FX International Payments
By Karen Lynch
The World Trade Organization (WTO) downgraded its outlook for global trade in September 2018. By January 2019, the International Monetary Fund (IMF) made it official: “Global trade growth has slowed to well below 2017 averages,” according to its World Economic Outlook, issued during the World Economic Forum’s (WEF’s) annual meeting that month in Davos, Switzerland.1 “One major risk in the coming year is the sharp drop-off in world trade growth, which fell from over 5 percent at the beginning of 2018 to nearly zero at the end,” according to the WEF’s 10 Predictions for the Global Economy in 20192.
Some of the most important trade agreements of the 20th century were in disarray at the end of 2018. At the same time, some 800 new protectionist measures (tariff and non-tariff) were introduced by G20 countries, compared to 480 in 2017 and 200 in 2010, according to Global Trade Alert.3 Business risks from rising international trade tariffs and non-tariff measures include costlier imports, less competitive exports, fluctuating foreign exchange rates, shorter contracts, cancelled orders, reduced consumer demand, and slower customs procedures.
Even while celebrating unexpectedly high international trade growth of 4.7 percent in 2017, the WTO and others had begun warning in 2018 of the risks of trade protectionism.
Now, the projection for 2018 growth in the international trade of goods has been shaved from an earlier prediction of 4.4 percent to a new estimate of 3.9 percent. It should drop further in 2019, to 3.7 percent, the WTO said.4 Combined goods and services trade grew at an estimated 4 percent in 2018, according to the IMF, down from 5.3 percent in 2017.5
Overall, global economic growth is also decelerating, with the IMF projecting a 3.5 percent rate in 2019, slightly lower than earlier forecasts and below the 3.7 percent rate in 2017.6 “The global economy started 2018 with strong, synchronized growth. But as the year progressed, momentum faded and growth trends diverged,” according to the WEF’s 10 Predictions report.7
U.S. international trade growth has been slowing only moderately, according to the DHL Global Trade Barometer.8 As trade tensions mounted toward the end of 2018, the U.S. government reported that American exports dropped slightly between September and October, the latest month for which figures were available. Still, exports were up by nearly 8 percent from January through October over the same period in 2017.9
Overall economic growth in the U.S. will slow from 2.9 percent in the second half of 2018 to 2.2 percent by the second half of 2019, according to the Conference Board, a think tank. Addressing trade, the board said that, “While higher costs and more uncertainty will reduce business profitability, 2019 can still be a good though not spectacular year for firm performance.”10
Some trade trends may actually be weaker than reported, the IMF said, because “The headline numbers may have been lifted by import front-loading ahead of tariff hikes.”11
Meanwhile, “the past year’s developments in foreign direct investment (FDI) are arguably even more significant than trade tensions,” according to another WEF report. “Western countries in particular have been sharpening their power to block investments in strategic sectors, particularly emerging technologies—raising the prospect of a partial unwinding of globalization in investment, as in trade.”12
Going into 2019, tighter credit market conditions in today’s rising interest rate environment could also slow trade growth, the WTO said.13 Banks extended $130 billion less in cross-border credit in the second quarter of 2018, closing at $29 trillion, according to the Bank for International Settlements (BIS).14 A Wall Street Journal report analyzed BIS statistics as showing a 10-year period of decline and stagnation in cross-border bank credit since early in the financial crisis. The report foresaw potential harm to international trade, noting that, “banks are poorly equipped to understand distant markets and tend to pull back from them in times of stress.”15
Yet, 2019 was expected to bring less protectionism in at least one big part of the world. The 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, formerly TPP) entered into force at the end of 2018, with the first seven countries that ratified the trade pact now benefiting from lower tariffs and less administrative friction when crossing borders. Some American companies have expressed concern about being on the outside of the new trade bloc, whose members currently include Australia, Canada, Japan, Mexico, New Zealand, Singapore, and Vietnam (with Brunei, Chile, Malaysia, and Peru expected to ratify later).16
“The anticipated impact of the CPTPP, whose 11 parties represent approximately half a billion people and 14 percent of the global economy, will be immense, as slashed tariffs encourage significant shifts in global supply chains,” according to law firm White & Case. What’s more, the CPTPP’s provisions on the digital economy and other key aspects of international trade and investment could have global influence as templates for other trade agreements. And additional countries, including the U.S., are discussing possibly joining the CPTPP trade bloc.17
At the beginning of 2019, progress was also made at the meeting in Davos on digital trade—the growing proportion of global trade in which the internet and internet-based technologies play a significant role in ordering, producing, or delivering products and services. Nearly half of WTO member countries, accounting for 90 percent of international trade, agreed to begin WTO negotiations on e-commerce, including China and the U.S.18
The International Chamber of Commerce congratulated the move,19 after having issued a call to action in late 2018 that specified desired outcomes of the new talks. “We call on WTO members to adopt a common and inclusive approach towards a coherent regulatory framework for e-commerce (this includes but is not limited to cross-border data flows, data localization requirements, telecommunications, cybersecurity, collection of duties and taxes on e-commerce, and consumer protection),” according to a statement of business priorities issued at the 2018 WTO Public Forum. “We further urge members to extend their agreement to not impose custom duties on electronic transmissions.”20
In the consumer market alone, cross-border shopping will make up 20 percent of business-to-consumer e-commerce by 2022, with sales reaching $627 billion, according to the Forrester market research group.21
The optimism surrounding international trade in 2017 faded as 2018 wore on, trade tensions mounted, and protectionism increased among major trading nations. International trade growth now appears to be slowing. Still, 2018 and early 2019 saw some major initiatives advance, such as the CPTPP’s entry into force and an agreement by half of the world’s governments to begin negotiating rules for e-commerce.
Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.
1. “A Weakening Global Expansion,” International Monetary Fund; https://www.imf.org/en/Publications/WEO/Issues/2019/01/11/weo-update-january-2019
2. “10 Predictions for the Global Economy in 2019,” World Economic Forum; https://www.weforum.org/agenda/2019/01/what-to-expect-for-the-global-economy-in-2019/
3. 23rd Global Trade Alert Report, Global Trade Alert; https://www.globaltradealert.org/reports/45
4. “WTO Downgrades Outlook for Global Trade as Risks Accumulate,” World Trade Organization; https://www.wto.org/english/news_e/pres18_e/pr822_e.htm
5. “A Weakening Global Expansion,” International Monetary Fund; https://www.imf.org/en/Publications/WEO/Issues/2019/01/11/weo-update-january-2019
6. “A Weakening Global Expansion,” International Monetary Fund; https://www.imf.org/en/Publications/WEO/Issues/2019/01/11/weo-update-january-2019
7. “10 Predictions for the Global Economy in 2019,” World Economic Forum; https://www.weforum.org/agenda/2019/01/what-to-expect-for-the-global-economy-in-2019/
8. “DHL Global Trade Barometer: World Trade Momentum Weaker but Growing,” DHL; https://www.dpdhl.com/content/dam/dpdhl/en/media-relations/press-releases/2018/pr-dhl-global-trade-barometer-20181128.pdf
9. “Monthly U.S. International Trade in Goods and Services, October 2018,” U.S. Census Bureau; https://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf
10. “Stock Market Turbulence Reflects Weaker Environment for Profits,” Conference Board; https://www.conference-board.org/data/usforecast.cfm
11. “A Weakening Global Expansion,” International Monetary Fund; https://www.imf.org/en/Publications/WEO/Issues/2019/01/11/weo-update-january-2019
12. The Global Risks Report 2019, World Economic Forum; https://www.weforum.org/reports/the-global-risks-report-2019
13. “WTO Downgrades Outlook for Global Trade as Risks Accumulate,” World Trade Organization; https://www.wto.org/english/news_e/pres18_e/pr822_e.htm
14. “BIS International Banking Statistics at end-June 2018,” Bank for International Settlements; https://www.bis.org/statistics/rppb1810.pdf
15. “Great Retreat from Global Bank Lending Continues,” Wall Street Journal; https://www.wsj.com/articles/great-retreat-from-global-bank-lending-continues-11546261201
16. “Opportunities Open Up as CPTPP Trade Pact Enters into Force,” The Straits Times; https://www.straitstimes.com/asia/east-asia/opportunities-open-up-as-cptpp-trade-pact-enters-into-force
17. “The CPTPP Enters into Force: What Does it Mean for Global Trade?” White & Case; https://www.jdsupra.com/legalnews/the-cptpp-enters-into-force-what-does-28682/
18. “DG Azevêdo Meets Ministers in Davos: Discussions Focus on Reform; Progress on e-Commerce,” World Trade Organization; https://www.wto.org/english/news_e/news19_e/dgra_25jan19_e.htm
19. “ICC Welcomes Breakthrough in WTO e-Commerce Talks,” International Chamber of Commerce; https://iccwbo.org/media-wall/news-speeches/icc-welcomes-breakthrough-wto-e-commerce-talks/
20. “Business Priorities for the WTO,” International Chamber of Commerce; https://cdn.iccwbo.org/content/uploads/sites/3/2018/10/statement-issued-by-icc-and-b20-argentina-at-the-2018-wto-public-forum.pdf
21. “Cross-Border e-Commerce Will Reach $627 Billion by 2022,” Forrester; https://go.forrester.com/press-newsroom/cross-border-ecommerce-will-reach-627-billion-by-2022/