WTO Forecasts World Trade to Grow 2.4% in 2017

world trade

In its latest trade statistics and outlook report, the World Trade Organization (WTO) forecasts the world merchandise trade volume to grow within a range of 1.8-3.6% in 2017 (on average 2.4%). This growth rate is slightly up from a very weak growth of 1.3% in 2016. WTO expects trade growth to further pick up to 2.1-4% in 2018.

On the positive side, the global GDP growth is expected to rebound to 2.7% in 2017 from 2.3% in 2016, which will contribute to the expansion of world trade. Notably, WTO expects emerging economies to return to modest economic growth in 2017. However, WTO sees policy uncertainty, including the imposition of restrictive trade measures and monetary tightening, a main risk factor to world trade this year.

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WTO also noted that since the financial crisis, the ratio of trade growth to GDP growth has fallen to around 1:1. And 2016 marked the first time since 2001 that this ratio has dropped below 1, to a ratio of 0.6:1. Historically, the volume of world merchandise trade has tended to grow about 1.5 times faster than world output. WTO is cautiously optimistic that the ratio will partly recover in 2017, but the ratio will remain a cause for concern.

At the press conference, Trump Administration’s trade policy receives significant attention. But according to  Roberto Azevêdo, Director-General of WTO, “just an overall statement of the intention to go one particular way or another, does not tell us what the trade policy is and does not tell us what the impact of that trade policy will be. Instead, the devil is in the details”. Roberto said he is waiting to see Trump’s new trade team in place (for example, the new US Trade Representative) and he looks forward to the meaningful dialogues with the team to know more details and clarity of U.S. trade policy. Until then, any comments on the impact of Trump Administration’s trade policy would be just speculations.

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Towards a More Inclusive Trading System

A timely, informative and intellectual discussion with Roberto Azevêdo, Director General of the World Trade Organization on the state of global trade and its governance. Some important key points during Roberto’s presentation/discussion:

  • Trade has proved to be one of the most powerful pro-growth, anti-poverty tools in history: In recent decades it has helped to lift one billion people out of poverty in developing countries. The World Bank found that income grew more than three times faster for developing countries that lowered trade barriers than for those that did not. in the US, estimates show that the gains from globalization have raised real household incomes by up to $10,000 annually.
  • Trade means more choice, lower prices and real dollar in the pocket for consumers: A joint study by UCLA and Columbia found that people with high incomes could lose up to 28% of their purchasing power if borders were closed to trade. But the poorest consumers, they could lose up to 63% of their spending power
  • Trade is imperfect: Despite the obvious overall gains, trade can have negative effects in some parts of the economy. And those effects can have a big impact on some people’s lives. But we would be betraying those very same people, and many, many more, if we turned against trade and allowed the negative arguments to go unanswered.
  • Trade protectionism is an ineffective and very expensive way of protecting jobs: In the latter part of the 20th century, the EU protected various industries — including steel, agriculture and textiles. The French economist Patrick Messerlin analyzed this approach. He found that the average cost per job saved was several hundred thousand euros, or about 10 times the corresponding wage in each of those industries. The US applied tariffs on Chinese truck tires in 2009. Around 1,200 jobs were saved, but this came at a cost of $1.1 billion in higher prices for consumers. That works out as a cost of about $900,000 per job. The Petersen Institute estimates that these higher prices also resulted in around 2,500 job losses in the tire retail sector due to slumping sales.
  • Trade protectionist solutions do not reflect the nature of the modern economy and the international nature of production: Most goods aren’t made in one country. Most exports have components which have been imported. So by restricting imports, a country can restrict its own ability to export. Trade protectionism is also a two-way street. It leads to retaliation and the domino-effect.
  • Unemployment is not strictly or mainly a trade issue, trade measures will NOT address this disorder: trade is a relatively minor cause of job losses. The evidence shows that well over 80% of job losses in advanced economies are not due to trade, but to increased productivity through technology and innovation.
  • The real economic revolution that is happening today: Studies suggest that almost 50% of existing jobs in the US are at high risk of automation. An International Labor Organization (ILO) study on Cambodia, Indonesia, Vietnam, Philippines and Thailand found that 56% of jobs are at high risk of automation. And that’s just on average. In some sectors over 80% of jobs are at risk. In Japan, there are 315 robots per 10,000 workers. In China that number is only 36 — but it is rising fast. In the US, the number is 164, which is still relatively low. But it is set to go up!

Questions for thinking:

  • How do we ensure that trade can continue to promote growth and lift people out of poverty?
  • How to RESPOND to the rising anti-trade sentiment in public discourse? Is trade protectionism the right approach?
  • How to ensure that the benefits of trade reach further and wider– in other words, how to create a more inclusive global trading system? How to harness the power of e-commerce to support inclusiveness?
  • How do we help small and medium sized enterprises (SMEs) to leverage technology so that this marketplace doesn’t just become the preserve of the big players?
  • How can the trading system adjust to the shift from a world of few, large, known exporters to a world in which exporters are many, small and unknown? How can we ensure that this transition works for consumers?

WTO Reports World Textile and Apparel Trade in 2015

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clothing

According to the newly released World Trade Statistical Review 2016 by the World Trade Organization (WTO), the current dollar value of world textiles (SITC 65) and apparel (SITC 84) exports totaled $291 billion and $445 billion respectively in 2015, but decreased by 7.2 percent and 8.0 percent from a year earlier. This is the first time since the 2009 financial crisis that the value of world textiles and apparel exports grew negatively.

However, textiles and apparel are not alone. The current dollar value of world merchandise exports also declined by 13 percent in 2015,to $16.0 trillion, as export prices fell by 15 percent. In comparison, the volume of world trade grew slowly at a rate of 2.7 percent, which was roughly in line with world GDP growth of 2.4 percent. WTO says that falling prices for oil and other primary commodities, economic slowdown in China, a severe recession in Brazil, strong fluctuations in exchange rates, and financial volatility driven by divergent monetary policies in developed countries are among the major factors that contributed to the weak performance in world trade.

Textile and apparel exports

China, the European Union and India remained the top three exporters of textiles in 2015. Altogether, they accounted for 66.4 percent of world exports. The United States remained the fourth top textile exporter in 2015. The top ten exporters all experienced a decline in the value of their exports in 2015, with the highest declines seen in the European Union (-14 percent) and Turkey (-13 percent). The smallest decline was recorded in China (-2 percent).

Top three exporters of apparel include China, the European Union and Bangladesh. Altogether, they accounted for 70.3 percent of world exports. Among the top ten exporters of apparel, increases in export values were recorded by Vietnam (+10 percent), Cambodia(+8 percent), Bangladesh (+6 percent) and India (+2 percent). The other major exporters saw stagnation in their export values (United States) or recorded a decline (all other top ten economies).

china's market share

Additionally, despite reported rising production cost, China’s market shares in world textile and apparel exports continued to rise in 2015 (see the figure above).

Textile and apparel imports

The European Union, China and the United States were the top three importers of textiles in 2015. However, altogether they accounted for only 37 percent of world imports, down from 52.8 percent in 2000. Because a good proportion of textiles made by developed countries (such as the United States) are exported to developing countries for apparel manufacturing purposes, the pattern reflects the changing dynamics of world apparel manufacturing and exports in recent years.

Because of consumers’ purchasing power (often measured by GDP per capita) and size of the population, the European Union, the United States and Japan remained the top three importers of apparel in 2015. Altogether, they accounted for 59 percent of world imports, but down from 78 percent in 2000. This indicates that import demand from other economies, especially some emerging markets, have been growing faster over the past decade.

world trade 2016

Exclusive Interview with Erin Ennis, Vice President, US-China Business Council

erin ennis

Erin Ennis has been Vice President of the US-China Business Council (USCBC) since May 2005. In that position, she directs the Council’s government affairs and advocacy work for member companies and oversees the Council’s Business Advisory Services. She also leads a coalition of other trade associations on issues of interest to companies doing business with China. Founded in 1973, the US-China Business Council provides extensive China-focused information, advisory, and advocacy services, along with comprehensive events, to nearly 250 US corporations operating within the United States and throughout Asia.

Prior to joining the Council, Ms. Ennis worked at Kissinger McLarty Associates, the international consulting firm headed by former Secretary of State Henry Kissinger and former White House Chief of Staff Thomas “Mack” McLarty. At Kissinger McLarty, Ms. Ennis was responsible for implementing strategies for international business clients on proprietary trade matters, primarily in Vietnam and Japan.

Before entering the private sector, Ms. Ennis held several positions in the US Government. From 1992 to 1996, Ms. Ennis was a legislative aide to former U.S. Senator John Breaux, working on international trade and commerce. She also worked on health care issues during the Senate’s consideration of President Bill Clinton’s health care reform, an issue on which Senator Breaux actively worked to broker a compromise.

At the Office of the US Trade Representative from 1996 to 2000, Ms. Ennis first worked in Congressional Affairs on Asia issues, including annual approvals of China’s most favored nation status and the ill-fated 1997 push to renew presidential “fast track” negotiating authority. Beginning in 1998, she was assistant to Deputy US Trade Representative Richard Fisher, who led US trade negotiations and enforcement with Asia, the Americas, and on intellectual property rights.

Interview Part

Sheng Lu: Our students wonder whether increased trade with China is good or bad for the U.S. economy. Many of them consider the U.S. trade deficit with China to be a serious problem and they are worried about the loss of U.S. jobs to China. What’s your view and insights?

Erin Ennis: We should be realistic about what trade balance data shows and what it doesn’t. There is almost no correlation between a high US trade deficit and a strong US economy. In fact, we tend to have the lowest trade deficits when our economy is doing the worst – take a look at the data from the recent global recession between 2009 and 2010 for example versus what the trade deficit looked like in the 1990s when our economy was booming. We also don’t save much of our earnings, which also factors into the data.

Focusing on a single country as the source of our concerns leads to an inaccurate view that what other countries do has more of an effect on our economy than our own domestic policies. We should indeed be concerned about job creation in the US, but to do that, we should be implementing policies that ensure that we have as competitive an economy as possible. That will require a combination of education, energy, tax and other domestic policies. It also requires our economy to be as open as possible and pursuing market openings globally so that US goods and services have opportunities for sales overseas.

Sheng Lu: The USCBC 2014 China Business Environment Survey describes China as “an extremely difficult business environment along with a vital, growing market for foreign businesses”. We all know that China is an emerging market, but what are the top challenges faced by U.S. companies doing business in China?

Erin Ennis: Our survey goes into detail about the various challenges that companies experience in China. Competition with Chinese companies was the top issue in 2014, an issue that was not only cited independently, but also factors into several other issues that were cited such as foreign investment restrictions, uneven enforcement of laws, licensing disparities, and discrimination in the market. IPR enforcement is also a top concern for companies. Beyond those, there are also issues that both Chinese and foreign companies are grappling with in the market: a very tight labor market and significant increases in the cost of doing business.

Sheng Lu: Related to the previous question, two numbers in the USCBC survey seem to be very interesting: Although 90 percent of respondents consider rising costs in China a concern, only 14 percent of respondents say they actually reduced or stopped planned investment in China in the past year. How to explain this phenomenon?

Erin Ennis: The simple answer is that companies don’t make decisions on where to do business solely on cost. Most companies report that they are doing business in China to access Chinese customers. While costs may have increased, their opportunities for increased sales have increased too. China’s market grew at about 7% in 2014 – still a rapid rate of growth, even though it is slower than in previous years. Companies are likely to stay in the market, even as costs increase, to continue to access those opportunities.

Sheng Lu: While it is under heated discussion whether China should join the Trans-Pacific Partnership (TPP) or not, USCBC suggests that a successful conclusion of the Bilateral Investment Treaty (BIT) negotiations should be the top priority in the US-China economic relationship. What is BIT and why does it matter for U.S. companies?

Erin Ennis: The short answer is that a BIT matters because it will require China to provide the same treatment to foreign companies that it provides to domestic ones and it will require China to open many sectors of its economy to foreign investment that remain closed. More detailed explanations of what the BIT is and why it matters can be found on USCBC’s website here: https://www.uschina.org/advocacy/bilateral-investment-treaty.

Sheng Lu: December 2015 will mark the 15th anniversary of China’s accession to the World Trade Organization (WTO). In your view, what are the most important changes in US-China economic relations since China joins the WTO?

Erin Ennis: China’s WTO access required it to open significant parts of its economy to foreign companies. In general China has done a good job of implementing those commitments. As a consequence, China has grown to be the United States’ third largest trading partners after Canada and Mexico, with whom we have a free trade agreement. More needs to be done, however, to open China’s market. The US-China BIT negotiations will be a useful tool in achieving that goal.

Sheng Lu: China’s recent sweeping anti-graft campaign has attracted the world attention. How does the US business community look at this campaign? Will this campaign have any long-term impact on China’s business environment?

Erin Ennis: In general, the anticorruption campaign is viewed very positively by foreign companies because it is an additional way to ensure that all companies are treated equally in China – bribes and other illegal activities should never be tolerated. To date, the only impact that foreign companies have reported is that it takes longer to get some projects or licenses approved because Chinese officials are being overly cautious in ensuring that there is no appearance of impropriety. Those kinds of delays are ones that companies are willing to deal with.

Sheng Lu: Our students wonder if China presents as a career opportunity for them as well. What’s your observation and do you have any suggestions for our students interested in working/interning in China?

Erin Ennis: If you are serious about working in China, then learning Chinese should be at the top of your to do list – but the same could be said about going to work in any foreign country: learn their language. Beyond that, go to China and experience it. There are plenty of ways to do both of those, but language and on the ground experience will establish your credibility as someone who is serious about the specific opportunities in China, rather than someone who just wants a chance to live in a different country. Final suggestions: read as much as you can and question what you read. China is not a monolith and, as anywhere, there are always multiple sides to every story – that’s especially true in business and politics. Having an informed view of those dynamics will serve you well.

–The End–

World Textile and Apparel Trade (Update: August 2014)

The following analysis is conducted based on the statistics released by the World Trade Organization on August 5, 2014.

1. Asia continues to dominate the world textile and apparel exports from 2012 to 2013.

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2. Despite concerns about its rising labor cost, China continues to gain more market shares in world textile and apparel exports from 2012 to 2013.

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3. World market for textiles remains relatively stable from 2000 to 2013; world market for apparel is gradually shifting and diversifying. Although Europe and North America still account for lion’s shares in world apparel imports (due to their higher GDP per capita), Asia is the fast growing market.

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4. Intra-region trade remains a distinct pattern in world T&A trade, particularly in Asia, Europe and America. However, the pattern has become substantially weakened in Europe and America from 2000 to 2013, which could be the results of increasing number of FTAs in these regions.

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5. US textile and apparel exports increased 3.3% and 4.4% respectively from 2012 to 2013. North America remains the single largest T&A export market for the United States.

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by Sheng Lu

Why Textile and Apparel Majors Need to Know about Trade Policy

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This past week, our class moved to the topic of trade policy, which as usual turned out to be one of the most challenging and “least exciting” chapters for our students. A common question in students’ mind is (and probably for some professors in the textile and apparel field as well): as a fashion major, why do I need to care about trade policy?

The answer is straightforward: textile market is shaped by rules—trade policy. Trade policy affects the availability of T&A products in the market in terms of quantity, price and speed. Trade policy also affects T&A companies’ access to the market, both domestic and foreign. Simply look at the clothing and shoes we wear daily: if they are imported, very likely the price we pay includes 10-30% additional tax (tariff). Even the clothing is “made in USA”, we should realize that the survival of US domestic apparel manufacturing could be the result of protection by the exact same trade policy which makes imported competing products 10—30% more expensive than otherwise in the US market.

Yet, trade policy does not happen naturally. Trade policies are deliberately made by policymakers and strongly influenced by industry players. Two things I hope our students can realize: first, the T&A industry cannot afford ignoring trade policy. Think about this case: if the US yarn manufacturers did not actively advocate “yarn-forward” rules of origin to be adopted in NAFTA and CAFTA, what will happen to their fate right now? Vice versa, how will the commercial interests of apparel retailers/importers be affected if they stop voicing themselves and simply leave the trade protectionism forces to influence trade policymakers? As the saying goes: if you are not at the table, you are on the menu. To certain extent, there is no good or bad trade policy, but winners and losers.

Second, understanding trade policy making is about understanding the real world. Trade policymaking is a painful balancing process like trying to “breathe and suck at the same time”.Not only different interests groups may have conflicting views on a specific trade policy, but also different policymakers may have their respective philosophies and priorities. As we mentioned in the class, agencies in the executive branch such as the US Trade Representative Office and the Commerce Department put national interests and international obligations of the United States at its heart whereas the Congress often times gives preferences to regional, sectoral and party interests.  A full understanding of T&A trade policy thus requires familiarity with what’s going on in this unique industry sector, knowledge about its key players as well as having a big picture vision in mind. For example, without recognizing the value of becoming a WTO member for China, it will be difficult to appreciate why it was willing to allow US to restrict its apparel exports from 2003 to 2008 on a discriminatory basis (T-shirt book, part III).

Our FASH students shall be encouraged to jump out of the narrowly-defined fashion world, because no industry operates as an island. Instead, the T&A industry is part of the world economy and shaped by the “rest” of the world economy.

 Sheng Lu

Expanding Global Trade through Innovation and the Digital Economy

 

This is the introductory video of this year’s World Trade Organization (WTO) Public Forum hosted from Oct 1 to Oct 3. The WTO Public Forum is an annual event that provides a platform for public debate across a wide range of WTO issues and trade topics. The Public Forum is also an opportunity for us in the WTO to listen and exchange views with non-government organizations (NGOs), academia, the private sector, with those of you who are increasingly participating in shaping the world’s economic and political environment. This year’s Public Forum looks at the future of trade in an era of innovation and digitalization.

As put it by Michael Froman, the U.S. Trade Representative :” The global marketplace has experienced a sea change. Combining globalization with new technology and with new business models has dramatically accelerated the pace of change and innovation. The flow of data is as important as the movement of goods. Services are an increasing share of value-added manufacturing. And the market is determining standards at an increasingly rapid pace.”