De-Globalization: Does That Word Mean What You Think it Means? Presentation to 35 Annual Monetary & Trade Conference Mykyta Vesselovsky, Ph.D. Office of the Chief Economist Global Affairs Canada April 21, 2017
Real imports have seen a marked slowdown Monthly World Merchandise Imports, Volume Index Index (2010=100)
120
Compound average annual growth of 1.8% from 2011 to 2016
Compound average annual growth of 5.0% from 2000 to 2008
100
80
China enters WTO
Global Financial Crisis
Data: CPB World Trade Monitor Source: Office of the Chief Economist, Global Affairs Canada
Jan-2017
Jan-2016
Jan-2015
Jan-2014
Jan-2013
Jan-2012
Jan-2011
Jan-2010
Jan-2009
Jan-2008
Jan-2007
Jan-2006
Jan-2005
Jan-2004
Jan-2003
Jan-2002
Jan-2001
Jan-2000
60
2
Slowdown even more pronounced in advanced economies Volume of Exports in Advanced and Emerging Economies
Index (2010 = 100)
Emerging Markets: Compound Average Annual Growth of 2.2% from 2011 to 2016
140 120 100
Advanced Economies: Compound Average Annual Growth of 1.5% from 2011 to 2016
80 60
Data: CPB World Trade Monitor Source: Office of the Chief Economist, Global Affairs Canada
Jan-2017
Jan-2016
Jan-2015
Jan-2014
Jan-2013
Jan-2012
Jan-2011
Jan-2010
Jan-2009
Jan-2008
Jan-2007
Jan-2006
Jan-2005
Jan-2004
Jan-2003
Jan-2002
Jan-2001
Jan-2000
40
3
Poor performance in the EU and Japan are a drag on global trade, which should (hopefully) be cyclical phenomena Volume of Imports in EU, Japan and U.S.
Index (2000 = 100)
170 160 150 140 130 120 110 100
Data: CPB World Trade Monitor Source: Office of the Chief Economist, Global Affairs Canada
Jan-2017
Jan-2016
Jan-2015
Jan-2014
Jan-2013
Jan-2012
Jan-2011
Jan-2010
Jan-2009
Jan-2008
Jan-2007
Jan-2006
Jan-2005
Jan-2004
Jan-2003
Jan-2002
Jan-2001
Jan-2000
90
4
Changes in the composition of global demand could also be playing a role, but in the case of China is this cyclical or the new norm? Real Fixed Investment Growth Percent
Different components of demand have different impacts on trade. In general, investment spending is the most importintensive component, followed by consumption, with government spending being the least import-intensive. During the post-crisis recovery, the investment component of aggregate demand has been fairly weak, while government spending has been relatively stronger.
30
Forecast
25 20 15 10 5 0 -5 -10 -15
2005-Q1 2006-Q1 2007-Q1 2008-Q1 2009-Q1 2010-Q1 2011-Q1 2012-Q1 2013-Q1 2014-Q1 2015-Q1 2016-Q1 2017-Q1 2018-Q1 2019-Q1
Changes in the composition of demand
35
(Annualized Q/Q percent change)
Data: IHS Global Insight Source: Office of the Chief Economist, Global Affairs Canada
5
Trade elasticity, the growth of trade in relation to GDP, has been decelerating since 2000
Percent
Elasticity of World Merchandise Trade Volume with Respect to World GDP at Market Exchange Rates (Over 10-year periods)
2.4 2.2 2.0 1.8 1.6 1.4
2000-2010
1995-2005
1990-2000
1985-1995
1980-1990
1.0
Source: WTO Data: WTO International Trade Statistics for trade, IMF World Economic Outlook database for GDP at market exchange rates Note: Elasticities calculated by regressing log of world merchandise trade volume on log of world GDP at market exchange rates over 10 years.
2004-2014
1.2
6
FDI, an important means for globalizing services Althoughhas global inward flows rebounded been flat FDI in recent years strongly in the past year, it has been on a flat trend since the recession‌
1,762 1,277
1,511
2012
1,427
1,567
2011
1,181
1,389
1,498
1,902 551
2003
688
590
2002
389
1996
482
342
400
1995
800
684
692
1200
950
1,076
1,359
1600
1,402
2000
1,520
Global Inward FDI Flows
US$ Billions
* Preliminary estimate Data: UNCTAD Source: Office of the Chief Economist, Global Affairs Canada
2016*
2015
2014
2013
2010
2009
2008
2007
2006
2005
2004
2001
2000
1999
1998
1997
0
7
FDI: greenfield and expansions far below their pre-crisis peak Total value of announced foreign investment projects globally (US$ Billion) $1,456
$851
$891
$988
$1,040 $928
$894 $734
$580 $615
$763
$711 $733
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Note: Estimated values on March 20, 2017, for all projects - excluding retail FDI Projects Data: FDI Markets, Financial Times. Source: Office of the Chief Economist, Global Affairs Canada.
8
The maturity in GVCs is a key structural factor Percent
Share of Intermediate and Raw Goods* in Total Merchandise Exports
45
41% 40
35
30
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
33%
* Intermediate and raw goods as defined in UN Comtrade’s BEC classification Data: World Bank WITS Source: Office of the Chief Economist, Global Affairs Canada
9
The pace of trade liberalization agreements also slowed down
20 in 2009
6 in 2016
1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014
20 18 16 14 12 10 8 6 4 2 0
Number of Regional Trade Agreements Entered into Force per Year*
* Only covers trade agreements notified to the WTO Data: WTO RTA Database Source: Office of the Chief Economist, Global Affairs Canada
From “2015 Rethinking Trade and Finance� by International Chamber of Commerce
WHAT’S UP WITH CANADA EH?
11
The pace of Canada’s real exports is slightly below global Comparison of Canadian and World Export Volumes Index (Jan 2000 =100)
200 180 160 4.2%
140 120 100 80
3.9%
Data: CPB World Trade Monitor, Statistics Canada CANSIM table 228-0061 Source: Office of the Chief Economist, Global Affairs Canada
Jan-2016
Jan-2015
Jan-2014
Jan-2013
Jan-2012
Jan-2011
Jan-2010
Jan-2009
Jan-2008
Jan-2007
Jan-2006
Jan-2005
Jan-2004
Jan-2003
Jan-2002
Jan-2001
Jan-2000
60
12
This growth is broad-based
Percentage contribution
30
Sector Contribution to Gain in Canadian Export Volumes (2009 to 2016)
20
10
Electrical Equipment
Aerospace
Industrial Chemicals
Industrial Machinery
Metal ores and minerals
Data: Statistics Canada Source: Office of the Chief Economist, Global Affairs Canada
Agriculture
Forestry
Consumer Goods
Metals and Minerals
Energy
Automotive
0
‌but longer-term, trade is still below its peak share of the economy
Percent
Canada Trade Share of GDP
90 85
82.9
80 75 70
64.4
65 60 55 50 40
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
45
Data: Statistics Canada Source: Office of the Chief Economist, Global Affairs Canada
14
One bright spot is services Canadian Services Exports Billions $
110 100
90
$107 Billion in 2016, Equivalent to 21% of Goods Exports
80 70 60 50 40 30 10 0
$22 Billion in 1990, Equivalent to 14% of Goods Exports
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
20
Data: Statistics Canada Source: Office of the Chief Economist, Global Affairs Canada
15
So what does it all mean? We understand “globalization” in the sense of expanding global value chains, relocation of production, rapid investment and urbanization outside the “developed world” The data suggests that this process of globalization is over The process of adjustment to it results, however, seems to be peaking Economically, the worst thing to do at this point would be to run the truck back over the pedestrian in the road to “undo the damage” of globalization But historically, this is almost unavoidable. “Fear is always a flawless compass / that leads us into trouble that’s worse”.
“The Battlefield of Trade” Keynes Smith
Keynes Ricardo
Martyn
Manoilescu Graham
Mill
The Reality
The arguments against trade are inconsistent 1. Jobs? - taken seriously: jobs are upgraded by trade, not created. Employment is determined by macroeconomic conditions. Some industries become obsolete. - in a period of globalization in the U.S. 1990 to 2000, imports rose at an average 12.1% per year while employment rose by an average of 1.8 million jobs per year and the unemployment rate fell from 5.6% to 4.0% 2. National security? - haven’t heard this one in a while. But Musk returned space launch capacity to the U.S. and didn’t ask to be protected. Also, countries who trade with each other are less likely to go to war (google “the last Chinese warning to the U.S.”). 3. Infant industry? 4. Strategic protectionism – keep rocks in our harbours! 5. Unfair competition!!! - trade is an excellent way to spread ideals, rules and prosperity
Challenges and opportunities Rise in protectionism and isolationism is a growing concern internationally but Canada will continue to carry the torch on trade liberalization both in international fora, such as the WTO, and in our bilateral relations. The collapse of TPP marks a step back in trade liberalization and modernization but, as a modern, ambitious and progressive agreement, CETA will set a new standard for 21st century free trade agreements. Renegotiating NAFTA will be difficult in the present context but it also provide an opportunity to modernize NAFTA and demonstrate that trade can be mutually beneficial. We know that trade is good but we must work harder to make the case for a more progressive approach to trade, and make trade work for people. 20