Trade policy under Joe Biden

Container ship

Donald Trump’s focus on trade will be tempered under President-elect Joe Biden, but he understands the potency of Mr Trump’s rhetoric on these matters.

President Trump in 2016 set out to slash the large US balance of trade deficit. He identified his villains – China, Germany and Japan – and set about exposing the villainy.

He demanded they bought more US goods and services, railed against their unfair trading terms, and imposed tariffs where he identified issues with trade practices and national security. Despite all his actions, the US balance of trade remains in deep deficit four years on from his election to office.

There is a persistent large ap between the amount of goods the US buys from overseas and the amount it sells. The US does better in its trade in services and earns substantial sums from its overseas investments. As a result, the World Bank expects a total balance of payments deficit of 2.2% this year. In the first nine months of the year the US ran up a deficit of more than $700bn in goods.

The pattern of China and Germany running large trade surpluses, and the US, the UK and some others running large trade deficits, has been persistent for many years. Over the last decade, these have been years of trade growth, when the imbalances in trade have been taken care of by movements in investments and investment income.

Slowdown in trade

Trade did slow in 2019 and contracted in the fourth quarter, as a result of the growing global concerns about unfair trade, the imposition of some tariffs and the slowing in world output and income growth. This slowdown became a big fall as soon as the anti-virus measures were brought in by the leading economies during the first quarter of 2020. This year the World Trade Organisation (WTO) expects world trade in goods to be down by 9%, with the worst falls in Europe and the least in Asia, reflecting their differing experiences of the pandemic.

The World Bank reports Germany with a 7.1% current account surplus in 2019, China at 1% and Japan at 3.6%, with the UK showing a 4% GDP deficit and Brazil at 2.8%. In 2019, iron and steel trade volumes fell as tariffs were raised and anti-competitive practices challenged.

The EU continues to run a strong trade surplus, led by German exporting. The surplus is large in food and drinks, chemicals and vehicles. The EU is a large importer of energy, raw materials and fish. Between January and September 2020, the EU recorded a surplus of Euro 134 billion, dominated by its large surpluses with the USA and UK.

Japan no longer earns a large surplus on goods exports, but does continue with a balance of payments surplus from its overseas investments yielding interest and dividend payments. China has a reduced trade surplus but is still the world’s largest exporter of many manufactures. It has recently done well out of protective clothing for the Covid-19 crisis.

Most commentators expect world trade to revive next year, as pandemic restrictions are lifted. Freight rates have picked up from the lows in anticipation, and there have been strong recoveries from very low volumes in badly affected areas such as vehicles. Green products provide a lift to the overall figures, with solar and wind generation machinery in good demand. China, Japan and the USA are the main exporters of solar equipment, and Denmark and Germany are exporting well with their wind generation equipment.

View Full Article – published by Charles Stanley on 8th December 2020