The Great Game of Global Trade
But which game is it, exactly?
Michael Every
Head of Financial Markets Research, AP
Marketing Communication
Global trade often seen as this game:
Clear rule for all “Comparative advantage”;
Some go up the ladders;
Some go down the snakes;
We all have chance to win and
are better off playing
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But trade’s not always been free or fair
Another set of
views on global
trade
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How we used to see trade
Classical understanding of mercantilism
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Free Trade booms – and fizzles
1846
1858 >
Idea of Free
Trade attractive;
UK success seen Idea is copied
across Europe –
as linked to it
but not in US!
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1873 >
19th century
Great
Depression
following overinvestment and
over-supply
1878 >
UK seen forcing
Europe to
specialize in
food to leave
Britain as
industrial power;
US grain exports
hit European
farmers
1892 >
Europe, Japan
protectionism
and state-led
growth and
imperialism to
industrialize
Free Trade
rolled back into
WW1
5
US firmly protectionist until 1945!
Washington
1789-1797
"I use no porter or cheese in my family, but such as is made in America.”
Jefferson
1801-1809
“Keep pace with me in purchasing nothing foreign where an equivalent of
domestic fabric can be obtained, without regard to difference of price.”
Munroe
1817-1825
“The conditions necessary for Free Trade’s success - reciprocity and
international peace - have never occurred and can not be expected.”
Jackson
1829-1837
“It is time we should become a little more Americanized, and, instead of feeding
the paupers and laborers of Europe, feed our own...”
Lincoln
1865-1865
“Give us a protective tariff and we will have the greatest nation on earth.”
Grant
1869-1877
“…within 200 years, when America has gotten out of protection all that it can
offer, it too will adopt Free Trade.”
McKinley
1807-1901
"Free trade cheapens the product by cheapening the producer. Protection
cheapens the product by elevating the producer.“
Roosevelt
1909-1913
“Thank God, I am not a Free Trader.”
Coolidge
1923-1929
“We need protection as a national policy, to be applied wherever it is needed.”
US adopted free trade after WW2, when it dominated global production
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Things only different post-WW2 as…
Easy to export to get USD;
Trade not zero-sum
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Imports can drain jobs and create debt
0
-100
-100
US trade balance with, USDbn annualised
0
Monthly data annualised, USDbn
-200
-300
-400
-500
-600
-700
-800
-900
-300
-400
-500
-600
-700
-800
-900
-1,000
Jan-94
Jan-99
Jan-04
US trade balance
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-200
Jan-09
Jan-14
Ex-petroleum
-1,000
Jan-94
Jan-99
Jan-04
China
Mexico
Jan-09
Jan-14
Total
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Is it a when not an if?
“There’s trade, there’s sensible trade, and there’s dumb trade.
We’ve been doing a lot of dumb trade. And that’s the part
that’s going to be fixed.”
Wilbur Ross, Commerce Secretary
Trump’s a businessman – they think like mercantilists
His policy advisor calls himself “An economic nationalist”
His economic advisor wrote the book “Death by China”
His USTR nominee backs derogating China’s WTO membership
Bilateral deals using market access as leverage…that’s what China does!
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As US steps back, new game starts
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Exit US-centric TPP, left…?
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…enter China-centric RCEP, right?
Regional
Comprehensive
Economic
Partnership
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No trade anchor?
200,000
Within RCEP, who
will run a trade
deficit to drive
regional
integration?
Trade balance, USDm
150,000
100,000
50,000
0
-50,000
Who is going to run a huge trade deficit
to-100,000
drive
integration?
Not the
US… Mar-11
Mar-96
Mar-01
Mar-06
Australia
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NZ
China
Japan
Korea
ASEAN
Mar-16
India
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…but add in One Belt-One Road…
Resources;
Energy; High
technology
High
technology
High
technology;
Consumers
If this was
Risk, you’d
have nearly
won!
Energy
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Consumers
Resources;
Consumers
Resources;
Food
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Smaller US deficit = bigger USD?
100
Share of global SWIFT transactions
90
80
70
60
USD-dominated
world…but smaller
US trade deficit and
regulatory
divergence = reduced
global flow of USD
50
40
30
20
10
0
Oct-10
Oct-11
USD
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EUR
Oct-12
GBP
JPY
Oct-13
CNY
Oct-14
CAD
AUD
Oct-15
CHF
Oct-16
Others
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Perhaps not…(?)
Price US paid for
post-WW2 global
trading / financial
system:
goods in; USD
and jobs out
Asia
Centre of global
economy needs
to play role of
consumer of last
resort
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Europe
US
Americas
Manageable with
global economy
pre-1990, though
Japan strained it
Africa
Without one =
USD squeeze
and return to
19th century
trade tensions
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So, winning hand or high ‘Risk’?
This could rewrite the
global economic map
forever…
…or it could see China
waste trillions on lossmaking infrastructure…
…and it could raise trade
tensions between China
and a lot of new countries!
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Or, there’s this route. Again.
China ratio exports to imports, ASEAN, log
100.0
10.0
Primary commodity
Agri materials
Labour / resource
1.0
Low-skill/tech
0.1
0.0
1995
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China runs
rising surplus
in all areas
ex. food,
resources
Medium-skill/tech
High-skill/tech
2000
2005
2010
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Doesn’t it look a lot like this?
Risk of return to neo-mercantilism?
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Would you like to play a game?
• If the US starts to
play Solitaire
more
Will it under
Trump?
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Markets will see
USD squeeze
• Global trade will
stop being
Snakes & Ladders
• If China can’t
replace US
consumers, will it
play Monopoly?
Which could
have many losers
• And will we all
then have to play
Risk?
Which only has
one winner
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Australia happy for now, but what if…
You
have to
choose?
33%
exports;
students;
and housing
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5% exports;
culture; and
defence
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Rules of global trade game to remain:
Demand
• Do people want to
buy your product?
Logistics
• Can you get it there
so they still want it?
Politics
• Are they allowed to
buy it at all?
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