Political uncertainty is slowing down trade growth, a new World Bank report has concluded, indicating that Donald Trump's rise may already be casting a shadow over the global economy.
Economists at international institutions such as the IMF, the OECD and World Bank have recently upgraded their forecasts of global growth largely due to expectations that tax cuts, greater infrastructure spending and deregulation will boost the US economy under the new president.
But the report by World Bank economists yesterday highlights the fragile state of one historically important engine of global growth – trade.
The study does not identify Mr Trump, but highlights protectionism and threats to unwind trade agreements – such as those made by the president.
It also raises the prospect that attempts by the Trump administration to force US companies to repatriate global supply chains could undermine efforts to boost productivity growth.
International trade has been growing below historic trends for the past five years. The 1.9 per cent growth recorded in 2016, according to the bank, was the slowest since the 2009 collapse that followed the global financial crisis.
The team found that some of the reasons for the anaemic trade growth, which affected both developed and developing economies, were broader trends such as slow global growth and a collapse in commodity prices.
Uncertainty
But in 2016 the principal change was a surge in uncertainty about economic policy. According to the bank, that was responsible for 0.6 percentage points of the 0.8 percentage-point fall in trade growth between 2015 and 2016.
The team at the bank based their figure on a study of the relationship between trade and economic policy uncertainty in 18 countries over 30 years. They added they expected the impact to continue in 2017.
"To the extent that the policy uncertainty will remain high we should continue to expect [global] trade growth to be subdued," said Michele Ruta, one of the authors.
One of the big consequences of the explosion in trade agreements in recent decades has been the emergence of global supply chains. Such chains are widely seen by economists to have made businesses more efficient and to have helped boost productivity.
But Peter Navarro, one of the US president's top trade advisers, told the Financial Times last month: "It does the American economy no long-term good to only keep the big box factories where we are now assembling 'American' products that are composed primarily of foreign components."
– Copyright The Financial Times Limited 2017
