US-China dispute hits world trade

Published Feb 20, 2019

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JOHANNESBURG – The World Trade Organisation’s (WTO) World Trade Outlook Indicator released yesterday showed that the trade dispute between China and the US had hurt world trade, with the indicator reaching its lowest level since 2010 in the last quarter of 2018.

The organisation further warned that global trade would slide further in the first quarter of this year.

The WTO’s quarterly outlook is a composite of seven drivers of trade.  

A  reading below 100 points signals below-trend growth in trade. 

The latest indicator registered a score of 96.3 points, pulled down by declines in export orders, international air freight, automobile production and sales, electronic components and agricultural raw materials.

The WTO said the sustained loss of momentum highlights the urgency of reducing trade tensions, which together with continued political risks and financial volatility could foreshadow a broader economic downturn.

“Trade growth is currently forecast to slow to 3.7 percent in 2019 from an expected 3.9 percent in 2018, but these estimates could be revised downward if trade conditions continue to deteriorate,” the WTO said.

“Nevertheless, greater certainty and improvement in the policy environment could bring about a swift rebound in trade growth.”

The trade talks between the US and China are set to continue this week. Key issues still need to be settled ahead of a March 1 deadline, after which the US has said it will raise tariffs on Chinese goods. 

CNBC has reported that the two countries have found common ground on China decreasing its trade surplus with the US through more purchases, but sticking points remain on issues such as intellectual property theft and the subsidies Beijing gives to its domestic firms. 

Investec economist Kamilla Kaplan said: “Sentiment remains broadly positive surrounding the ongoing US-China trade talks, with expectations that an agreement will be negotiated following the protracted trade dispute.”

The International Monetary Fund (IMF) in January warned that an escalation of trade tensions and a worsening of financial conditions are key sources of risk to the outlook. The IMF now put global growth at 3.5 percent in 2019 and 3.6 percent in 2020, 0.2 and 0.1 percentage points below last October’s projections.

The January 2019 trade conditions survey by South African Chamber of Commerce and Industry depicted a defensive mode with 70 percent of the respondents negative about trade conditions. The Trade Activity Index (TAI) last month was at its lowest level since the inception of the survey in 2000. The previous lowest level for the TAI was 32 in April 2009 at the height of the global financial crisis.

BUSINESS REPORT

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