Meeting with finance ministers and Central Bank presidents from around the world at the recently held IMF/World Bank Spring Meetings in Washington DC, the Director-General of the World Trade Organisation (WTO), Roberto Azevêdo warned that the global imbalances driving current trade tensions can only be addressed by coordinated action.
He cautioned that responding through trade policy measures alone would not solve these imbalances, but would likely make the problem worse.
The Director-General provided a summary of the WTO view on trade and economic growth, telling ministers that with global Gross Domestic Product slowing, trade was also slowing from the progress made just two years ago.
After growing at 4.6 per cent in 2017, trade growth is now expected to slow to 2.6 per cent in 2019. The WTO examined all the possible reasons for this deceleration and the common view among economists is that increased trade tensions are a critical factor in the slowdown. Rising tariffs and increased uncertainties around trade are making investors more cautious, according to WTO economists.
The Director-General told ministers that global imbalances were core drivers of current trade tensions as many countries have carried long term large current account surpluses while others have had long term deficits. Increasingly trade and trade policy is being used to try and address these imbalances, but there are better policies that countries could use, he argued, such as stimulating domestic demand in surplus countries which would help reduce these imbalances.
Another factor behind current trade tensions, the Director-General said, was the political pressure that policy-makers face to create jobs. The loss of jobs in traditional manufacturing has sparked intense pressure to generate employment in industrial sectors of the economy. Today’s structural imbalances are concentrated in manufacturing goods and job losses in those sectors are predominately driven by new technologies and increased productivity, he said.
Azevêdo argued that the use of trade policies was actually exacerbating tensions instead of diminishing them, by creating surpluses in global markets in manufacturing sectors. Overcapacity is already evident in some sectors like steel, but other sectors may be suffering the same problem if policies that artificially stimulate production continue.
The Director-General said: “To diminish these tensions, I suggest that countries sit down, look at all of these policies and the big picture impacts and begin to take coordinated actions to decrease the imbalances and not aggravate them.”
Azevêdo invited the finance ministers to look at the costs of their own domestic policies and the costs to the global economy. He assured ministers that the WTO will increasingly try to promote this conversation. In addition, the Director-General told ministers that countries should be looking at how to create jobs in services and other more dynamic sectors with more potential for job growth. He urged ministers to consider policies that would help create human capacity in the dynamic sectors of the economy where workers are needed.