Prolonged trade dip prompts fears of recession
Protectionism may not be the main reason for the current slowdown in global trade growth, but its significance cannot be underestimated, a senior Chinese government official said at the Boao Forum for Asia (BFA) on Thursday. [Special coverage]
It may be hard to raise demand from its current weak levels, but efforts should at least be made to reduce trade protectionism, Wang Shouwen, vice minister of commerce, said during a panel meeting at the BFA on Thursday.
Wang's remarks came at a time when China's trade is under pressure, thanks largely to sluggish demand.
Exports in February experienced their biggest drop in nearly seven years, falling 25.4 percent year-on-year in US dollar-denominated terms, the biggest monthly drop since May 2009, while imports fell 13.8 percent, according to data from China's General Administration of Customs (GAC).
Wang also cited the example of China's solar panel exports. In 2011, China exported solar panels worth about $26 billion.
However, exports have dropped since then partly due to anti-dumping and other trade restriction measures from the US and the EU. As a result, in 2015, China's solar panel exports reached only $14 billion, a slump of 43 percent from 2011.
While weakening global demand is the main factor behind the sluggish world trade, protectionism still matters, Gabriela Ramos, the OECD chief of staff and sherpa to the G20, told the forum.
The OECD has recorded 1,400 trade and investment measures that have been accumulated among the G20 countries, Ramos noted, adding that even though these are not huge barriers for global trade, they still prevent more dynamic exchanges of goods and services.
According to OECD data, trade usually grows at twice the pace of global GDP growth, but during the last few years, it has been at the same rate as GDP growth, and this year it may be even lower.
"Such a scenario happened only five times during the last three decades, and every time trade grew slower than GDP growth, it caused a recession," Ramos noted.
The WTO forecast in September 2015 that growth in global trade would reach 3.3 percent in 2016, while the IMF in January cut its global economic growth forecast to 3.4 percent in 2016 and 3.6 percent in 2017.
Structural factors
Nevertheless, Long Yongtu, former vice minister of foreign trade and economic cooperation, told the forum on Thursday that there is no need to be too pessimistic about the slowdown in global trade.
"The fall in China's trade volume actually reflects a trend during the process of its domestic economic restructuring and industrial upgrading," Long said.
Processing trade, which refers to importing components and parts and re-exporting the finished products after processing, used to be a big part of China's trade, but with the rise of industrial innovation and upgrading, many parts of manufactured products are now produced domestically, thus leading to a reduction in processing trade, Long explained.
This trend is not just limited to China. Processing trade used to be the mainstream of global trade and industrial chains spread across many countries and regions in the past, but now they are much shorter, resulting in the declining trade, Long noted.
Long also attributed the slack trade data to the recent slump in commodities prices, which has meant that the same volume of imports of oil or iron ore amount to a lower trade value.
"So we should not be too concerned about the decrease in global trade, as it has been affected by some structural and cyclical factors," Long said.
