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Trade figures worrying for growth

By Dashan Hendricks

Business Editor, RJR Group

Something curious has been happening in Jamaica which no one seems to be taking note of - the value of goods Jamaica sells to the rest of the world has been declining. Exports have declined every year since 2013. The trend suggests it will continue to decline.

This decline comes during a period in which Jamaicans have been told that the value of the local currency is more competitive now than it has been in a long time. But instead of promoting exports, the opposite has happened. Andre Haughton, a University of the West Indies economist says that is because Jamaican manufacturers have a high import content. Depreciation of the currency makes the cost of production more expensive and leads to higher cost exports.

But the decline is not only on the export side. In 2015, Jamaica's trade deficit was the lowest it had been since 2009 at US$3.7 billion, according to data obtained from the Statistical Digest published by the Bank of Jamaica. This as imports fell with the decline in the price of oil and the higher cost of imports from the depreciated currency.

The trend seen in Jamaica's trade figures is replicated on a global scale. Taken together, global trade was flat in the first quarter of this year. It fell by 0.8 per cent in the second quarter, according to statisticians in the Netherlands. The World Trade Organisation (WTO) in September revised its forecast for trade in 2016, saying it expects world trade to expand by just 1.7 per cent - well below the April forecast of 2.8 per cent. The picture is no different for 2017, with the forecast that world trade will grow between 1.8 per cent and 3.1 per cent, down from 3.6 per cent previously. In the United States, the world's biggest economy, trade declined by more than US$200 billion last year and was down by US$470 billion for the first nine months of this year.

All this goes to show a pretty bad future for global trade. Jamaican politicians have been at pains to tell local companies to expand through exports, but the global data show that is getting harder and harder. That is not to say some companies will not find success in trade. The broader trend is, however, driven by a slowdown in growth. Global Gross Domestic Product (GDP) growth is expected to be 2.2 per cent in 2016 - the slowest pace it has been since the global financial crisis of 2009.

World Trade Organisation Director-General Roberto Azevedo, noting the trend said "the dramatic slowing of trade growth is serious and should serve as a wake-up call."

"It is particularly concerning in the context of growing anti-globalization sentiment," he continued, before adding that steps must be taken to ensure anti-globalization sentiments that are being expressed forcefully by politicians across the world do not translate into misguided policies that could make the situation much worse. That would have a devastating impact on the prospects for job creation and economic growth and development, which are so closely linked to an open trading system.

This becomes more of a concern on signs that the slowdown in trade is increasingly structural. The World Trade Organisation last year failed to agree a new global trading platform. Both candidates for the U.S. presidency - Hillary Clinton and Donald Trump - mindful of increasing anti-trade sentiments among voters, have backed away from pushing the Trans Pacific Partnership (TPP) which aims to create a trade bloc among countries in the Pacific Rim.

More than that, the WTO in its July report pointed out that between mid-October 2015 and mid-May 2016, its members were applying 22 new trade restrictive measures per month. Since 2008, it said 2,385 trade restrictions were introduced by its members and only 708 or 25 per cent had been removed by May 2016.

IMF Managing Director Christine Lagarde in a blog on September 1, 2016, calling for forceful policies to avoid the low growth gap, highlighted the impact of trade on achieving its target. In that blog, Ms Lagarde pointed out that curbing free trade would stall the engine of growth for the global economy. One which the world has come to rely on and which has been providing unprecedented gains around the world for many decades.

Many people pushing against trade often cite its negative impact on jobs. The proponents, however, point to the same phenomenon with a different result - trade creates jobs - even if it is in a structurally changed economy. But job creation is getting harder. The world has gone through (and may still be in) a period of jobless growth. That growth has slowed and has made the problem worse.

The 1990s, which saw global growth being led by a resurgent China, is gone. China, long the factory of the world in terms of importing components and assembling products, is now making more and more of those components at home. In the 1990s, 60 per cent of China's manufactures depended on imported components. Now that has fallen to 35 per cent. The country is also consuming more of its produce as its middle class expands. Automation has also played its part in reducing job creation.

What is the solution? There will be many. IMF Chief Lagarde in her September blog wrote, "to make trade work for all, policymakers should help those who are adversely affected through re-training, skill building, and assisting occupational and geographic mobility." If Jamaica is to benefit from trade as policymakers envision, then a similar strategy will be wise.

 


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