Letter IEDI n. 908–New times in world trade: Brazil between China and the USA
At a time when Brazil must undergo a new round of trade openness in the hope of becoming more integrated into the world economy, international winds seem to be changing direction: protectionist measures are becoming increasingly frequent and trade flows no longer grow at the same pace as before.
According to a WTO survey, released last November as part of the "Overview of Developments in the International Trading Environment", in the 12-month period started in October 2017 the number of new measures restricting international trade increased by 22% against the equivalent previous period, interrupting a phase of decline that had been taking place since 2015.
The scope of these restrictions covered US$ 588 billion of trade, a figure six times greater than a year earlier, and focused on products of high value added and technology intensity. Trade liberalization measures covered a much smaller amount in the same months: only US$ 296 billion.
At the heart of this process are the US and China, whose protectionist actions involved US$ 340 billion of trade, according to Unctad in its "Key Statistics and Trends in Trade Policy 2018" (Jan/19), which represents more than half of the bilateral flows between these countries in 2017 (US$ 640 billion).
The motivations for this behavior, it seems, are multidimensional and should not be overlooked: the US is seeking to protect its intellectual property and to promote the reshoring of industrial links that have moved abroad over the last few decades. They also aspire to ensure their leadership in the industry 4.0. Beijing's responses, in turn, suggest China's intention to advance industrial and technological progress toward more sophisticated stages of the production chain.
In short, the US and China seem to be dueling for the dominance of international productive, commercial and technological systems. For this reason, it is possible that the protectionist attacks we saw recently are not fleeting, but are setting a new stage in productive and commercial globalization in which the greatest opportunities for emerging countries, such as Brazil, may be a thing of the past.
In part, the effects of this international environment can already be felt. In the short term, the major multilateral organizations have repeatedly pointed to a loss of dynamism in foreign trade.
In fact, after growing +5.3% in 2017, trade in goods and services likely decelerated to 4% in 2018, according to IMF estimates, or to +3.8%, according to World Bank projections. The WTO, for its part, estimates that the increase in the trade in goods was at most +3.9% in 2018, versus the +4.7% of 2017. For 2019, this movement is expected to continue. The World Bank forecasts growth of +3.6% and the WTO of +3.7%. The IMF, for the moment, projects the same rate of +4% in 2019.
Despite this scenario, not all countries will lose out. Unctad estimates that the European Union will be the biggest beneficiary of trade conflicts between the US and China, followed by Mexico, Japan and Canada. Brazil appears as the 8th country with the highest earning potential. It is estimated that Brazilian exports may see a US$ 10.5 billion high, which would represent an increase of 3.8% in relation to the total value exported in 2017.
Brazilian gains could clearly be more substantial and effective if we did not suffer from chronic evils that deteriorate our competitiveness, such as our low industrial productivity, a complex and onerous tax system that generates legal insecurity, poor infrastructure, limitations of market financing sources, among others. Indeed, the IEDI has been drawing attention to these issues for a long time and proposing ways to overcome them, as summarized in the document "Industry and Brazil of the Future" (in Portuguese).
While the tug-of-war between Washington and Beijing may benefit some countries individually in the short run, systemic impacts and medium/long-term effects are more uncertain and potentially negative, warns the UNCTAD document.
In a production system characterized by global chains, where production and assembly are sliced across countries, a protectionist escalation can infect entire chains, reaching countries and sectors beyond the immediate targets.
This is a second aspect that will make international trade relations more complex. The first one is the profound transformations they will experience with the ongoing global technological revolution, as the IEDI has already emphasized on other occasions —see, for example, Letters IEDI n. 903 "Digital Technologies and International Trade: Opportunities and Challenges" and n. 904 "Challenges of the Digital Age: Unctad policy suggestions for emerging countries", and Analysis of Jan 17, 2018 "Industry 4.0 and the Future of Global Value Chains" (in Portuguese).