Just as well the magi didn’t face tariffs at the border ! Here’s Stephen’s end of year round up!
2018 will not go down in history as a good year for trade. While international businesses struggled on, they did so against a backdrop of rising protectionism and all-out trade war between the world’s two largest economies. Will 2019 be any different?
It sometimes said that not much changes in trade from year to year. Not so in 2018 which was a year of two halves.
On the more positive side, some important new trade agreements were concluded. Of course, here in New Zealand we’re thrilled about CPTPP* – a veritable mouthful of a trade agreement. Rivalling it, if not in substance then at least in terms of an unpronounceable acronym, was USMCA*between US, Mexico and Canada – described unflatteringly by one commentator as “NAFTA O.8”. Then there was the linguistically more adventurous JEEPA – the Japan EU Economic Partnership Agreement. Hats off to our Japanese friends – with CPTPP and JEEPA they have shown real global leadership in the cause of trade liberalisation (even if on agriculture they still need to fully overcome their worst instincts).
Trade restrictions, trade war, trade divorces
On the decidedly less positive side, protectionism has been let off the leash with trade restrictive measures in 2017-18 now seven times larger than recorded by the WTO in the previous period. While the end of the year showed some, possibly only temporary, alleviation of the US China dispute, the consequences of the trade war have been felt in markets around the world as well as in the domestic economies of both presenting countries. The impact on the WTO itself is most concerning. And de-stablising forces in the global trade architecture have also been felt in Europe, as the Brexit process has ground its way painfully towards an acrimonious UK-EU divorce.
What’s next for trade?
Where to for 2019? The year will start on a positive note – CPTPP will enter into force for the six signatories with a first round of tariff cuts on 30 December with a second round for all except Japan on 1 January. Japan’s second round of cuts will take place on 1 April. For Viet Nam entry into force and the two rounds of cuts take place on 14 January. We expect at least one further accession to CPTPP in 2019, starting with the most likely candidate -Thailand.
Other important negotiations will continue during the year. We are hopeful of progress with NZ/EUbut we are aware that these things take time and nothing will be concluded until everything is concluded. We would be bold to forecast a conclusion to RCEP given past delays, but Ministers are on record saying this will happen by the end of the year.
On Brexit, who can possibly say what will happen? There are differing views in our own team (here in the South Pacific!) but, notwithstanding the current polls, it does seem possible that calls for a second referendum will grow in intensity the closer we get to 29 March. In November we published a discussion paper on New Zealand’s interest in a future FTA with the UK but much will depend on whether the UK exits the EU as planned on 29 March and on the shape of the future UK-EU relationship to be negotiated. We forecast continuing uncertainty next year which is in itself corrosive to business and investor confidence.
Not out of the woods yet
We are not out of the woods on the trade war. President Trump’s dinner with President Xi at the G20 Summit resulted in a 90 day period during which both countries will refrain from new tariffs and return to the negotiating table. That is positive, but a much-anticipated speech by President Xi on 18 December on the occasion of the 40th anniversary of China’s reform and opening up will perhaps have disappointed – no new measures were announced to address issues in the Chinese economy which cause concern not just for the US, but others as well.
Come next December we hope we are in a better place than today. Trade negotiators like the magi continue to follow the star. Let’s hope like them we can continue to move across borders without disruption!
* (1) CPTPP = Comprehensive and Progressive Agreement on Trans Pacific Partnership
(2) USMCA = United States, Mexico, Canada Agreement
(3) RCEP = Regional Comprehensive Economic Partnership
