Trade Wars: The Force Weakens

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​“Do. Or do not. There is no try [for trade]” – Master Yoda. 

OK, Master Yoda did not mention trade in this pivotal moment of Luke Skywalker’s training. Yet there are so many similarities between the Star Wars saga and the situation of international trade that we had to risk drawing a parallel. I also have to confess it is a great way to get the lay reader interested in something which looks a bit boring or institutional that is the state of world trade.

In a nutshell, our Economic Outlook n° 1229 icpdfTrade Wars: The Force Weakens, gives latest updates on international flows of goods and services while presenting issues global trade is currently facing and will face in the short and medium run. 

“Growth, I am NOT your father anymore”- Trade Vader. Trade is supposed to grow a moderate +2.1% y/y in 2016, below world GDP growth, before modestly ticking up to +3.1% y/y in 2017. Worse, in value terms, global trade will continue to contract this year, by -2.9%, causing the disappearance of nearly -USD3129bn of exchanged goods and services since 2014, which is equivalent to the GDP of Germany! Demand shocks, the commodities super slump, the currency war, and greater isolation (lesser dependence on trade) are limiting global imports needs from former renowned (Galactic) import Empires such as China or the U.S.

As for exporters, 2017 could be the year of the Return of the European (export) Jedis since European countries such as Germany​, France, Ireland, Italy and Spain will be the top exporters, before China, Vietnam and Japan

More importantly, it appears that trade will never grow the same again. Trade volume growth should be below +4% annually. Why? Because of the dark side of the (trade) Force. First, demand Stormtroopers that are consumers all over the world who go for more non-tradeable services (and experience) than imported goods. Second, the Death Star of financial balkanization which complexifies trade (longer delays of payments, currency risk, uneven credit conditions). Last, May the globalization Force be more with policy-makers as political risk, protectionism (700+ new protectionist measures each year) and defiance fuel isolationism.

Is it the end of globalization? Certainly not but it requires some rethinking, inclusiveness and will power. What will the sequel trilogy be like for exporters out there? In every paradigm shift lie new opportunities and there are three worth mentioning to fight Rogue Trade. First, there is a New Hope in servitization and digitalization. Micro-multinationals with direct access to a wider catchment areas and a higher demand for services globally could revitalize globalization. Secondly, the Revenge of the Investment flows. Cross-border M&A deals amounted to USD1.6tn last year, a record, with China being at the forefront of this new wave of internationalization. In a time of difficult physical trade, foreign direct investments proved to be resilient – and so where repatriated earnings. Last, the Return of the regional Blocks, in the wake of disappointing mega trade deals. 

Now you know! And since Star Wars enlightened the public with a large spectrum of famous expressions and lessons fueled by Master Yoda’s wisdom (often in his backwards speak), let’s remember: “Adventure. Excitement. A[n] [export] Jedi craves not these things.” So if you still think exporting is key, in spite of the headwinds, please insure yourself!

Ludovic Subran 

Chief Economist 

Euler Hermes 

If you would like to learn more about Euler Hermes in your country or near you, feel free to visit our countries’ pages.

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