Trade growth drivers and the risks of derailment

Dr Rebecca Harding, CEO of Coriolis Technologies talks to Trade Finance TV’s Clarissa Dann about how rhetoric and politics is impacting trade growth, and the importance of ensuring that digital trade along with trade in services is also factored into growth assessments

She makes the point that everyone is keen to avoid a full-blown trade war, and that for the US the issue is less about China and trade and more about protecting national security and intellectual property. 

Noting that China has started to plant soya beans now that US supplies are compromised, Harding explains how China is forging new alliances to protect supply chains. “The flip side of globalisation is localisation and that has been the case for a long time – how this pans out will be very interesting.” 

Another area to watch is who invests in the Belt and Road Initiative and how this develops.

Transcript of interview:

Clarissa Dann Welcome to Trade Finance TV. This is your insight into the global trade climate for importers, exporters and their financiers. I’m Clarissa Dann.

In this episode we’re talking with international trade economist, Dr. Rebecca Harding. She’s talking about how global supply chains, trading services and digital trade have all gone on rerouted trade flows against a backdrop of increased nationalism.

Rebecca, lovely to see you again.

Dr. Rebecca Harding Lovely to see you.

Clarissa Dann Thanks for coming into the studio today and welcome to Trade Finance TV.

Dr. Rebecca Harding Thank you, Happy New Year.

Clarissa Dann And to you. Is trade in good shape right now? What do you think, Rebecca?

Dr. Rebecca Harding On some levels trade is OK, I mean, we saw pick up in 2017 in global trade, partly because of commodity prices going up. But the World Trade Organization is forecasting that trade is going to grow by 3.7% this year, which is OK, but you have to remember that that’s actually a downgrade on its April forecast, so that was April of last year. So in actual fact, the World Trade Organization itself is seeing some reasons to be cautious about world trade during 2019.

Clarissa Dann But 2018 was the year of rhetoric, wasn’t it?

Dr. Rebecca Harding Exactly. And I think this is one of the things that’s actually been a real cause for concern for trade practitioners, because it creates a layer of uncertainty around trade and the environment for financing or trading with other countries. So what’s happened over the last year is that obviously the US and China, but also US and Canada and Mexico, the US and all of the G7 as well, and then the US and European Union; there’s been a lot of conflict, verbal conflict rather than actual conflict around trade. Now, an awful lot of that is rhetoric, as you say, but while there’s that type of rhetoric around, it creates uncertainties so it holds back investment, and it starts to have a real impact on markets and on trade itself.

Clarissa Dann All rather worrying isn’t it? And it don’t get any better when you look at Brexit? It’s all looming now, how do you think that’s going to play out?

Dr. Rebecca Harding So Brexit, I don’t think is going to be a big concern for the global trade economy. So in volume and value terms, it’s very unlikely to make a huge amount of difference. What is happening, though, and what’s been happening over the last 18 months already, is that there’s uncertainty around the UK trade deficit and trade performance. Actually, ironically, we’ve seen UK trade go up and the deficit widened, partly because of fluctuations in the value of sterling against the dollar and the euro. But over the whole period since the financial crisis, the deficit has stayed roughly fairly constant. So we’re not seeing a big impact at the moment, but it will all depend on the extent to which we see commodities trade, i.e. merchandise trade and supply chains shift around Europe. And then it’ll also depend on how services trade pans out as well, because that’s a very important factor for the UK economy.

Clarissa Dann Particularly in financial services?

Dr. Rebecca Harding Well financial services are a very important part of the UK. If you look at the proportion of service trade in relation to GDP, it is actually very large. It’s over 20% of our overall contribution to GDP from trade is in services, which is the highest anywhere. But what we are seeing is that Germany and France are beginning to pick up on all of this. So what that means is that maybe we’re losing that type of competitive edge in the UK. So there are some risks to the UK economy around Brexit, which are well documented, and the biggest risk of all is actually just political uncertainty.

Clarissa Dann Let’s move on to the US and talk about trade wars. It’s almost a perjorative word, and there is this temporary truce that’s going on at the moment. What’s the outlook on that? Do you see it getting better?

Dr. Rebecca Harding So I’ve never been one of these people that says we’re going to have a full blown trade war. And I think the reason why is very simply because a full blown trade war would incorporate Europe and China and the biggest economies in the world. It’s the economic equivalent of pushing the nuclear button. So everybody is going to be very keen to avoid that at all costs.

Now I think the more material point is, has it damaged relations? Is it actually about trade? So has it damaged relations? Yes, it has. Everybody is talking about China almost as the enemy across the table these days. People are a lot less certain about China and its role in intellectual property and its role in national security. And it’s kind of increased the rhetoric that’s negative about China. Not necessarily justifiably so, but it’s happened anyway. And I think the concern that I would have is that actually in the end for the United States, this isn’t about China necessarily. It isn’t about trade necessarily. It’s about national security. It’s about intellectual property. And it’s about Chinese technology and the extent to which the US can see that infiltrating its own national security systems. So it’s actually an existential problem for the United States.

Clarissa Dann Would you say that was one of the main areas that will determine trade growth or lack of it in other areas during the coming year? What do you see as the three main determinants?

Dr. Rebecca Harding So the three things that are going to happen during the course of this year, I would say, number one, we have to find out what’s going to happen with the US/China relations, because it’s impossible to move ahead. There’s too much uncertainty in the market. And actually, I’d say that is far more important because it determines global growth. It determines global investment. We’ve seen foreign direct investment in 2017-18 fall back. If that trade war stops, there’ll almost be a huge sigh of relief and everything will pick up again. So, I mean, bizarrely, it’s almost too hard to call what’s going to happen. Most economists are giving three forecasts out, at the moment, per economist. So that’s important.

Second thing that’s really important as well, I think, is the extent to which we’re going to be able to see the reallocation of supply chains around the world. So it’s kind of a corollary to all of the trade war stuff that’s going on. So how are supply chains going to shift? For a long while it’s been apparent that we’re seeing supply chains actually become more regional and local, so the flip side of globalization is actually localization, and that’s been the case for a very long time. So how that pans out during the course of the year will be very interesting. One Belt ONE Road (OBOR) is a very interesting development as part of all of that. Who invests in that? And it’s a very exciting opportunity and one where actually there are opportunities to gain control rather than lose control.

The final thing, I think, is just how we measure services and digital trade. It’s become a real issue for the financial services sector and a real issue for companies as well, to understand how ideas and money and support and things like digital printing transfer across borders. And that’s actually the biggest way in which trade is likely to change during the course of the year.

Clarissa Dann And how we measure it.

Dr. Rebecca Harding And can we measure it? Exactly.

Clarissa Dann Thank you so much. It’s been lovely talking to you.

Dr. Rebecca Harding Lovely to talk to you, too.

Clarissa Dann: I’d like to thank Dr. Rebecca Horie for her insights into the 2019 global trade landscape and, of course, to all of you for watching to catch our monthly reports on other markets or subscribe to our newsletter, go to trade finance TV on.

Published on January 28, 2019

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