. To begin with, there is the sharp fall in the price of oil, which accounts for a huge share of world merchandise trade. There is also the depreciation of most national currencies against the US dollar, in which the value of global trade is measured. According to some estimates, growth in the physical volume of world trade remained positive last year (2.5 percent). This kind of physical growth is short-lived, however, and will quickly disappear. In 2015, many countries continued to supply goods that were hugely reduced in price in order to maintain their positions in the markets, but exports with a zero or negative financial return cannot continue for long.
In 2016, the price of oil and many other commodities will remain low. It is also likely that there will be a continuation of what today is being referred to as a currency war, i.e. exporters will deliberately lower the exchange rates of their national currencies against the US dollar. Attempts to compensate for the loss of foreign exchange export earnings by increasing physical exports will become an even larger drain on national economies. I think that world trade will go into the red in 2016 not just in value terms, but in physical terms as well.
As far as the global economic growth forecasts for 2016 are concerned, we believe that they are extremely optimistic. At the beginning of the current year, the IMF estimated a rise in global GDP equal to 3.6 percent. The OECD estimated slightly lower at 3.3 per cent. Just a few weeks later, both organisations revised their estimates downwards, to 3.4 and 3.0 percent respectively. I believe that there will be quite a few of these revisions over the course of the year and all of them downwards. With their estimates, the IMF, the OECD, the IBRD and other international organisations are trying to form the most optimistic expectations.
The bulk of world trade is accounted for by China and the US. China overtook the US in 2014, ranking first in the world in terms of trade volume. Preliminary estimates suggest that US exports fell by 6.3 percent in 2015. The value of Chinese trade in yuan fell by 7 percent and in US dollars by 8 percent.
On 1 March, the official Xinhua news agency reported that China’s social and economic development plan for 2015 has been successfully completed according to 24 of the 25 key indicators. The only indicator not met was China’s foreign trade. China’s GDP grew by 6.9 percent in 2015, but this is the lowest rate in the last 25 years. So there is the same asymmetry in China as in the whole global economy: a relatively modest GDP growth against a negative growth in trade. This is a serious wake-up call for China’s leaders, who, for several decades, have pursued a policy of adapting its economy to external markets.
Despite the fall in international trade volumes last year, it still played an extremely important role for the Chinese economy. Even with a general decline in trade values, China still managed to achieve a record trade surplus of 3.69 trillion yuan (USD 560 billion). However, it is unlikely that China’s trading partners will agree to further tolerate such unbalanced trade in China’s favour. We can expect to see a more vigorous use of anti-dumping duties on Chinese goods in the European market (which WTO rules allow with regard to countries that do not have ‘market economy’ status, a status that China has not yet been granted). We can also expect an intensification of the currency war against the yuan, the introduction of non-tariff barriers and so on. However, China is unable to resort to the tools of a trade war as aggressively as other countries. It has managed to get the yuan included in the reserve currency basket, but reserve currencies should not be involved in currency wars. In February 2016, on the eve of the G20 meeting in Shanghai, the chairman of the People’s Bank of China solemnly declared that the central bank of China has sufficient funds to support a stable yuan exchange rate.
Yet other countries are not burdened with these kinds of obligations. Last year, Brazil lowered the exchange rate of the Brazilian Real against the US dollar by 40 percent and significantly increased its exports (in physical terms) to Asia. China is concerned that its trade balance with Brazil may change considerably in favour of the latter. It is interesting that despite the sharp increase in Brazilian exports to China, overall trade between the two countries fell in 2015. Incidentally, trade between China and the other BRICS countries also fell. In particular, trade between Russia and China fell by nearly 30 percent, according to preliminary estimates.
Many experts believe it is China that is the weakest link in world trade. Data published in mid-February on China’s foreign trade for January 2016 turned out to be much lower than analysts predicted. Chinese exports have continued to fall for 7 straight months, and imports for 15 months.
The reduction in world trade is not just an indicator of unfavourable changes in the economy, but is also a symptom of the worsening international situation. At the end of the 19th-beginning of the 20th century, the world experienced economic globalisation. The extensive development of capitalism in the world came to an end and it became necessary for monopolies to restructure the world economically using military force. It was this kind of restructuring that was carried out during the First World War. Afterwards, in the 1920s, there was a boom in international trade, which, in turn, ended with the collapse of the New York Stock Exchange in October 1929. For an entire decade, the capitalist world was plunged into an economic crisis, which initially gave rise to a stagnation in world trade and then a huge reduction. The ruling circles in the West overcame this new prolonged recession in capitalist internationalisation by preparing and unleashing the Second World War and we are witnessing something similar today.
The military conflict in Syria and elsewhere in the Middle East, NATO’s stirring up of tensions along Russia’s borders, and the engineering of territorial disputes between China and its neighbours are all bound up with the West’s painful response to the end of economic globalisation and the reduction in world trade already underway.